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Does The Limitation Act Apply to The Insolvency and Bankruptcy Code?

By 10/05/2021May 5th, 2022No Comments
the limitation act

Does The Limitation Act Apply to IBC?

The Apex Court of India in the case of Seth Nath Singh & Anr vs. Baidyabati Sheoraphuli Co-operative Bank Ltd & Anr has observed that an applicant under Section 7 of the Insolvency and Bankruptcy Code can claim the benefit of Section 14 of the Limitation Act, 1963 (“Limitation Act”), In respect of proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act).


Section 14 of the Limitation Act enables the period of bona fide proceedings in a court without jurisdiction to be excluded. In other words, the rule permits the time spent litigating before a venue with no jurisdiction to be excluded from the limitation period.

New Law-The period of limitation for making an application under Section 7 or 9 of the Insolvency and Bankruptcy Code is 3 years from the date of accrual of the right to sue, that is, the date of default. “There can be little question that Section 14 applies to an application under Section 7 of the IBC,” the court said. It is reaffirmed, at the risk of repetition, that the IBC does not preclude the application of Section 14 of the IBC.”

It states that there is no rule that the exclusion of time under Section 14 of the Limitation Act is available only after the proceedings before the wrong forum terminate.

The court further observed, “In our considered view, keeping in mind the scope and ambit of proceedings under the IBC before the NCLT/NCLAT, the expression ‘Court’ in Section 14(2) would be deemed to be any forum for a civil proceeding including any Tribunal or any forum under the SARFAESI Act.”

Impact on the industry

The Law will only protect those who are vigilant and not the negligent ones. The Insolvency and Bankruptcy Code is progressive legislation that is intended to improve the efficiency of insolvency and bankruptcy proceedings in India.

However, many details on the IBC’s implementation need to be worked out in the regulations, and its success will depend to a large extent on how quickly a high-quality cadre of insolvency resolution professionals will emerge and on whether the time-bound process for insolvency resolution will be adhered to in practice.

The IBC has brought a plethora of changes to insolvency laws in India and aims to reduce the number of bad loans that have saddled the economy over the last few years.

Ultimately time will tell if the IBC will prove to be an effective instrument in expediting India’s insolvency procedure, with many other bankruptcy resolution processes in the works. The ultimate goal of an application under Section 7 or 9 of the IBC is to use the Insolvency Resolution Process to resolve a “debt.”

In either case, since the Corporate Debtor’s default is the cause of action for filing an application, whether under Section 7 or Section 9 of the IBC, and the provisions of the Limitation Act 1963 have been applied to proceedings under the IBC, there is no reason why Section 14 or 18 of the Limitation Act would not apply for calculating the period of limitation.


In circumstances where financial creditors launched SARFAESI proceedings, the judgment cannot be regarded as blanket authority to file an application under Section 7 of the IBC to plead Section 14 of the Limitation Act.

In the current instance, the Calcutta High Court stopped the SARFAESI proceedings due to a lack of jurisdiction, which is a condition under Section 14 for the exclusion of time. In circumstances where the SARFAESI procedure has not been halted for lack of jurisdiction, the verdict may not be relevant.


Tags: apex court of india, insolvency and bankruptcy code, limitation act 1963, the limitation act, security interest act 2002, baidyabati sheoraphuli co operative bank, limitation act

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