Can Moratorium Period be Excluded in Computing Limitation Period?

August 24, 2022
Corporate Law

By Anuj Jhawar and Devika Mehra

Upon admission of an application for Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016 by the National Companies Law Tribunal, a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 is declared by the National Companies Law Tribunal prohibiting all kinds of legal proceedings against the Corporate Debtor effective from the insolvency commencement date until approval of the resolution plan or initiation of liquidation proceedings. The Hon’ble Supreme Court vide its judgement dated April 27, 2022 in New Delhi Municipal Council v. Minosha India Limited1 has held that the entire period during which the moratorium stays in force with respect to a Corporate Debtor can be excluded while computing the period of limitation for a suit or proceeding by the Corporate Debtor.

Brief Facts

The issue raised in appeal before the Hon’ble Supreme Court was whether Section 60(6) of the Insolvency and Bankruptcy Code, 2016 gives a new lease of life to a proceeding before a Court at the instance of the Corporate Debtor on the basis of a moratorium which is put in place by virtue of the order passed by the National Companies Law Tribunal under Section 14 of the Insolvency and Bankruptcy Code, 2016 and whether Corporate Debtor can take advantage of the same to bring the application as filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, in this case.

Decision of the Hon’ble Supreme Court

The Hon’ble Supreme Court observed that the principles of interpretation of statutes have been invoked in varying contexts and are to be applied on the basis of the facts of the case, the nature of the law and a host of principles. The Golden Rule of interpretation is that which thrives on the ordinary meaning of the words as they are used. This principle of Literal Interpretation of Statutes has indeed yielded to an interpretation which is purposive, and seeks to accommodate the object of the law giver. If the words of a statute as laid down are not ambiguous, the scope of interpretation decreases. It is not for the Court to rewrite a statute. There may be occasions where the Court may even go to the extent of leaving out a word or not giving effect to certain part in order to give full meaning to the law by way of gleaning and giving effect to the intention of the legislature. The principle that literal meaning must be accepted is undoubtedly subject to the principle that it will make way when such interpretation will lead to an absurdity or grave injustice which a law giver could not, in all due conscience, have contemplated.

With regard to the interpretation of Section 60(6) of the Insolvency and Bankruptcy Code, 2016, the Hon’ble Supreme Court observed that the period of the moratorium is excluded even in the case of a suit or application brought by a Corporate Debtor, viz., with regard to the limitation period of such suitor application. What is prevented under Section 14 of the Insolvency and Bankruptcy Code, 2016 when a moratorium is put into place is inter alia the institution of suits or continuance of pending suits or proceedings against the Corporate Debtor, including proceeding in execution of a decree or order of an arbitration panel. Also, Section 14 of the Insolvency and Bankruptcy Code, 2016 prohibits any action to foreclose, recover or enforce any security interest created by the Corporate Debtor in respect of its property including any action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002. Further, under Section 14 of the Insolvency and Bankruptcy Code, 2016, the recovery of any property in the occupation of the Corporate Debtor by an owner or lessor is forbidden. These provisions do not in any manner appear to stand in the way of the Corporate Debtor instituting or proceeding with a suit or a proceeding against others. Section 60(6) of the Insolvency and Bankruptcy Code, 2016 excludes the period during which the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 is in place in computing the period of limitation. An ambiguity is introduced, namely the need to exclude the period of moratorium from the limitation for a suit or an application at the instance of the Corporate Debtor, when such moratorium does not pose any bar against such suit or application. The provision for order of moratorium as has been made under this part of the Insolvency and Bankruptcy Code, 2016 is intended to be the point of reference or the premise for the exclusion of the time of moratorium for the purpose of computing the period of limitation under the Limitation Act, 1963. Besides being the point of reference as well as the sine qua non for applying Section 60(6) of the Insolvency and Bankruptcy Code, 2016, it also specifies the period of time which will be excluded in computing of the period of limitation. In other words, present an order of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, the entire period thereof is liable to be excluded in computing the period of limitation under the Limitation Act, 1963 with respect to a suit or an application instituted at the instance of a Corporate Debtor.

Conclusion

Therefore, as the law giver (Legislature) has thought it fit to provide that in respect of a Corporate Debtor if there has been an order of moratorium made in accordance with Part II of the Insolvency and Bankruptcy Code, 2016, the period during which such moratorium stays in place shall be excluded from the period of limitation under the Limitation Act, 1963.

1CIVIL APPEAL NO. 3470 OF 2022 (Arising out of SLP (C) No. 8302 of 2021)

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