Jignesh Shah vs Union Of India

4. The brief facts necessary to appreciate the narrow controversy that arises in Writ Petition (Civil) No.455 of 2019 and its connected matters are as follows:

The reply went on to state that La-Fin was otherwise commercially sound and that the statutory notice issued under Sections 433 and 434 of the Companies Act, 1956 was only a pressure tactic.

(vii) On 21st October, 2016, a winding up petition (hereinafter referred to as the “Winding up Petition”) was then filed by IL&FS against La-Fin in the Bombay High Court under Section 433(e) of the Companies Act, 1956.

(ix) On 28th August, 2018, the said Winding up Petition was admitted by the NCLT as an application under Section 7 of the Code, stating on a reading of the share purchase agreement and the Letter of Undertaking that a financial debt had, in fact, been incurred by La-Fin. The National Company Law Appellate Tribunal 5 (hereinafter referred to as the “NCLAT”) by an order dated 21 st January, 2019 dismissed the appeal filed by Shri Jignesh Shah against the aforesaid admission order, agreeing with the NCLT that the aforesaid transaction would fall within the meaning of “financial debt” under the Code, and that the bar of limitation would not be attracted as the Winding up Petition was filed within three years of the date on which the Code came into force, viz., 1 st December, 2016.

5. Dr. Abhishek Manu Singhvi, learned Senior Advocate appearing on behalf of the Petitioners/Appellants, did not go into the merits of the case, but has raised only the statutory bar of limitation against IL&FS. According to the learned Senior Advocate, after this Court’s judgment in B.K. Educational Services Pvt. Ltd. v. Parag Gupta 6 and Associates 2018 SCC OnLine 1921, it is clear that the Limitation Act, 1963 (hereinafter referred to as the “Limitation Act”) would apply to all Section 7 applications that are filed under the Code and that the residuary Article, i.e., Article 137 of the Limitation Act would be attracted to the facts of this case. Inasmuch as the Winding up Petition that has been transferred to the NCLT was filed on 21st October, 2016, i.e., beyond the period of three years prescribed (as the cause of action had arisen in August, 2012), it is clear that a time-barred winding up petition filed under Section 433 of the Companies Act, 1956 would not suddenly get resuscitated into a Section 7 petition under the Code filed within time, by virtue of the transfer of such petition. He relied heavily on B.K. Educational Services Pvt. Ltd. (supra) which, according to him, covered this case on all fours. In addition, he relied upon High Court judgments, Judgments from the United States of America, and one English judgment to buttress the proposition that the mere filing of a suit for specific performance would not in any manner impact the limitation period for a winding up petition, which as a separate and independent remedy, must fall or stand on its own legs. He also painstakingly took us through the statutory notice under Sections 433 and 434 sent by IL&FS, as well as the Winding up Petition filed 7 by IL&FS, and relied heavily on the fact that the Form-1 (which was filled by IL&FS in order to transfer the aforesaid Winding up Petition to the NCLT) itself stated that the date of default was 19 th August, 2012, clearly indicating that the Winding up Petition, being beyond three years of the cause of action, was time-barred.

9. After referring to Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016, the Court extracted passages from the judgment in M.P. Steel Corporation v. CCE (2015) 7 SCC 58 and then concluded:

What has, therefore, to be decided is whether the Winding up Petition, on the date that it was filed, is barred by lapse of time. If such petition is found to be time-barred, then Section 238A of the Code will not give a new lease of life to such a time-barred petition. On the facts of this case, it is clear that as the Winding up Petition was filed beyond three years from August, 2012 which is when, even according to IL&FS, default in repayment had occurred, it is barred by time.

17. Therefore, this winding up petition is, therefore, dismissed but in the facts of this case, there will be no order as to costs.”

14. In view of the above, mere filing of the suit by the petitioner in order to protect its right and by way of abundant caution certainly would not prohibit filing of the winding up petition or preclude the petitioner from maintaining the same.”

In view of the plaintiff’s failure to satisfy the first facet of the identicality requirement, we need not inquire into the other two facets. Puerto Rico law is pellucid that a plaintiff who seeks to interrupt the running of a statute of limitations on this basis must satisfy all three facets of the identicality requirement. See, e.g., Santana-Castro v. Toledo-Davila, 579 F.3d 109, 116 (1st Cir. 2009); Nieves- Vega, 443 F.3d at 137-38.

25. This judgment does not take Shri Kaul’s argument any further. Nowhere in the Winding up Petition is it alleged that the company sought to be wound-up has lost its substratum, in the sense that there is no reasonable prospect of it ever making a profit in the future, nor can it be said that the company had abandoned its business and is, therefore, unable to meet the outstandings owed by it. On the other hand, what emerges from this judgment (and paragraph 21 therein in particular), is that it is not open for a company to say that a debt is undisputed, that it has ability to pay the debt, but will not pay the debt. Equally, where a debt is clearly 33 owed, but the exact amount of debt is disputed, the company will be held to be unable to pay its debts. What has to be seen in each case is whether the debt is bona fide disputed. If so, without more, a winding up petition would then be dismissed. One other thing must be noticed at this stage. The trigger for limitation is the inability of a company to pay its debts. Undoubtedly, this trigger occurs when a default takes place, after which the debt remains outstanding and is not paid. It is this date alone that is relevant for the purpose of triggering limitation for the filing of a winding up petition. Though it is clear that a winding up proceeding is a proceeding ‘in rem’ and not a recovery proceeding, the trigger of limitation, so far as the winding up petition is concerned, would be the date of default. Questions as to commercial solvency arise in cases covered by Sections 434(1)

(c) of the Companies Act, 1956, where the debt has first to be proved, after which the Court will then look to the wishes of the other creditors and commercial solvency of the company as a whole. The stage at which the Court, therefore, examines whether the company is commercially insolvent is once it begins to hear the winding up petition for admission on merits. Limitation attaches insofar as petitions filed under Section 433(e) are concerned at the stage that default occurs for, it is at this stage that the debt becomes payable. 34 For this reason, it is difficult to accept Shri Kaul’s submission that the cause of action for the purposes of limitation would include the commercial insolvency or the loss of substratum of the company.

Secondly, if the debt is bona fide disputed, there cannot be “neglect to pay” within the meaning of Section 433(1)(a) of the Companies Act, 1956. If there is no 36 neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated.

29. Even on the facts of this case, the Winding up Petition alleges that the ultimatum to the Respondent company asserting that the Respondent company was legally obliged to purchase the requisite shares in accordance with the terms of the Letter of Undertaking was on 7th January, 2013. By this date at the very latest, the cause of action for filing a petition under Section 433(e) certainly arose. Also, as has been correctly pointed out by Dr. Singhvi, the statutory notice given on 3rd November, 2015 does not refer to any facts as to the commercial insolvency of La-Fin. The statutory notice only refers to the suit proceedings and attachment by the EOW which had taken place long before in December 2013. Factually, therefore, no basis is laid for the legal contentions argued before us by Shri Kaul.

30. In the Winding up Petition itself, what is referred to is the fall in the assets of La-Fin to being worth approximately INR 200 crores as of October, 2016, which again does not correlate with 3 rd November, 2015, being the date on which the statutory notice was itself issued. This again is only for the purpose of appointing an Officer of the Court as Official Liquidator in order to manage the day-to-day affairs 38 and otherwise secure and safeguard the assets of the Respondent company. There is no averment in the petition that thanks to these or other facts the Company’s substratum has disappeared, or that the Company is otherwise commercially insolvent. It is clear therefore that even on facts, the company’s substratum disappearing or the commercial insolvency of the company has not been pleaded. Whereas, in Form-1, upon transfer of the winding up proceedings to the NCLT, what is correctly stated is that the date of default is 19 th August, 2012; making it clear that three-years from that date had long since elapsed when the Winding up Petition under Section 433(e) was filed on 21st October, 2016.

31. We therefore allow Civil Appeal (Diary No. 16521 of 2019) and dispose of the Writ Petition (Civil) No.455 of 2019 by holding that the Winding up Petition filed on 21 st October, 2016 being beyond the period of three-years mentioned in Article 137 of the Limitation Act is time-barred, and cannot therefore be proceeded with any further. Accordingly, the impugned judgment of the NCLAT and the judgment of the NCLT is set aside.

39 SLP(C) (Diary No.13468 of 2019) & T.P. (C) No.817 of 2019

32. In view of the aforesaid, nothing survives insofar as Special Leave Petition (Diary No.13468 of 2019) and Transfer Petition (Civil) No.817 of 2019 are concerned, and they are accordingly disposed of as having become infructuous.