In a recent decision in V Nagarajan v. SKS Ispat and Power Ltd. and Ors.1, the Hon'ble Supreme Court held that the period of limitation for filing an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) shall start running immediately after the pronouncement of an order and is not dependent on the date on which the order copy is uploaded. In this article, we navigate through the facts and findings of the Hon'ble Supreme Court in the aforesaid judgment.
Brief Facts
Cethar Ltd. (Corporate Debtor) is a corporate entity which is undergoing liquidation. The appellant was appointed as the interim resolution professional and thereafter the resolution professional of the Corporate Debtor. After an unsuccessful attempt at resolving insolvency, the appellant was appointed as the liquidator. The appellant instituted proceedings under Section 43 and 45 of the IBC to avoid certain undervalued transactions of the Corporate Debtor. The appellant claimed to have subsequently discovered that the first respondent and its subsidiary (tenth respondent) had colluded with the promoters of the Corporate Debtor. The appellant alleged that the first and the tenth respondents defrauded the Corporate Debtor over INR 400 crores by entering into fraudulent settlement of only INR 4.58 crores. As per the appellant, the tenth respondent allegedly at the behest of the first respondent sought to invoke certain bank guarantees issued by Corporate Debtor for its failure to perform certain services. Therefore, the appellant filed a miscellaneous application to resist the invocation of the performance guarantee until the liquidation proceedings were concluded.
The National Company Law Tribunal (NCLT), on 31 December 2019 held that the performance guarantees were not a part of the 'security interest' as defined under Section 3(31) of the IBC and refused to grant an injunction against the invocation of the bank guarantee until the completion of the liquidation proceedings. While the appellant did not dispute his presence before the NCLT when the order was pronounced, it was argued that the order was uploaded on NCLT website only on 12 March 2020. Further, the appellant stated that even the order uploaded on 12 March 2020 carried incorrect name of the judicial member. The corrected order was uploaded by 20 March 2020.
Subsequent to the order being uploaded on 20 March 2020, the appellant claimed to have awaited to be issued a free copy of the order and eventually sought one on 23 March 2020. According to the appellant, the free copy was never issued. Thereafter, owing to the onset of the COVID-19 global pandemic, the appeal before the National Company Law Appellate Tribunal (NCLAT) was filed only on 8 June 2020 with an application for exemption from filing a certified copy of the order as it was not issued.
The NCLAT vide its impugned order dated 13 July 2020, relied on Section 61(2) of the IBC and held that the limitation period for appeals was thirty days, extendable by another fifteen days, to hold that the appeal in present matter was barred by limitation. Further, the NCLAT also stated that as per Rule 22 of the National Company Law Appellate Tribunal Rules (NCLAT Rules) every appeal must be accompanied with a certified copy of the impugned order, which had not been annexed in this case. The NCLAT observed that the appellant had not provided any evidence to prove that the certified copy or the free copy of the NCLT's order was not issued to him.
Further, even on grounds of merits, the NCLAT held that there was no reason to interfere given that performance guarantees were explicitly excluded from the ambit of a security interest which is subject to moratorium announced under Section 14 of the IBC.
Appellant's submissions
The appellant, at the outset, stated that the NCLT passed its order on 31 December 2019. However, the copy of the order was not uploaded until 11 or 12 March 2020. Even on 12 March 2020, a defective copy of the order was uploaded with the incorrect bench composition. The corrected copy was uploaded only on 20 March 2020. The appellant submitted that he requested for a free copy of the NCLT order on 23 March 2020. On the same day, the Hon'ble Supreme Court passed a suo motu order on extending limitation on account of the pandemic.
Thereafter, on 8 June 2020, the appellant filed an appeal relying on the Hon'ble Supreme Court's suo motu order extending limitation period. The appellant argued that the clock of limitation had stopped ticking with effect from 15 March 2020 on account of the suo motu order of the Hon'ble Supreme Court dated 23 March 2020. Therefore, as per the appellant, the appeal was de jure filed within three days of the order being received, which is within the limitation period.
On the requirement posed by Rule 22 of the NCLAT Rules for a certified copy of the order, the appellant relied on Rule 14 of the NCLAT Rules which permits a waiver from compliance of any of the rules. The appellant further submitted that his appeal was not found defective under Rule 26 and 27 of the NCLAT Rules as an application for waiver of filing a certified copy was duly filed and allowed.
The appellant also relied on Section 420(3) of the Companies Act, 2013 (Companies Act) read with Rule 50 of the NCLT Rules which mandates a free copy of an order to be issued to every party. Therefore, as per the appellant, the clock under Section 61 of the IBC would run from the date when the free copy is issued to the party. The appellant placed reliance on the case in Sagufa Ahmed v. Upper Assam Plywood Products Pvt. Ltd.2 wherein albeit in context of the Companies Act, it was held that the limitation would run only from the date on which a copy of the order is made available to aggrieved party.
Respondent's submission
The respondent relied on Section 61 of the IBC which mandates that an appeal against any order under the IBC is to be filed within 30 days, extendable by a maximum of 15-day period. The respondent submitted that the limitation for challenging the NCLT order dated 31 December 2019 expired on 15 February 2020, even after accounting the fifteen-day extension which is granted as a matter of discretion under Section 61(2) of the IBC.
Further, Section 61(2) of the IBC did not state that limitation is to be applied from the date of the order being made available as against Section 421(3) of the Companies Act. The respondent argued that Section 61(2) of the IBC would apply on account of it being a special provision which would override general enactments.
The respondent also stated that it was undisputed that the appellant was present at the NCLT on 31 December 2019 when the order was being pronounced in open court. Reliance was placed by the respondent on the decision in Pr. Director General of Income Tax v. Spartex Ceramics India Ltd.3 wherein the NCLAT held that the period of thirty days for filing an appeal commences from the date of "knowledge" of the order.
The respondent also argued that Rule 22 of the NCLAT Rules prescribed that an appeal has to be accompanied with a certified copy of the order. Yet, the appellant did not file for a certified copy of the NCLT order while instituting the appeal before the NCLAT.
Decision of the Hon'ble Supreme Court
The Hon'ble Supreme Court, at the outset, clarified that its findings were limited to determining whether the appeal before the NCLAT under Section 61(1) of the IBC was barred by limitation. The Apex Court observed that the IBC is a complete code and had an overriding effect on other enactments as stated under Section 238.
The Apex Court noted that Section 61(2) of the IBC specifically provided for a limitation period of thirty days, which could be extended by a maximum of fifteen days on the demonstration of sufficient cause of delay. The determination of the present appeal as per the Apex Court hinged on two issues: (i) when will the clock for calculating the limitation period run for appeals filed under the IBC, and (ii) whether annexing a certified copy is mandatory for an appeal to be filed at the NCLAT.
The Hon'ble Supreme Court observed that Section 420(3) of the Companies Act would only apply in cases which are not covered by a special law. However, given that the IBC is a complete code in itself and over-rides any inconsistencies that may arise from other laws, Section 61(2) would apply for calculating limitation in appeals under the IBC. The notable difference between Section 421(3) of the Companies Act and Section 61(2) of the IBC was the absence of the words "from the date on which a copy of the order of the tribunal is made available to the person aggrieved" in Section 61(2).
The Apex Court clarified that the absence of these words could not be construed as a mere omission which can be supplemented with the right under Section 420(3) of the Companies Act. This would be in complete ignorance of the context of IBC's provisions. The power to condone delay is tightly circumscribed and conditional upon showing sufficient cause, even within the period of delay which is capable of being condoned. The Apex Court further noted that Section 24 of the IBC imposed the specific obligation on the NCLT and NCLAT to expeditiously dispose applications pending before it.
In this background, the Hon'ble Supreme Court held that an appeal if considered necessary and expedient by an aggrieved party, is expected to be filed forthwith without awaiting a free copy of the order which may be received at an indefinite stage. Hence, the Apex Court held that the limitation for filing an appeal under the IBC in the instant matter would be strictly governed by the Section 61(2).
On the question of a certified copy for filing an appeal against an order passed by NCLT, the Apex Court observed that Rule 22(2) of the NCLAT mandated that an appeal has to be filed with a certified copy of the impugned order. Therefore, it could not be said that the parties can automatically dispense with their obligation to apply for an obtain a certified copy for filing an appeal. A person wishing to file an appeal would be expected to file an application for a certified copy before the expiry of the limitation. Such an act of filing an application for a certified copy is not just a technical requirement for computation of limitation but also an indication of the diligence of the aggrieved party in pursuing the litigation in a timely fashion.
Owing to the special nature of the IBC, the Hon'ble Supreme Court concluded that it was not open to a person aggrieved by an order under the IBC to await the receipt of a free certified copy of the order as under Section 420(3) of the Companies Act read with Rule 50 of the NCLAT Rules. Accepting such a construction will upset the framework of the IBC. The litigant must file an appeal within thirty, which could be at most extended by another fifteen days upon showing sufficient cause. The appellant in the instant matter was present before the NCLT on 31 December 2019. Hence, the appellant could have filed an appeal latest by 30 January 2020. Any scope for condonation of delay expired on 14 February 2020. The suo motu order of the Apex Court had no impact on the rights of the appellant in the present case. Accordingly, the appeal was dismissed.
Comment
The Apex Court has rightly emphasized on the rigidity of the timelines under the IBC. For any insolvency to be resolved, time is of the essence as held in Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Ltd.4 Therefore, it is utmost important for the parties to adhere to the prescribed timelines. This enables the corporate debtor in maximizing its value and increasing the chance of getting back on its feet. The object is to ensure that the corporate debtor does not suffer on account of frivolous litigation by any of the stakeholders in the insolvency resolution process. The present decision rightly points out that if an appeal is deemed necessary by an aggrieved party, the same must be filed immediately within the period of limitation in compliance of the requirement posed in Rule 22 of the NCLAT Rules.
Footnotes
1. V Nagarajan v. SKS Ispat and Power Ltd. and Ors., Civil Appeal No. 3327 of 2020.
2. Sagufa Ahmed v. Upper Assam Plywood Products Pvt. Ltd., 2021 (2) SCC 317.
3. Pr. Director General of Income Tax v. Spartex Ceramics India Ltd., 2018 SCC OnLine NCLAT 289.
4. Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Ltd., 2021 SCC OnLine SC 707
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