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Appellant Is Not Entitled For Exclusion Of The Period Which Spent During The Pendency Of Proceedings Under SICA: NCLAT

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The National Company Law Appellant Tribunal (NCLAT) recently dismissed an appeal whereby the principal bench held that the Appellant was not entitled for exclusion of the period which spent during the pendency of proceedings under the Sick Industrial Companies (Special Provision) Act, 1985 (SICA) and hence, the Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was barred by Limitation.

Appellant was an operational creditor and supplied printing and packaging material to the Corporate Debtor(Respondent). The last payment was made on 22.11.2004. On11.01.2005 the Corporate Debtor has acknowledged outstanding dues amounting to Rs. 1,48,11,572/- as on 31.12.2004. However, the Corporate Debtor failed to make the payment. Due to financial crunch the Corporate Debtor was referred to BIFR. Subsequently, The Sick Industrial Companies (Special Provision) Act, 1985 (SICA) repealed on01.12.2016 thereafter, Operational Creditor served notice under Section 8 of the I&B Code on the Corporate Debtor and the Corporate Debtor did not reply. On 24.11.2017 the Operational Creditor filed an Application under Section 9 of I&B Code. According to the appellant since the Corporate Debt or acknowledged the debt on 11.01.2005 hence, the period of limitation would start from this date as per the provisions of Section 18 of the Limitation Act, 1963. BIFR and AAIFR proceedings under SICA commenced in the year2005 and remained in process till repeal of such Act i.e. 01.12.2016. Hence, as per the provisions of Section 22(5) of SICA the period consumed in the course of such proceedings had to be excluded in computing the period of limitation. The appellant contended that the Corporate Debtor has not filed any Reply/Response to the Application filed under Section 9 of the I&B Code, therefore, the Section 22(5) of the SICA is not applicable in this case hence, the Application is barred by limitation.

The adjudicating authority rejected the Application on the ground that the provision of Section 22(5) of the SICA are applicable to suits and not proceedings under Section 9 of the I&B Code. It was also held that under Section 22(1) of the SICA provides that proceedings or suit as specified under Section 22(1) of the SICA can be instituted or proceeded with the consent of BIFR/AAIFR. The Operational Creditor is not part of reference therefore, he cannot claim exclusion of period under section 22(5) of the SICA for the purpose of computation of limitation. Dissatisfied with the judgment, the appellant filed an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Appellant tribunal.

The principal bench comprising of Justice Jarat Kumar Jain and Member Mr. Kanthi Narahari observed that “the Appellant was not ready to accept proposal of the settlement of outstanding dues at 20% and Appellant sought consent of the board to approach appropriate Civil Court for adjudication of its dues. It means the Appellant was not part of the Scheme and he intends to approach Civil Court for recovery of operational debt. The Appellant was not part of the scheme and they have already approached Civil Court. In such circumstances, it cannot be said that the legal right of remedy of the Appellant against the Respondent was suspended as per section 22(1) of the SICA.”

The bench further held “We are of the view that Ld. Adjudicating Authority has rightly held that the Appellant is not entitled for exclusion of the period which spent during the pendency of proceedings under SICA. Thus, the Application under Section 9 of the I&B Code is barred by Limitation.”

Therefore, the bench dismissed the appeal and held that the appellant was not a part of the scheme since he had already approached the civil court and hence the bench held that one cannot say that the legal remedy was not sorted as per section 22(1) of the SICA.

Read Judgment:

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