Five-member NCLAT bench declines to reconsider decision on insolvency filing time frame

By: |
December 24, 2020 4:43 PM

It implies that any insolvency plea filed over defaults that occurred over three years prior to the date of filing of the application are barred under Section 137 of the Code.

nclat insolvency filing time frameThe Limitation Act is also applicable for proceedings under the Insolvency and Bankruptcy Code.

A five-member bench of the National Company Law Appellate Tribunal (NCLAT) has turned down a reference made by a three-member bench seeking reconsideration of an earlier decision related to deciding the time frame for initiating insolvency proceedings against a company.

In a 30-page order passed on Tuesday, the five-member bench headed by Acting Chairperson Justice Bansi Lal Bhat upheld that acceptability of debt entered in the balance sheet of a company will not amount to acknowledgment of debt for deciding the time frame for initiating insolvency proceedings.

The five-member bench has termed the reference sent by the three-member bench in September for reconsideration of the decision in V Padmakumar’s case as a “misadventure” and “inappropriate”.

Observing that the three-member bench ventured to cross the red line, the bench in Tuesday’s order said that it was “judicial discipline for the referral bench to follow the judgment of the five-member bench” as a binding precedent.

In this order, the referral bench is the three-member bench.

“We are sad to note that the referral bench has overlooked all legal considerations. Such misadventures weaken the authority of law, dignity of institution as also shake people’s faith in rule of law,” the five-member bench said.

Further, the bench said, “we hope and trust that the honourable members of the referral bench would exhibit more serious attitude towards adherence of the binding judicial precedents and not venture to cross the red line”.

In a rare instance in September, the three-member bench had said that the five-member bench’s judgement passed in March this year was “contrary to settled law”.

A bench comprising Justice Jarat Kumar Jain, Balvinder Singh and V P Singh, had made the observations and had directed the registrar to place the “attached reference along with V Padmakumar’s case before the Acting Chairperson for constituting appropriate bench”.

The five-member bench’s ruling in March held that the balance sheet/ annual return of a corporate debtor cannot be treated to be an acknowledgement under Section 18 of the Limitation Act. It was related to the matter of V Padmakumar Vs Stressed Assets Stabilisation Fund.

As per Section 18, a fresh period of limitation shall be computed from the time when the acknowledgement was signed before the expiration of the prescribed period. The Limitation Act is also applicable for proceedings under the Insolvency and Bankruptcy Code.

It implies that any insolvency plea filed over defaults that occurred over three years prior to the date of filing of the application are barred under Section 137 of the Code.

According to the order passed on Tuesday (December 22) by the five-member bench, a bench of co-equal strength can only express an opinion doubting the correctness of the view taken by the earlier bench of co-equal strength.

“Following… the judicial precedent of a bench of equal strength and of a larger bench as in the instant case, is a matter of judicial discipline,” the bench headed by Bhat said. Other members of the bench are the tribunal’s judicial members — Venugopal M and Anant Bijay Singh — and technical members — Kanthi Narahari and Shreesha Merla.

“It is not open to the referral bench to appreciate the judgment rendered by the earlier bench as if sitting in appeal to hold that the view is erroneous,” the bench said, adding that escaping of attention of the earlier bench as regards a binding judicial precedent or a patent error is of relevance but not evaluation of earlier judgment as if sitting in appeal.

“This brings us to consider the most painful aspect of the misadventure undertaken by the referral bench in making the reference which we have found to be incompetent. Judicial indiscipline creates uncertainty and impairs public faith in Rule of Law. Crossing the red line by disregarding the binding precedent results in making the legal proposition uncertain,” it said.

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