SC dismisses IBC application filed more than three years after default
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The apex court said in its 14 August verdict that only existence of a debt and a default on that debt is not enough for admitting an insolvency plea. It also stated that the NCLT cannot admit cases of default more than three years (as prescribed by the Limitation Act) before the filing of insolvency application.
The Limitation Act prescribes a time limit within which a suit can be filed against someone. The time limit prescribed for most suits is three years. The objective of the Limitation Act is to avoid lengthy proceedings.
The case pertains to an Aurangabad-based maker of aluminium ingots -- Veer Gurjar Aluminium Industries - which defaulted on a loan in 2011 taken from Corporation Bank in 2008 and 2009. The loan was later taken over by JM Financial ARC, which filed an insolvency application against the debtor in March 2017. The NCLT admitted the application in August 2018, against which the debtor moved NCLAT.
The debtor's appeal against the NCLT order was based on the fact that the financial creditor cannot file an insolvency application in 2018 for a default committed in 2011. However, NCLAT rejected the plea of the debtor and upheld the NCLT order.
The debtor than moved the Supreme Court, which held that insolvency proceeding against a default in 2011 is clearly barred by limitation for having been filed much later than the period of three years from the date of default as stated in the application.
It also said that both NCLT and NCLAT overlooked the question of limitation and hence set aside the NCLAT order which allowed the insolvency proceeding against the debtor. #casansaar (Source - Business Today)
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