Can Corporate Insolvency Under the Insolvency and Bankruptcy Code 2016 be Triggered by a Time-Barred Debt?

Section 238A of the Code was inserted by the Insolvency and Bankruptcy Code (Second Amendment) Act 2018 (“Amendment Act”) w.e.f. 06.06.2018, applying the Limitation Act, 1963 (“Limitation Act”) to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be. Thus, an important question arises whether the Amendment Act making the Limitation Act applicable to an application for initiation of corporate insolvency resolution process under Section 7 or Section 9 of the Code (“Application”) will apply retrospectively. This question was settled by the Hon’ble Supreme Court (“SC”) in the case of B.K. Educational Services Pvt. Ltd. vs. Parag Gupta and Associates ( Civil Appeal No.23988/2017, decided on 11.10.2018).  In the said case, (i) the SC observed that on a reading of the Insolvency and Bankruptcy Code 2016 (“Code”) together with its cognate legislation, the Companies Act 2013, it is clear that the Limitation Act will apply to an Application; (ii) the SC observed that as reflected in the Insolvency Law Committee Report of March 2018, the Legislature did not contemplate enabling a creditor to trigger insolvency by a stale or time-barred claim; (iii) the argument of Section 238A of the Amendment Act being clarificatory of the law and being procedural in nature must be held to be retrospective was affirmed by the SC by relying upon a recent decision of this court in SBI vs. V. Ramakrishnan [Civil Appeal No(s).  3595/2018] wherein it was held that amendment made to Section 14 of the Code, in which moratorium prescribed was held not to apply to guarantors, was held to be clarificatory and therefore retrospective in nature. In view of these observations, the SC held that the Limitation Act is applicable to an Application from the inception of the Code;thus Article 137 of the Limitation Act gets attracted and therefore if the default has occurred over 3 years prior to the date of filing of an Application, the Application would be barred under Article 137 of the Limitation Act, save and except in those cases where the delay may be condoned as per Section 5 of the Limitation Act.