Source: Supreme Court

Why in News?

The division bench of Justices Vikram Nath and Ahsanuddin Amanullah dismissed an appeal preferred by Axis Bank against condonation of delay in a Corporate Insolvency Resolution Process by the State Bank of India (SBI).

• The Supreme Court gave this observation in the matter of Axis Bank Ltd. v. Naren Seth.

Background

• The Axis Bank (appellant) filed an appeal against Naren Seth (Resolution Professional of the Corporate Debtor) as respondent 1 and SBI as respondent 2.
• The account of Shreem Corporation Limited (corporate debtor) was declared Non-Performing Asset (NPA) in year 2013.
• And as SBI provided credit facilities and term loans to the corporate debtor, it initiated proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI), securing an order for the physical possession of assets of corporate debtor in 2017.
  • The corporate debtor had debt liabilities against the SBI.
• SBI applied for CIRP under Section 7 of Insolvency and Bankruptcy Code, 2016 (IBC) against the default of corporate debtor however the application by SBI was filed after delay of 1392 days.
  • Hence, SBI also filed an application under Section 5 of the Limitation Act, 1963 requesting a condonation of delay.
• The Adjudicating Authority considered the condonation of delay by SBI considering its responsibilities towards the interest of the community as a Public Section Undertaking (PSU).
• Axis Bank was not a party in the application under Section 7 IBC filed by SBI, however, it still filed an appeal before the National Company Law Appellate Tribunal (NCLAT) challenging the order in favor of SBI.
• NCLAT upheld the order of Adjudicating Authority, hence Axis Bank preferred this appeal before SC against the order of NCLAT.

NCLAT’s Observations Regarding the Condonation of Delay

The SC while dismissing the appeal considered the following observations of NCLAT:

• The NCLAT observed that “When the Government is an Applicant, considerable delay is caused due to procedural red-tape in the process of their making decision. The SBI also being a statutory body, under the control of the Government, the process of making decisions consumes considerable time is a known feature”.
• NCLAT further held that it cannot be said that discretion exercised by Adjudicating Authority in condoning the delay is perverse or against any provisions of law or violates any principle of law for determining the ‘sufficient cause’ under Section 5 of the Limitation Act, 1963.
  • The NCLAT did not find any error in the order of the Adjudicating Authority condoning the delay in filing the Application under Section 7 of the IBC by the SBI.

Corporate Insolvency Resolution Process (CIRP)

• Introduction:
  • The CIRP in India, governed by IBC, is a time-bound process aimed at resolving the financial distress of a corporate debtor while maximizing the value of its assets.
  • The primary objective of the procedure is to ensure the revival of a financially distressed company.
  • And in cases where the revival of the company is not possible it ensures an orderly liquidation of the assets of the distressed company that has been declared as a corporate debtor.
• Initiation of Process:
  • The CIRP is initiated by the filing of a plea before the National Company Law Tribunal (NCLT), which acts as the adjudicating authority in these matters.
  • The plea may be initiated by a Financial Creditor, Operational Creditor, Corporate Debtor or on suo moto cognizance by NCLT.
  • However, an application for initiation of corporate insolvency resolution process under Section 7 of the IBC can only be filed by financial creditors which can be banks or financial institutions.
• Time Limit:
  • Under Section 12 of the IBC, CIRP should be completed within 180 days or within the extended period of 90 days and mandatorily be completed within 330 days including any extension granted by NCLT.
• Moratorium Period:
  • Once the CIRP is initiated, a moratorium period comes into effect.
    • The period of moratorium prohibits the creditors of that distressed debtor company from taking any legal actions against it, and the management of the corporate debtor is placed under the control of an Insolvency Resolution Professional (IRP).
• Conclusion:
  • The interested companies get an invitation to propose their resolution plan to the IRP outlining a structure to revive the debtor.
  • In case any resolution plan does not get approval during CIRP, the company’s assets go for liquidation.

Landmark Cases

• Collector, Anantnag v. Mst Katiji (1987):
  • The SC explained the flexibility of applicability of Limitation Act, 1963 in case of ‘sufficient cause”.
  • The Court held that the expression "sufficient cause" employed by the legislature in this Act is adequately elastic to enable the courts to apply the law in a meaningfull manner which subserves the ends of justice--that being the life-purpose for the existence of the institution of Courts.
• Dena Bank v. C. Shivakumar Reddy (2020):
  • The SC widened the applicability of Limitation Act, 1963 in case of application under Section 7 of IBC.
  • The SC held that an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years.