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Supreme Court: Plea for initiation of CIRP by creditor exempt from 3-year time limit

The Supreme Court, in Dena Bank (now Bank of Baroda) v. C. Shivakumar Reddy has held that a financial creditor’s plea for initiationion of corporate insolvency resolution process (“CIRP”) will not be time-barred only because it has been filed beyond a period of three years from the date of declaration of the loan account as a Non Performing Asset (“NPA”). The court was hearing an appeal from the National Company Law Tribunal (“NCLT”) which held that the application under section 7 of the Insolvency and Bankruptcy Code (IBC) by Dena Bank for the initiation of insolvency process was time barred. The division bench composed of Justice Indira Banerjee and Justice V Ramasubramanian set aside the NCLT order.

Dena Bank had moved the apex court in appeal of the NCLT order admitting the application of the bank for the initiation of insolvency proceedings against the company Kaveri Telecom Infrastructure Limited and its director Shivakumar Reddy. Through a letter, the Bank had sanctioned a term loan and Letter of Credit Cum Buyers' Credit in favour of the company, with an upper limit of Rs 45 Crores, which was supposed to be repaid in 24 quarterly instalments of Rs 187.50 lakhs. This period of instalments was to commence two years after the date of disbursement, and the entire term loan was to be repaid in eight years, inclusive of the implementation period of one year and the moratorium period. Subsequently, the corporate debtor defaulted in repayment of its dues to the bank and the loan account of the company was therefore declared a Non Performing Asset in 2013. The NCLT found the initiation of CIRP to be time-barred, a decision which has now been reversed by the Supreme Court. The Supreme Court found 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 had been an acknowledgement of the debt by the Corporate Debtor before the 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 from the date of such acknowledgement. It observed that there is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with the application under the provisions of the IBC in Form-1. As there was no express provision which either prohibits or sets a time limit for filing of additional documents, it could not be said that the adjudicating authority committed any illegality or error in permitting the appellant bank to file additional documents. However, the Supreme Court clarified that the adjudicating authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order depending on the facts and circumstances of the case, and when there is an inordinate delay. It further stated that a judgment and/or decree for money in favour of the creditor, which is passed by the Debt Recovery Tribunal, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the financial creditor, would give rise to a fresh cause of action, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, if the dues remain unpaid. In this case, the balance sheets and financial statements of the corporate debtor for the year 2016-2017 amounted to an acknowledgement of liability and this extended the limitation by three years. Therefore, the NCLT was correct in admitting the application of the bank in March 2019. There would be no specific period of limitation prescribed in the Limitation Act, 1963, for an application under the IBC, before the NCLT but an application for which no period of limitation is provided anywhere else in the Schedule to the Limitation Act, is governed by Article 137 of the schedule of the said Act.

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