The Supreme Court of India has set aside the order of National Company Law Appellate Tribunal (NCLAT) on the limitation of law. The National Company Law Appellate Tribunal (NCLAT) allowed the proceedings against La-Fin Financial Services owned by Jignesh Shah. The Hon'ble Bench comprising of Justice Rohinton Nariman, Justice R Subhash Reddy and Justice Surya Kant observed that the winding up petition is time barred according to the limitation act.
Earlier winding up petitions were dealt by section 433(e) of the Companies Act, 2013 and now section 7 of Bankruptcy Code deals with the same. While setting aside the order of the tribunal, the Hon'ble Supreme Court has reiterated that section 7 of Indian Bankruptcy Code is subject to section 137 of the Limitation Act.
The facts of the case are that in 2009 IL&FS had agreed to purchase 442 lakh equity shares of MCX Stock Exchange Pvt Ltd from Multi Commodity Exchange India LTD. and a purchase agreement was executed. La-Fin is a group company of MCX issued a letter of undertaking stating that they would purchase these shares from IL&FS in a period of one to three years. However, the shares were never purchased and the time period for the same lapsed in August 2012. IL&FS at a number of ocassions asked La-Fin owned by Jignesh shah to comply with the purchase agreement but Mr. jignesh said that his company was not bound to execute the same and there was no legal obligation upon them. IL&FS sent many statutory notices under section 433 and 434 of companies act but Jignesh rejected these claims. In 2016 a winding up petition was filed by IL&FS in the Hon'ble Bombay High court which was transferred to National Company Law Tribunal as an application under section 7 of Indian Bankruptcy Code. The Tribunal allowed the winding up proceedings. Jignesh Shah filed an appeal against this order in National Company Law Appellate Tribunal which also passed the winding up proceedings. He, then knocked the doors of the Apex Court in this regard.
The Hon'ble Supreme Court observed that the cause of action arose in 2012 and the case was filed in the year 2016, more than 3 years after the cause of action arose. The Hon'ble Supreme Court Held that- The trigger for limitation is the inability of a company to pay it's 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 up of winding petition. Though it is clear that a winding up petition is a petition '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.
Thus, the order of NCLAT was set aside the winding up petition filed in 2016 is time barred and exceeds the period of 3 years as mentioned under the limitation act.