A) ABSTRACT / HEADNOTE

The Supreme Court in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr. authoritatively examined the applicability of the Limitation Act, 1963 to proceedings initiated under Section 7 of the Insolvency and Bankruptcy Code, 2016. The judgment resolves a recurring controversy on whether the commencement of the IBC or the existence of secured assets such as mortgages can extend or alter the statutory limitation period for initiating the Corporate Insolvency Resolution Process. The Court clarified that the IBC does not revive time-barred debts and that the right to apply under Section 7 accrues strictly on the date of default, not on the date of enforcement of the Code. It rejected the reasoning adopted by the NCLAT that limitation begins from 01.12.2016 or that a twelve-year limitation period applicable to mortgage enforcement governs insolvency proceedings.

The judgment reinforces the doctrinal position that insolvency proceedings are not recovery actions and that Article 137 of the Limitation Act governs applications under Section 7, prescribing a limitation period of three years from the date of default. The Court further emphasized the pleading requirement for invoking Section 18 of the Limitation Act, holding that acknowledgment must be specifically pleaded and supported by evidence within the insolvency application itself. The ruling strengthens legal certainty under the IBC and curtails misuse of insolvency mechanisms for reviving stale claims.

Keywords:
Insolvency and Bankruptcy Code, Limitation Act, Section 7 IBC, Article 137, Time-barred debt, Default

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGMENT

The judgment arises from an appeal challenging the admission of a Section 7 IBC application filed by an asset reconstruction company against a corporate debtor whose loan account had been classified as a Non-Performing Asset in July 2011. The application initiating CIRP was filed only in March 2018. The appellant, a director of the corporate debtor, contended that the insolvency application was hopelessly barred by limitation.

The controversy assumed importance due to conflicting approaches adopted by adjudicatory authorities under the IBC. While the NCLT admitted the application without examining limitation, the NCLAT, upon remand, held that limitation commenced from the date of enforcement of the IBC and alternatively applied a twelve-year limitation period applicable to mortgage enforcement.

The Supreme Court was thus called upon to clarify whether insolvency proceedings could be initiated for debts that were already time-barred under general law and whether secured status or pendency of recovery proceedings could alter limitation under the IBC. The decision is situated within a consistent line of authorities emphasizing that the IBC is a resolution-centric legislation and not a substitute for recovery mechanisms.

D) FACTS OF THE CASE

The corporate debtor was engaged in manufacturing aluminium ingots and had availed multiple credit facilities from a consortium of banks beginning 22.12.2007. The loans were secured through equitable mortgages and hypothecation agreements executed during 2008–2010.

Due to persistent non-payment, the loan account was classified as NPA on 08.07.2011. Statutory recovery steps followed, including issuance of notices under Section 13(2) of the SARFAESI Act and initiation of proceedings before the Debt Recovery Tribunal under Section 19 of the RDDBFI Act, 1993.

In 2013, the original lender assigned the debt to JM Financial Assets Reconstruction Company Pvt. Ltd. Despite these recovery proceedings, the assignee filed an application under Section 7 IBC in March 2018, explicitly stating 08.07.2011 as the date of default.

The NCLT admitted the application without addressing limitation. The NCLAT initially dismissed the appeal summarily, leading to remand by the Supreme Court. Upon reconsideration, the NCLAT again upheld admission, reasoning that limitation began from 01.12.2016 and that mortgage security attracted a twelve-year limitation. This reasoning formed the subject matter of the present appeal.

E) LEGAL ISSUES RAISED

i. Whether an application under Section 7 of the IBC is governed by Article 137 of the Limitation Act, 1963?
ii. Whether the right to apply under Section 7 IBC accrues from the date of default or from the commencement of the Code?
iii. Whether the existence of a mortgage extends the limitation period for initiating CIRP?
iv. Whether Section 18 of the Limitation Act can be invoked without specific pleadings in a Section 7 application?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for the appellant submitted that the insolvency application was ex facie barred by limitation since the admitted date of default was 08.07.2011 and the application was filed after nearly seven years. They argued that Article 137 governs Section 7 applications, limiting the period to three years from default.

Reliance was placed on B.K. Educational Services Pvt. Ltd. v. Paras Gupta & Associates and Gaurav Hargovindbhai Dave v. ARC (India) Ltd., where this Court held that the IBC does not revive time-barred debts. The appellant contended that the NCLAT’s reliance on mortgage-related limitation under Article 61(b) was legally untenable, as insolvency proceedings are not enforcement actions.

It was further argued that Section 18 of the Limitation Act could not be invoked since no acknowledgment was pleaded in the Section 7 application itself.

G) RESPONDENT’S ARGUMENTS

The counsels for the respondent submitted that the debt was continuously acknowledged in balance sheets and annual returns, thereby extending limitation under Section 18 of the Limitation Act. They argued that insolvency proceedings are not defeated merely due to passage of time when liability is admitted.

It was also contended that limitation provisions were introduced into the IBC only in 2018 through Section 238-A, and therefore, strict application would cause hardship. The respondent justified reliance on mortgage security to claim extended limitation.

H) JUDGEMENT 

The Supreme Court categorically rejected the approach adopted by the NCLAT. It reiterated that insolvency proceedings are distinct from recovery or enforcement actions and are governed by a separate statutory framework.

The Court held that Article 137 applies to applications under Section 7 IBC, prescribing a limitation period of three years from the date when the right to apply accrues. The right accrues on the occurrence of default, not on enforcement of the Code. The Court clarified that there is nothing in the IBC to suggest that limitation begins from 01.12.2016.

The reasoning based on mortgage security was found wholly erroneous. The Court emphasized that Article 61(b) applies to suits for recovery of possession and not to insolvency applications.

On Section 18, the Court held that acknowledgment must be pleaded and proved. Since the application mentioned only 08.07.2011 as the date of default and contained no averment of acknowledgment, the respondent could not rely on subsequent documents at the appellate stage.

The application was held to be time-barred and consequently rejected.

a) RATIO DECIDENDI

The limitation period for initiating CIRP under Section 7 of the IBC is governed by Article 137 of the Limitation Act, being three years from the date of default. The enforcement of the IBC does not revive time-barred debts. Insolvency proceedings are not recovery proceedings, and mortgage-related limitation provisions do not apply. Acknowledgment under Section 18 must be specifically pleaded in the insolvency application.

b) OBITER DICTA

The Court observed that the IBC is a beneficial legislation aimed at resolution and revival, not a forum to resurrect stale claims. Allowing time-barred debts into the insolvency framework would defeat its core objectives and distort creditor discipline.

c) GUIDELINES

i. Adjudicating Authorities must examine limitation at the threshold.
ii. Date of default pleaded in the application is decisive for limitation.
iii. Section 18 Limitation Act requires specific pleadings and evidence.
iv. Mortgage security does not extend limitation for CIRP initiation.

I) CONCLUSION & COMMENTS

The judgment decisively curtails attempts to misuse insolvency proceedings as recovery tools. It restores doctrinal clarity by aligning limitation principles with the resolution-centric philosophy of the IBC. The ruling strengthens procedural discipline and reinforces the necessity of timely action by financial creditors. It also serves as a caution against creative pleading and post-hoc reliance on documents not forming part of the insolvency application.

J) REFERENCES

a) Important Cases Referred

i. Innoventive Industries Ltd. v. ICICI Bank, [2017] 8 SCR 33
ii. B.K. Educational Services Pvt. Ltd. v. Paras Gupta & Associates, [2018] 12 SCR 794
iii. Gaurav Hargovindbhai Dave v. ARC (India) Ltd., [2019] 13 SCR 224
iv. Swiss Ribbons Pvt. Ltd. v. Union of India, [2019] 3 SCR 535

b) Important Statutes Referred

i. Insolvency and Bankruptcy Code, 2016
ii. Limitation Act, 1963
iii. SARFAESI Act, 2002
iv. RDDBFI Act, 1993