Since the inception of the Insolvency and Bankruptcy Code 2016 (“Code”), there has been an ambiguity with respect to the applicability of the Limitation Act, 1963 (“Limitation Act”) to the provisions of the Code. The Hon’ble Supreme Court in the case of B.K. Educational Services Private Limited v. Parag Gupta and Associates [Civil Appeal No. 23988 of 2017] held that the provisions of the Limitation Act were applicable to the Corporate Insolvency Resolution Process (“CIRP”).

A dispute in the context of liability arose between Parag Gupta & Associates, who was the Financial Creditor and B. K. Educational Services Private Limited, who was the Corporate Debtor. The Corporate Debtor denied the financial liability and contended that all the financial claims that had been put forward by the Financial Creditor were incorrect except one debt, that related to immovable property that had been allotted to the Corporate Debtor by the Greater Noida Industrial Development Authority (“GNIDA”).

The Corporate Debtor  contented that the amounts that were being claimed by the Financial Creditors were time-barred and there was nothing on record to show that the limitation could be extended to recover the said amounts.

The NCLT held that documents that had been produced by the Financial Creditors could not justify the extension of limitation to the said records. Thus, the amounts as claimed by the Financial Creditors were not legally recoverable. Therefore, the NCLT held that no action could be initiated by the Financial Creditors against the Corporate Debtors and hence, disposed of the CIRP application.

The Financial Creditor challenging the order of the NCLT filed an appeal before the NCLAT. The NCLAT overturned the decision of the NCLT and held that the provisions of the Limitation Act were not applicable to the initiation of CIRP under the Code. The NCLAT passed an order wherein it accepted the contentions of the Financial Creditors and ordered the NCLT to accept the application filed by the Financial Creditors for initiation of the CIRP. Consequently, the Corporate Debtor appealed against the order of the NCLAT before the Hon’ble Supreme Court. The Apex Court stayed the order of the NCLAT  and observed that the NCLAT had erred in determining the applicability of Section 7 of the Code to be retrospective. The Hon’ble Supreme Court held that if the order of the NCLAT was upheld, then it shall lead to an inconsistent situation wherein even in cases where default(s) had occurred more than a decade ago, the parties would be able to initiate the CIRP proceedings. This re-opening of the CIRP in the context of time-barred debts or claims can be viewed as being a part of the resolution plan of the Financial Creditors. Thus, a resolution plan which provides for restructuring time-barred debts and claims shall not be in tantum with the existing laws that are in force in the country.