► Order:

Brief/Facts of the Case: Shri Babulal Vardhaji Gurjaris was the director of Veer Gurjar Aluminium Industries Pvt. Ltd (“Corporate Debtor”). JM Financial Assets Reconstruction Company Pvt. Ltd (“Financial Creditor”), being the assignee of the loans and advances disbursed by creditor bank to the corporate debtor, filed the said application under Section 7 of the Code before the Adjudicating Authority and sought initiation of Corporate Insolvency Resolution Process (“CIRP”) which was admitted by National Company Law Tribunal (“NCLT”). The same was challenged and dealt by National Company Law Appellate Tribunal (“NCLAT”).

Before the NCLAT, it was contended that the claim of the Financial Creditor was barred by limitation since the default was committed on 08.07.2011, whereas the application was filed on 21.03.2018. By the impugned order dated 14.05.2019, the NCLAT, rejected this argument. This order was challenged before the Supreme Court, by Mr. Babulal Gurjar.

Supreme Court Order: The major question was whether Section 18 of Limitation Act was applicable as in the present case the date of default was 08.07.2011, as such the application filed on 21.03.2018, was barred by limitation.

The debt had been admitted in the balance sheet of the Corporate Debtor since the year 2011 until 2017 and as such, Section 18 of the Limitation Act, which provides for a fresh period of limitation to be computed in case of written acknowledgment of debt during the original period of limitation, would save the application from the bar of limitation.

This argument was countered, Section 18 of the Limitation Act cannot revive the "default" relevant for the Code. Drawing a distinction between 'default' and 'cause of action,' was necessary. The limitation period for proceedings under Section 7 of the Code starts from the date of default. Any acknowledgment of the debt in the balance sheet will not give rise to any fresh date of default. Default occurs only once and cannot be continuing.

The Court rejected the plea to initiate CIRP on the grounds:

1. The application was barred by limitation for filing much later than the period of three years from the date of default.

2. The respondents tried to save the application on the principals of acknowledgement which were found to be unsustainable. 

3. An application under 7 is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application.