Whether the NCLAT rightly held that the Petition of the Appellant Bank under Section 7 of the IBC, was barred by limitation. ? = This Court sees no reason why an offer of One Time Settlement of a live claim, made within the period of limitation, should not also be construed as an acknowledgment to attract Section 18 of the Limitation Act. = an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years. Moreover, a judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the Certificate of Recovery, if the dues of the Corporate Debtor to the Financial Debtor, under the judgment and/or decree and/or in terms of the Certificate of Recovery, or any part thereof remained unpaid.

Whether  the NCLAT  rightly held that the  Petition of the Appellant Bank under Section 7 of the IBC, was barred by limitation. ?

apex court held that 

 Once a claim fructifies into a final judgment and order/decree, upon adjudication, and a certificate of Recovery is also issued authorizing the creditor to realize its decretal dues, a fresh right accrues to the creditor to recover the amount of the final judgment and/or order/decree and/or the amount specified in the Recovery Certificate. 139. The Appellant Bank was thus entitled to initiate proceedings under Section 7 of the IBC within three years from the date of issuance of the Recovery Certificate. The Petition of the Appellant Bank, would not be barred by limitation at least till 24th May, 2020. 71 

While it is true that default in payment of a debt triggers the right to initiate the Corporate Resolution Process, and a Petition under Section 7 or 9 of the IBC is required to be filed within the period of limitation prescribed by law, which in this case would be three years from the date of default by virtue of Section 238A of the IBC read with Article 137 of the Schedule to the Limitation Act, the delay in filing a Petition in the NCLT is condonable under Section 5 of the Limitation Act unlike delay in filing a suit. Furthermore, as observed above Section 14 and 18 of the Limitation Act are also applicable to proceedings under the IBC. 

Section 18 of the Limitation Act cannot also be construed with pedantic rigidity in relation to proceedings under the IBC. This Court sees no reason why an offer of One Time Settlement of a live claim, made within the period of limitation, should not also be construed as an acknowledgment to attract Section 18 of the Limitation Act. In Gaurav Hargovindbhai Dave (supra) cited by Mr. Shivshankar, this Court had no occasion to consider any proposal for one time settlement. Be that as it may, the Balance Sheets and Financial Statements of the Corporate Debtor for 2016-2017, as observed above, constitute acknowledgement of liability which extended the limitation by three years, apart from the fact that a Certificate of Recovery was issued in favour of the Appellant Bank in May 2017. The NCLT rightly admitted the application by its order dated 21st March, 2019. 72 

To sum up, in our considered opinion an application under Section 7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, if there were an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years. 

Moreover, a judgment and/or decree for money in favour of the Financial Creditor, passed by the DRT, or any other Tribunal or Court, or the issuance of a Certificate of Recovery in favour of the Financial Creditor, would give rise to a fresh cause of action for the Financial Creditor, to initiate proceedings under Section 7 of the IBC for initiation of the Corporate Insolvency Resolution Process, within three years from the date of the judgment and/or decree or within three years from the date of issuance of the Certificate of Recovery, if the dues of the Corporate Debtor to the Financial Debtor, under the judgment and/or decree and/or in terms of the Certificate of Recovery, or any part thereof remained unpaid.  

There is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with application under Section 7 of the IBC in Form-1. In the absence of any express provision which either prohibits or sets a time limit for filing of additional 73 documents, it cannot be said that the Adjudicating Authority committed any illegality or error in permitting the Appellant Bank to file additional documents. 

Needless however, to mention that depending on the facts and circumstances of the case, when there is inordinate delay, the Adjudicating Authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order.

 In our considered view, the decision of the Adjudicating Authority to entertain and/or to allow the request of the Appellant Bank for the filing of additional documents with supporting pleadings, and to consider such documents and pleadings did not call for interference in appeal. 

 For the reasons discussed above, the impugned judgment and order is unsustainable in law and facts. The appeal is accordingly allowed, and the impugned judgment and order of the NCLAT is set aside.

1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1650 OF 2020

Dena Bank (now Bank of Baroda) ....Appellant(s)

versus

C. Shivakumar Reddy and Anr. .…Respondent(s)

J U D G M E N T

Indira Banerjee, J.

This Appeal under Section 62 of the Insolvency and Bankruptcy

Code, 2016 (IBC) is against a judgment and final order dated 18th

December 2019 passed by the National Company Law Appellate

Tribunal (NCLAT), allowing Company Appeal (AT) (Insolvency) No.407 of

2019, filed by the Respondents and setting aside an order dated 21st

March 2019 passed by the Adjudicating Authority/National Company

Law Tribunal (NCLT), Bengaluru, whereby the Adjudicating Authority had

admitted the Petition being CP(IB) No.244/BB/2018 filed by the

Appellant Bank against the Respondent No.2 (Corporate Debtor) under

2

Section 7 of the IBC. The NCLAT held that the said Petition of the

Appellant Bank under Section 7 of the IBC, was barred by limitation.

The Respondent No.1 is a Director of the Corporate Debtor.

2. By a letter dated 23rd December, 2011 the Appellant Bank had

sanctioned Term Loan and Letter of Credit Cum Buyers’ Credit in favour

of the Corporate Debtor, with an upper limit of Rs.45.00 Crores.

3. The said Term Loan was to be repaid in 24 quarterly instalments of

Rs.187.50 lakhs, which were to commence two years after the date of

disbursement, and the entire Term Loan was to be repaid in eight years,

inclusive of the implementation period of one year and the moratorium

period.

4. The Corporate Debtor executed various documents including

Demand Promissory Notes, Letters of General Lien, etc. in favour of the

Appellant Bank and also mortgaged its lease hold rights in its

immovable property specified in the petition of appeal, by depositing

the Title of Deeds of the said immovable property with the Appellant

Bank.

5. On 20th September, 2013 the Corporate Debtor defaulted in

repayment of its dues to the Appellant Bank. The Loan Account of the

Corporate was therefore declared Non Performing Asset (NPA) on 31st

December 2013.

3

6. The Corporate Debtor addressed a letter dated 24th March 2014 to

the Appellant Bank, making a request for restructuring the Term Loan.

The Appellant Bank did not accede to the request.

7. On 22nd December 2014, the Appellant Bank issued legal notice to

the Corporate Debtor as well as the Respondent No.2, calling upon them

to make payment of Rs.52.12 crores, claimed to be due from the

Corporate Debtor as on 22nd December 2014. The Corporate Debtor did

not make the payment.

8. On or about 1st January 2015, the Appellant Bank filed an

application being O.A. No.16/2015 under Section 19 of the Recovery of

Debts Due to Banks and Financial Institutions Act, 1993, now known as

the Recovery of Debts and Bankruptcy Act, 1993 and hereinafter

referred to as ‘the Debt Recovery Act’ before the Debt Recovery Tribunal

(in short, DRT) Bangalore for recovery of its outstanding dues of

Rs.52,12,49,438.60 as on 22nd December 2014.

9. By a letter dated 5th January 2015, the Corporate Debtor replied to

the said notice dated 22nd December 2014, inter alia, requesting once

again, that the loan be restructured. Mr. Dhruv Mehta, Senior Advocate,

appearing on behalf of the Appellant Bank submitted that the Corporate

Debtor had accepted its liability to the Appellant Bank, by its aforesaid

letter dated 5th January 2015.

4

10. On or about 3rd March 2017, while proceedings were pending in

the DRT, the Corporate Debtor gave a proposal for one time settlement

of the Term Loan Account, upon payment of Rs.5.50 crores. The

proposal was, however, not accepted by the Appellant Bank.

11. On 27th March 2017, the Debt Recovery Tribunal, Bengaluru

passed a final judgment and order/decree against the Corporate Debtor

in the said O.A. No.16/2015, for recovery of Rs.52,12,49,438.60 with

future interest at the rate of 16.55% per annum, from the date of filing

the application till the date of realization.

12. On 25th May 2017, the Debt Recovery Tribunal issued a Recovery

Certificate No. 2060/2017, in favour of the Appellant Bank for recovery

of Rs.52,12,49,438.60 from the Corporate Debtor. Thereafter, on 19th

June 2017, Corporate Debtor once again gave the Appellant Bank a

proposal for One Time Settlement to mutually settle the loan amount.

13. Mr. Mehta appearing for the Appellant Bank pointed out, that the

Corporate Debtor had, in its Annual Reports for the financial years 2016-

2017 and 2017-2018, acknowledged its liability in respect of the loan

taken by it from the Appellant Bank.

14. On 1st October 2018, the Appellant Bank issued a Demand Notice

to the Corporate Debtor in Form-3 contained in the Insolvency and

Bankruptcy (Application to Adjudicating Authority) Rules, 2016,

5

hereinafter referred to as the ‘2016 Adjudicating Authority Rules’, and

on 12th October 2018, the Appellant Bank filed the Petition being CP(IB)

No.244/BB/2018 before the Adjudicating Authority under Section 7 of

the IBC in Form-1 given in the Annexure to the 2016 Adjudicating

Authority Rules.

15. About three months thereafter, by a Notification being GSR

No.2(e) dated 2nd January 2019 the Department of Financial Services,

Ministry of Finance, Government of India amalgamated Vijaya Bank,

Dena Bank and Bank of Baroda.

16. On 9th January 2019, the Appellant Bank filed an application

before Adjudicating Authority under Rule 11 of the National Company

Law Tribunal Rules 2016 hereinafter referred to as the ‘NCLT Rules’, read

with Rule 4 of the 2016 Adjudicating Authority Rules, being I.A.

No.27/2019 dated 9th January 2019 in CP(IB) No.244/BB/2018, for

permission to place on record additional documents, including the final

judgment and order dated 27.03.2017 of the DRT in OA No.16/2015 and

the Recovery Certificate No.2060/2017 dated 25.05.2017 issued by the

DRT.

17. On 2nd February 2019, the Corporate Debtor filed its preliminary

objection to the Petition filed by the Appellant Bank under Section 7 of

the IBC, inter alia, contending that the said Petition was barred by

limitation. 

6

18. By an order dated 4th February 2019, the Adjudicating Authority

allowed the application of the Appellant Bank being I.A No. 27/2019 in

CP (IB) No.244/BB/2018, and directed the Appellant Bank to file an

amended petition enclosing the documents referred to in the

Application being I.A. No.27/2019. The Registry was directed to permit

the Counsel for the Appellant Bank to amend the Company Petition

accordingly.

19. On or about 5th March 2019, the Appellant Bank filed another

application under Rule 11 of the NCLT Rules, being I.A. No.131 of 2019

in CP(IB) No.244/BB/2018, before the Adjudicating Authority for

permission to place on record additional documents, including the letter

dated 03.03.2017 of the Corporate Debtor to the Appellant Bank

proposing a One Time Settlement, the Annual Report of the Corporate

Debtor for the years 2016-2017, the Financial Statement of the

Corporate Debtor for the period from 1st April 2016 to 31st March 2017

and the Financial Statement of the Corporate Debtor, for the period

from 1st April 2017 to 31st March 2018. By an order dated 6.03.2019 in

I.A. No.131 of 2019, the Appellant Bank was permitted to file the

documents in the Registry.

20. By an order dated 21st March 2019 the Adjudicating Authority

admitted the Petition under Section 7 of the IBC, being CP (IB)

No.244/BB/2018, and appointed an Interim Resolution Professional. The

objection of the bar of limitation, raised on behalf of the Corporate

7

Debtor was considered at length, but rejected by the Adjudicating

Authority (NCLT).

21. On 6th April 2019, the Respondent No.1, filed an appeal being

CA(AT) (Ins) No.407/2019 before the NCLAT under Section 61 of the IBC.

The Appellant Bank filed its written statement supporting the order of

the Adjudicating Authority dated 21st March 2019 admitting the Petition

of the Appellant Bank under Section 7 of the IBC.

22. After hearing the Appellant Bank, the Respondent No.1 and the

Corporate Debtor, the NCLAT set aside the order dated 21st March 2019

passed by the Adjudicating Authority (NCLT) Bengaluru and dismissed

the Petition filed by the Appellant Bank under Section 7 of the IBC,

holding that the said application was barred by limitation.

23. The issue which arises for consideration of this Court, in this

appeal is, whether the NCLAT has erred in law in arriving at the

conclusion that, the Petition filed by the Appellant Bank under Section 7

of the IBC was barred by limitation, and setting aside the order dated

21st March 2019 passed by the Adjudicating Authority, admitting the said

Petition.

24. In other words, the main question involved in this appeal is,

whether a Petition under Section 7 of the IBC would be barred by

limitation, on the sole ground that it had been filed beyond a period of 3

years from the date of declaration of the loan account of the Corporate

8

Debtor as NPA, even though the Corporate Debtor might subsequently

have acknowledged its liability to the Appellant Bank, within a period of

three years prior to the date of filing of the Petition under Section 7 of

the IBC, by making a proposal for a One Time Settlement, or by

acknowledging the debt in its statutory Balance Sheets and Books of

Accounts.

25. Another question which arises for the consideration of this Court

is, whether a final judgment and decree of the DRT in favour of the

Financial Creditor, or the issuance of a Certificate of Recovery in favour

of the Financial Creditor, would give rise to a fresh cause of action to the

Financial Creditor to initiate proceedings under Section 7 of the IBC

within three years from the date of the final judgment and decree,

and/or within three years from the date of issuance of the Certificate of

Recovery.

26. A third issue which arises for adjudication of this Court is, whether

there is any bar in law to the amendment of pleadings, in a Petition

under Section 7 of the IBC, or to the filing of additional documents,

apart from those filed initially, along with the Petition under Section 7 of

the IBC in Form-1.

27. Mr. Mehta appearing on behalf of the Appellant Bank submitted

that the Adjudicating Authority had passed its order dated 21st March

2019, admitting the Petition of the Appellant Bank under Section 7 of

9

the IBC, after taking into consideration the documents filed by the

Appellant Bank along with its interim applications being I.A. No. 27 of

2019 and I.A. No.131 of 2019, and arriving at the finding that the

Petition filed by the Appellant Bank under Section 7 of the IBC was not

barred by limitation.

28. Mr. Mehta submitted that NCLAT has allowed the appeal of the

Respondent No.1, set aside the order of the Adjudicating Authority, and

dismissed the Petition of the Appellant Bank under Section 7 of IBC,

recording a finding that there was nothing on record that suggested that

the Corporate Debtor had acknowledged its debt to the Appellant Bank.

The Appellate Authority has ignored the documents filed by the

Appellant Bank along with I.A. No.131 of 2019, which had duly been

allowed by the Adjudicating authority.

29. Mr. Mehta pointed out that, the NCLAT cited the judgments of this

Court in Jignesh Shah and Anr. v. Union of India and Anr.

1 and

Gaurav Hargovindbhai Dave v. Asset Reconstruction Company

(India) Ltd. and Anr.

2

 and held that the account of the Corporate

Debtor having been declared as NPA on 31st December 2013, the Petition

under Section 7 of the IBC, filed after five years was barred by limitation.

1. 2019 SCC online SC 1254: (2019) 10 SCC 750

2. 2019 SCC Online SC 1239: (2019) 10 SCC 572

10

30. Mr. Mehta argued that the NCLAT had returned a finding that there

was nothing on record to show that the Corporate Debtor had admitted

its debt to the Appellant Bank, overlooking relevant materials on record,

including:

(i) Admission of the Corporate Debtor of payment of

Rs.111 lakhs on 28th March, 2014 towards interest on

the loan.

(ii) Letter dated 5th January, 2015 of the Corporate Debtor

to the Appellant Bank, in response to the Demand

Notice, acknowledging its liability to the Appellant Bank.

(iii) A statement of objection filed by the Corporate Debtor

in the DRT, Bangalore on or about 9th December 2015,

denying the Appellant Bank’s claim of Rs.52,04,438 as

baseless, but admitting that part of the amount was

due.

(iv) The Financial Statements and Balance Sheets of the

Corporate Debtor for the years 2016-2017 (year ending

31st March 2017) and for the years 2017-2018 (year

ending 31st March 2018).

(v) Offer made by the Corporate Debtor on 03.03.2017 to

settle its dues to the Appellant Bank on one time

payment of Rs.5.5 crores.

(vi) Final judgment and decree/order dated 27th March, 2017

passed by the DRT, Bengaluru, in favour of the

Appellant Bank for an amount of Rs.52,12,49,438.60 in

O.A. No.16/2015, with future interest at 16.55% per

annum and the Recovery certificate No.2060/2017

issued by the DRT on 25th May 2017.

11

31. Mr. Mehta argued that the Corporate Debtor had admitted having

paid Rs.111 lakhs towards interest on 28th March, 2014. This showed

that the loan was alive and there was a subsisting jural relationship. On

03.03.2017, within three years, the Corporate Debtor had submitted a

proposal for One Time Settlement (OTS) of its Term Loan Account with

the Appellant Bank. In doing so, the Corporate Debtor had

acknowledged its liability to the Appellant Bank. The Petition under

Section 7 of the IBC was filed well within three years from the date of

such acknowledgement.

32. Mr. Mehta also pointed out that on 27th March 2017 the DRT,

Bengaluru had passed a final judgment and order/decree for an amount

of Rs.52,12,49,438.60 in favour of the Appellant Bank in O.A. No.16/2015

along with future interest at 16.55% per annum with monthly rests, from

the date of application till the date of realisation, and had issued a

Recovery Certificate No.2060 of 2017, dated 25th May 2017 for

realisation of the said amount from the Corporate Debtor and the

Respondent No.1. The Appellant Bank filed the Petition under Section 7

of the IBC for initiation of the Corporate Insolvency Resolution Process

well within 3 years from the aforesaid dates.

33. Mr. Mehta also submitted that the Corporate Debtor had in its

financial statements for the period from 1st April 2016 to 31st March 2017

and the period from 1st April 2017 to 31st March 2018, admitted that the

12

Corporate Debtor had defaulted in repayment of its loan to the Appellant

Bank. The financial statements of the Corporate Debtor, for the period

from 1st April 2017 to 31st March 2018 reflect dues of Rs.67 crores to the

Appellant Bank along with interest as on 31st March 2018, but excluding

penal interest.

34. Mr. Mehta argued that the Corporate Debtor had thus admitted the

existence of jural relationship of debtor and creditor, between the

Corporate Debtor and the Appellant Bank, which is evident from the

documents referred to above. In their objections filed in this Court, the

Respondents have admitted that they deposited Rs.111 lakhs in the

current account of the Corporate Debtor with the Appellant Bank on 28th

March 2014, thereby acknowledging that the jural relationship of debtor

and creditor between the Corporate Debtor and the Appellant Bank

continued after 31st December, 2013.

35. Mr. Mehta has also referred to the Counter Affidavit filed by the

Respondent No.1 and the Corporate Debtor, where they admitted that

the Corporate Debtor had sent a letter dated 3rd March 2017 to the

Appellant Bank, offering to make payment of Rs.5.5 crores by way of

One Time Settlement. Moreover, the judgment and order/decree dated

27th March, 2017 passed by the DRT and the Recovery Certificate

No.2060/2017 referred to above, which gave rise to a fresh cause of

action to the Appellant Bank to initiate proceedings against the

13

Corporate Debtor under Section 7 of the IBC, are matters of record and

in any case, duly admitted.

36. Relying on the judgments of this Court in Sesh Nath Singh and

Anr. v. Baidyabati Sheoraphuli Cooperative Bank Ltd. And Anr.

3

,

Laxmi Pat Surana v. Union Bank of India and Ors.

4

 and Asset

Reconstruction Company (India) Limited. v. Bishal Jaiswal and

Ors.

5

 Mr. Mehta argued that Section 18 of the Limitation Act applied to

proceedings under the IBC. This issue was no longer res integra.

37. On the other hand, Mr. Goutham Shivshankar appearing on behalf

of the Respondents, submitted that under the scheme of the IBC, NCLAT

is the final forum for determination of facts. Mr. Shivshankar argued that

there is a factual determination by the NCLAT that records reveal no

acknowledgement of debt for the purpose of extending limitation.

38. Mr. Shivshankar contended the NCLAT has duly dealt with the

question of acknowledgement holding:

“In the present case there is nothing on record to suggest that the

‘Corporate Debtor’ acknowledged the debt within three years and

agreed to pay the debt. The application moved by ‘Corporate Debtor’

to restructure the debt or payment of the interest does not amount to

acknowledgement of debt. There is nothing on record to suggest that

the ‘Corporate Debtor’ or its authorized representative by its signature

has accepted or acknowledged the debt within three years from the

date of default or from the date when the account was declared NPA,

i.e. on 31

st

 December 2013. The Balance Sheet of the ‘Corporate

Debtor’ for the year 2016-2017 filed after 31

st

 March 2017 cannot be

3. 2021 SCC Online SC 244

4. 2021 SCC Online SC 267

5. 2021 SCC Online SC 321

14

termed to be a document of acknowledgment in terms of section 18 of

the Limitation Act.”

39. According to Mr. Shivshankar, the NCLAT was entirely right in

coming to the factual conclusion that the Petition of the Appellant Bank

under Section 7 of the IBC was barred by limitation. Mr. Shivshankar

argued that NCLT arrived at this conclusion on the basis of facts and

materials on record and it cannot be said that the conclusion is perverse

or otherwise warrants intervention of this Court in a Second Appeal,

restricted to questions of law under Section 62 of the IBC.

40. Mr. Shivshankar argued that this appeal has been filed on the

basis of documents that were brought on record before the Adjudicating

Authority (NCLT) at a belated stage, in a manner contrary to the

provisions of IBC and the law laid down by this Court.

41. Mr. Shivshankar emphatically argued that Appellant Bank filed its

Petition under Section 7 of the IBC on 12th October 2018, about five

years after the date of default and was thus well beyond the period of

limitation of three years, under Article 137 of the Schedule to the

Limitation Act.

42. Mr. Shivshankar pointed out that the Petition under Section 7 of

the IBC mentions the date of default as 30th September 2013, and 31st

December 2013 as the date of declaration of the account of the

15

Corporate Debtor as NPA. There was no averment in the petition of any

acknowledgement of debt which extended the period of limitation.

43. Mr. Shivshankar argued that, under Section 7(3) of the IBC, a

Financial creditor is required to furnish “record of the default recorded

with the information utility or record of evidence of default as may be

specified” and “ any other information as may be specified by the

Board”.

44. Mr. Shivshankar further argued that as per Section 7(4) of the IBC,

the NCLT was required to “ascertain the existence of default from the

records of an information utility or on the basis of other evidence

furnished by the financial creditor under sub-section (3)” within

“fourteen days of the receipt of the application”. Mr. Shivshankar

further argued that under Section 7(5) of the IBC, it was open to the

NCLT to allow seven days to the financial creditor to rectify any defect in

its application.

45. Mr. Shivshankar argued the Adjudicating Authority (NCLT), instead

of proceeding in the manner expressly stipulated in the IBC and without

adhering to the time lines stipulated therein, delayed the adjudication of

the question of admissibility of the petition under Section 7 of the IBC

by four months, and allowed the Appellant Bank to introduce documents

at a belated stage and these documents were considered by the NCLT

despite vehement objections by the Respondents. 

16

46. Mr. Shivshankar further argued that on 2nd February 2019,

Corporate Debtor filed its preliminary objection to the petition under

Section 7 of the IBC, taking, a specific objection that the petition was

time barred since the date of default was admittedly stated to be 30th

September 2013. However, the NCLT after hearing arguments on 8th

February 2019, adjourned the matter with a direction on Counsel

appearing for the Appellant Bank, to file a gist of the case as also a copy

of the order passed by the Karnataka High Court, in a Writ Petition filed

by the Corporate Debtor, whereby the execution of the judgment and/or

order/decree of the DRT in O.A. 16 of 2015 had been stayed.

47. Mr. Shivshankar submitted that, taking advantage of the limited

liberty granted to the Appellant Bank by the Adjudicating Authority to

file a gist of the case and some orders/judgments, the Appellant Bank in

abuse of the process of the Tribunal, filed I.A. No. 131 of 2019,

introducing a whole new set of documents and setting up an entirely

new case for extension of limitation, on the ground of alleged

acknowledgement of debt.

48. Mr. Shivshankar argued that I.A. No.131 of 2019 was supported by

an affidavit. The documents listed above were introduced for the first

time. Even at this stage all the documents were not filed. Some of the

documents were never filed in the NCLT and were first brought on record

in the reply filed before NCLAT. 

17

49. Mr. Shivshankar submitted that on 6th March 2019 the NCLT

passed an order, permitting learned counsel for the Appellant Bank to

file a set of documents in the Registry, after serving copies thereof on

the Respondents, and posted the case on 18th March 2019. Mr.

Shivshankar argued that the Respondents had specifically objected to

the belated filing of additional documents. However, the NCLT

completely ignored the objections raised on behalf of the Respondents

and passed its order dated 21st March 2019, admitting the petition

under Section 7 of the IBC.

50. Mr. Shivshankar submitted that the Respondents immediately

appealed to the NCLAT, inter alia contending that the Adjudicating

Authority had erred in permitting the Appellant Bank to substantially

improve upon its original petition filed under Section 7 of the IBC, by

filing additional documents and making out an entirely new case, after

the expiry of fourteen days specified in Section 7 for ascertainment of

default. Mr. Shivshankar submitted that it was in this background that

the NCLAT made the factual finding at Paragraph 4 of the impugned

order, that there was nothing on record to say that there was any

acknowledgement of debt, renewing or extending limitation.

51. Mr. Shivshankar argued that it is now well settled that the

Limitation Act applies to proceedings under the IBC. Mr. Shivshankar

also agreed that Section 18 of the Limitation Act would apply to

proceedings in the NCLT under Section 7 of the IBC. However, he

18

argued that, what falls for consideration in this appeal, is whether the

Appellant Bank had placed sufficient materials on record, with its

petition under Section 7 of the IBC, to attract Section 18 of the

Limitation Act.

52. Mr. Shivshankar finally argued that Section 62 of the IBC, under

which this appeal has been filed, is restricted to questions of law, unlike

an appeal to the NCLAT from an order of the Adjudicating Authority

(NCLT), which is an appeal both on facts and in law.

53. Mr. Shivshankar cited the judgment of this Court in Nazir

Mohamed v. J. Kamala & Ors.

6

, authored by one of us (Indira

Banerjee J.) where this Court held:-

“To be a question of law “involved in the case”, there must be first, a

foundation for it laid in the pleadings, and the question should

emerge from the sustainable findings of fact, arrived at by

Courts of facts, and it must be necessary to decide that question of law

for a just and proper decision of the case. (emphasis supplied)

54. There can be no dispute with the proposition that, to be a

question of law involved in the case, there must be first a foundation

laid in the pleadings, and the question should emerge from the

sustainable findings of fact, arrived at by Courts of facts, as reiterated

by this Court in Nazir Mohamad v. J. Kamala (supra), rendered in the

context of a second appeal under Section 100 of the Civil Procedure

Code.

6. 2020 SCC OnLine SC 676

19

55. Mr. Shivshankar next cited the judgment of this Court in Babulal

Vardharji Gurjar v. Veer Gurjar Aluminium Industries Private

Limited

7

, where this Court speaking through Maheshwari J., held:

“35. Apart from the above and even if it be assumed that the principles

relating to acknowledgment as per Section 18 of the Limitation Act are

applicable for extension of time for the purpose of the application

under Section 7 of the Code, in our view, neither the said provision and

principles come in operation in the present case nor do they enure to

the benefit of Respondent 2 for the fundamental reason that in the

application made before NCLT, Respondent 2 specifically stated the

date of default as “8-7-2011 being the date of NPA”. It remains

indisputable that neither has any other date of default been stated in

the application nor has any suggestion about any acknowledgment

been made. As noticed, even in Part V of the application, Respondent 2

was required to state the particulars of financial debt with documents

and evidence on record. In the variety of descriptions which could

have been given by the applicant in the said Part V of the

application and even in residuary Point 8 therein, nothing was

at all stated at any place about the so-called acknowledgment

or any other date of default.

35.1. Therefore, on the admitted fact situation of the present

case, where only the date of default as “8-7-2011” has been

stated for the purpose of maintaining the application under

Section 7 of the Code, and not even a foundation is laid in the

application for suggesting any acknowledgment or any other

date of default, in our view, the submissions sought to be

developed on behalf of Respondent 2 at the later stage cannot

be permitted. It remains trite that the question of limitation is

essentially a mixed question of law and facts and when a party seeks

application of any particular provision for extension or enlargement of

the period of limitation, the relevant facts are required to be pleaded

and requisite evidence is required to be adduced. Indisputably, in the

present case, Respondent 2 never came out with any pleading other

than stating the date of default as “8-7-2011” in the application. That

being the position, no case for extension of period of limitation is

available to be examined. In other words, even if Section 18 of the

Limitation Act and principles thereof were applicable, the same would

not apply to the application under consideration in the present case,

looking to the very averment regarding default therein and for want of

any other averment in regard to acknowledgment. In this view of the

matter, reliance on the decision in Mahabir Cold Storage [Mahabir Cold

Storage v. CIT, 1991 Supp (1) SCC 402] does not advance the cause of

Respondent 2.”

7 (2020) 15 SCC 1: 2020 SCC Online SC 647

20

56. Relying on the aforesaid judgment, Mr. Shivshankar contended

that the foundation for a plea of extension of limitation by virtue of

acknowledgment of debt should be in the pleadings and cannot be

developed at a later stage. Mr. Shivshankar emphatically argued that in

this case, there was no foundation in the pleadings for a case of

extension of limitation under Section 18 of the Limitation Act.

57. Relying on Babulal Vardharji Gurjar (supra) Mr. Shivshankar

argued that subsequent improvement in pleadings, at the fag-end of the

NCLT proceedings, ought not to have been countenanced. Mr.

Shivshankar further argued that, in any case, a proper construction of

the documents relied upon by the Appellant Bank would show that they

do not amount to acknowledgment under Section 18 of the Limitation

Act, which requires that any acknowledgment must be made “before

the expiration of the period of limitation for a suit or application”.

58. Mr. Shivshankar cited a Full Bench judgment of Allahabad High

Court in Munshi Lal v. Hira Lal & Anr.

8

, where the High Court held:-

“Now, it is clear that a document said to constitute an acknowledgment

has to be construed in the context in which it is given and that, where

its language is not clear in itself, the context may be examined to see

what it is to which the words refer. That is not to say that any

equivocation in an acknowledgment can be cured by ascertaining what

the probable intention of the acknowledgor was. That is quite a

different thing. But, where, after examining in the light of the context

what it was that the person giving the acknowledgment was actually

referring to the conclusion follows that it is an unequivocal

acknowledgment of a right, then that acknowledgment is sufficient to

satisfy section 19 of the Limitation Act.”

8 ILR 1947 All 11: AIR 1947 All 74(FB)

21

59. Mr. Shivshankar further pointed out that the Corporate Debtor’s

reply dated 5th January 2015 to the legal notice issued by the Appellant

Bank, the reply filed by the Corporate Debtor in O. S. No.16/2015 before

the DRT, Bengaluru, the OTS Proposal dated 3rd March 2017, OTS

Proposal dated 19th June 2017 and the Balance Sheets/Annual Reports of

the Corporate Debtor and a group company of the Corporate Debtor,

namely Kaveri Telecom Products Limited, for the financial years 2016-

17 and 2017-18 are irrelevant for the purpose of Section 18 of the

Limitation Act and many of those documents were in response to

suggestions made by the Appellant Bank seeking willingness to

restructure the account of the Respondents. Moreover, payment of

outstanding interest of Rs.111 lakhs was made in March 2014 that is

over four years before the date of filing of the petition under Section 7

of the IBC.

60. Mr. Shivshankar also argued that the letter dated 24th March 2014

written by the Corporate Debtor was not on record in the proceedings

before the Adjudicating Authority. The document was introduced for the

first time along with the reply filed by the Appellant

Bank before the NCLAT. This document cannot be considered as part of

the records at all.

61. Mr. Shivshankar finally submitted that the communications from

the Respondents were only to buy peace and end the litigation and

22

cannot, therefore, be construed as acknowledgment of debts for the

purpose of Section 18 of the Limitation Act.

62. Referring to the judgment of this Court in Gaurav

Hargovindbhai Dave (supra), Mr. Shivshankar argued that a proposal

for One Time Settlement cannot be construed as an acknowledgment of

debt for the purpose of Section 18 of the Limitation Act.

63. Mr. Shivshankar drew our attention to the fact that a review

petition was pending in this Court against the decision in Gaurav

Hargovindbhai Dave (supra). Admittedly, however, the effect of the

judgment has not been stayed. Until and unless the review application

is allowed and the judgment is reversed, it would operate as a

precedent.

64. Mr. Shivshankar finally cited Jignesh Shah (supra) where this

Court observed:-

“The aforesaid judgments correctly hold that a suit for recovery

based upon a cause of action that is within limitation cannot in

any manner impact the separate and independent remedy

of a winding-up proceeding. In law, when time begins to run,

it can only be extended in the manner provided in the Limitation

Act. For example, an acknowledgment of liability under Section

18 of the Limitation Act would certainly extend the limitation

period, but a suit for recovery, which is a separate and

independent proceeding distinct from the remedy of winding up

would, in no manner, impact the limitation within which the

winding-up proceeding is to be filed, by somehow keeping the

debt alive for the purpose of the winding-up proceeding.” 

23

65. Mr. Shivshankar concluded his arguments with the submission

that the Petition under Section 7 of the IBC was not based on the

Recovery Certificate issued by the DRT or the judgment and order of the

DRT. Therefore, there could be no question of reckoning limitation from

the date of failure to make payment in terms of the Recovery

Certificate.

66. The IBC is an Act “to consolidate and amend the laws relating to

reorganisation and insolvency resolution of corporate persons,

partnership firms and individuals in a time-bound manner for

maximisation of value of assets of such persons, to promote

entrepreneurship, availability of credit and balance the interests of all

the stakeholders including alteration in the order of priority of payment

of Government dues and to establish an Insolvency and Bankruptcy

Board of India, and for matters connected therewith or incidental

thereto”.

67. The IBC aims at promoting, inter alia, investments and also

resolution of insolvency of Corporate persons. As per its Statement of

Objects and Reasons “the objective of the Insolvency and Bankruptcy

Code, 2015 is to consolidate and amend the laws relating to

reorganization and insolvency resolution of corporate persons,

partnership firms and individuals in a time bound manner for

maximization of value of assets of such persons, to promote

entrepreneurship, availability of credit and balance the interests of all

24

the stakeholders including alteration in the priority of payment of

government dues and to establish an Insolvency and Bankruptcy Fund,

and matters connected therewith or incidental thereto. An effective

legal framework for timely resolution of insolvency and bankruptcy

would support development of credit markets and encourage

entrepreneurship. It would also improve Ease of Doing Business, and

facilitate more investments leading to higher economic growth and

development”.

68. Under the scheme of the IBC, the Insolvency Resolution Process

begins, when a default takes place, in the sense that a debt becomes

due and is not paid. Some of the relevant provisions of the IBC, are set

out hereinbelow for convenience:

“3. Definitions.—In this Code, unless the context otherwise requires,—

(6) “claim” means—

(a) a right to payment, whether or not such right is reduced to judgment,

fixed, disputed, undisputed, legal, equitable, secured or unsecured;

(b) right to remedy for breach of contract under any law for the time being

in force, if such breach gives rise to a right to payment, whether or not

such right is reduced to judgment, fixed, matured, unmatured, disputed,

undisputed, secured or unsecured;

(7) “corporate person” means a company as defined in clause (20) of

Section 2 of the Companies Act, 2013 (18 of 2013), a limited liability

partnership, as defined in clause (n) of sub-section (1) of Section 2 of the

Limited Liability Partnership Act, 2008 (6 of 2009), or any other person

incorporated with limited liability under any law for the time being in force but

shall not include any financial service provider;

(8) “corporate debtor” means a corporate person who owes a debt to any

person;

…..

(10) “creditor” means any person to whom a debt is owed and includes a

financial creditor, an operational creditor, a secured creditor, an unsecured

creditor and a decree-holder;

25

(11) “debt” means a liability or obligation in respect of a claim which is due

from any person and includes a financial debt and operational debt;

(12) “default” means non-payment of debt when whole or any part or

instalment of the amount of debt has become due and payable and is

not 5[paid] by the debtor or the corporate debtor, as the case may be;

4. Application of this Part.—(1) This Part shall apply to matters relating to

the insolvency and liquidation of corporate debtors where the minimum

amount of the default is one lakh rupees:

Provided that the Central Government may, by notification, specify the

minimum amount of default of higher value which shall not be more than one

crore rupees.

5. Definitions.—In this Part, unless the context otherwise requires—

***

(7) “financial creditor” means any person to whom a financial debt is

owed and includes a person to whom such debt has been legally

assigned or transferred to;

(8) “financial debt” means a debt along with interest, if any, which is

disbursed against the consideration for the time value of money and

includes—

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any acceptance credit

facility or its dematerialised equivalent;

(c) any amount raised pursuant to any note purchase facility or the

issue of bonds, notes, debentures, loan stock or any similar

instrument;

(d) the amount of any liability in respect of any lease or hire-purchase

contract which is deemed as a finance or capital lease under the

Indian Accounting Standards or such other accounting standards as

may be prescribed;

(e) receivables sold or discounted other than any receivables sold on

non-recourse basis;

(f) any amount raised under any other transaction, including any

forward sale or purchase agreement, having the commercial effect of

a borrowing;

(g) any derivative transaction entered into in connection with

protection against or benefit from fluctuation in any rate or price and

for calculating the value of any derivative transaction, only the market

value of such transaction shall be taken into account;

(h) any counter-indemnity obligation in respect of a guarantee,

indemnity, bond, documentary letter of credit or any other instrument

issued by a bank or financial institution;

(i) the amount of any liability in respect of any of the guarantee or

indemnity for any of the items referred to in sub-clauses (a) to (h) of

this clause;

6. Persons who may initiate corporate insolvency resolution process.

—Where any corporate debtor commits a default, a financial creditor, an

operational creditor or the corporate debtor itself may initiate corporate

insolvency resolution process in respect of such corporate debtor in the

manner as provided under this Chapter.

26

7. Initiation of corporate insolvency resolution process by financial

creditor.—(1) A financial creditor either by itself or jointly with 15[other

financial creditors, or any other person on behalf of the financial creditor, as

may be notified by the Central Government, may file an application for

initiating corporate insolvency resolution process against a corporate debtor

before the Adjudicating Authority when a default has occurred.

Provided that for the financial creditors, referred to in clauses (a) and (b) of

sub-section (6-A) of Section 21, an application for initiating corporate

insolvency resolution process against the corporate debtor shall be filed

jointly by not less than one hundred of such creditors in the same class or not

less than ten per cent. of the total number of such creditors in the same class,

whichever is less:

Provided further that for financial creditors who are allottees under a real

estate project, an application for initiating corporate insolvency resolution

process against the corporate debtor shall be filed jointly by not less than one

hundred of such allottees under the same real estate project or not less than

ten per cent. of the total number of such allottees under the same real estate

project, whichever is less:

Provided also that where an application for initiating the corporate insolvency

resolution process against a corporate debtor has been filed by a financial

creditor referred to in the first and second provisos and has not been admitted

by the Adjudicating Authority before the commencement of the Insolvency

and Bankruptcy Code (Amendment) Act, 2020, such application shall be

modified to comply with the requirements of the first or second proviso within

thirty days of the commencement of the said Act, failing which the application

shall be deemed to be withdrawn before its admission.]

Explanation.—For the purposes of this sub-section, a default includes a default

in respect of a financial debt owed not only to the applicant financial creditor

but to any other financial creditor of the corporate debtor.

(2) The financial creditor shall make an application under sub-section (1) in

such form and manner and accompanied with such fee as may be prescribed.

(3) The financial creditor shall, along with the application furnish—

(a) record of the default recorded with the information utility or such

other record or evidence of default as may be specified;

(b) the name of the resolution professional proposed to act as an interim

resolution professional; and

(c) any other information as may be specified by the Board.

(4) The Adjudicating Authority shall, within fourteen days of the receipt of the

application under sub-section (2), ascertain the existence of a default from

the records of an information utility or on the basis of other evidence

furnished by the financial creditor under sub-section (3):

27

Provided that if the Adjudicating Authority has not ascertained the existence

of default and passed an order under sub-section (5) within such time, it shall

record its reasons in writing for the same.]

(5) Where the Adjudicating Authority is satisfied that—

(a) a default has occurred and the application under sub-section (2) is

complete, and there is no disciplinary proceedings pending against the

proposed resolution professional, it may, by order, admit such application; or

(b) default has not occurred or the application under sub-section (2) is

incomplete or any disciplinary proceeding is pending against the

proposed resolution professional, it may, by order, reject such

application:

Provided that the Adjudicating Authority shall, before rejecting the application

under clause (b) of sub-section (5), give a notice to the applicant to rectify the

defect in his application within seven days of receipt of such notice from the

Adjudicating Authority.

(6) The corporate insolvency resolution process shall commence from the date

of admission of the application under sub-section (5).

(7) The Adjudicating Authority shall communicate—

(a) the order under clause (a) of sub-section (5) to the financial creditor and the

corporate debtor;

(b) the order under clause (b) of sub-section (5) to the financial creditor,

within seven days of admission or rejection of such application, as the

case may be.

8. Insolvency resolution by operational creditor.—(1) An operational

creditor may, on the occurrence of a default, deliver a demand notice of

unpaid operational debtor copy of an invoice demanding payment of the

amount involved in the default to the corporate debtor in such form and

manner as may be prescribed.

(2) The corporate debtor shall, within a period of ten days of the receipt of the

demand notice or copy of the invoice mentioned in sub-section

(1) bring to the notice of the operational creditor—

(a) existence of a dispute, if any, or record of the pendency of the suit or

arbitration proceedings filed before the receipt of such notice or invoice in

relation to such dispute;

(b) the payment of unpaid operational debt—

(i) by sending an attested copy of the record of electronic transfer of the

unpaid amount from the bank account of the corporate debtor; or

(ii) by sending an attested copy of record that the operational creditor

has encashed a cheque issued by the corporate debtor.

Explanation.—For the purposes of this section, a “demand notice” means a

notice served by an operational creditor to the corporate debtor demanding

payment of the operational debt in respect of which the default has

occurred.”

28

12. Time-limit for completion of insolvency resolution process.—(1)

Subject to sub-section (2), the corporate insolvency resolution process shall be

completed within a period of one hundred and eighty days from the date of

admission of the application to initiate such process.

(2) The resolution professional shall file an application to the Adjudicating

Authority to extend the period of the corporate insolvency resolution process

beyond one hundred and eighty days, if instructed to do so by a resolution

passed at a meeting of the committee of creditors by a vote of sixty-six per

cent of the voting shares.

(3) On receipt of an application under sub-section (2), if the Adjudicating

Authority is satisfied that the subject-matter of the case is such that corporate

insolvency resolution process cannot be completed within one hundred and

eighty days, it may by order extend the duration of such process beyond one

hundred and eighty days by such further period as it thinks fit, but not

exceeding ninety days:

Provided that any extension of the period of corporate insolvency resolution

process under this section shall not be granted more than once:

Provided further that the corporate insolvency resolution process shall

mandatorily be completed within a period of three hundred and thirty days

from the insolvency commencement date, including any extension of the

period of corporate insolvency resolution process granted under this section

and the time taken in legal proceedings in relation to such resolution process

of the corporate debtor:

Provided also that where the insolvency resolution process of a corporate

debtor is pending and has not been completed within the period referred to in

the second proviso, such resolution process shall be completed within a period

of ninety days from the date of commencement of the Insolvency and

Bankruptcy Code (Amendment) Act, 2019.

12-A. Withdrawal of application admitted under Section 7, 9 or 10.—

The Adjudicating Authority may allow the withdrawal of application admitted

under Section 7 or Section 9 or Section 10, on an application made by the

applicant with the approval of ninety per cent. voting share of the committee

of creditors, in such manner as may be specified.

13. Declaration of moratorium and public announcement.—(1) The

Adjudicating Authority, after admission of the application under Section 7 or

Section 9 or Section 10, shall, by an order—

(a) declare a moratorium for the purposes referred to in Section 14;

(b) cause a public announcement of the initiation of corporate insolvency

resolution process and call for the submission of claims under Section

15; and

(c) appoint an interim resolution professional in the manner as laid down

in Section 16.

(2) The public announcement referred to in clause (b) of sub-section (1) shall

be made immediately after the appointment of the interim resolution

professional.

29

14. Moratorium.—(1) Subject to provisions of sub-sections (2) and (3), on

the insolvency commencement date, the Adjudicating Authority shall by order

declare moratorium for prohibiting all of the following, namely—

(a) the institution of suits or continuation of pending suits or

proceedings against the corporate debtor including execution of any

judgment, decree or order in any court of law, tribunal, arbitration panel

or other authority;

(b) transferring, encumbering, alienating or disposing of by the

corporate debtor any of its assets or any legal right or beneficial interest

therein;

(c) 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 Securitisation and Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002 (54 of 2002);

(d) the recovery of any property by an owner or lessor where such

property is occupied by or in the possession of the corporate debtor.

Explanation.—For the purposes of this sub-section, it is hereby clarified that

notwithstanding anything contained in any other law for the time being in

force, a license, permit, registration, quota, concession, clearances or a

similar grant or right given by the Central Government, State Government,

local authority, sectoral regulator or any other authority constituted under any

other law for the time being in force, shall not be suspended or terminated on

the grounds of insolvency, subject to the condition that there is no default in

payment of current dues arising for the use or continuation of the license,

permit, registration, quota, concession, clearances or a similar grant or right

during the moratorium period.]

(2) The supply of essential goods or services to the corporate debtor as may

be specified shall not be terminated or suspended or interrupted during

moratorium period.

(2-A) Where the interim resolution professional or resolution professional, as the

case may be, considers the supply of goods or services critical to protect and

preserve the value of the corporate debtor and manage the operations of such

corporate debtor as a going concern, then the supply of such goods or services

shall not be terminated, suspended or interrupted during the period of

moratorium, except where such corporate debtor has not paid dues arising from

such supply during the moratorium period or in such circumstances as may be

specified.

(3) The provisions of sub-section (1) shall not apply to—

(a) such transactions, agreements or other arrangements as may be notified

by the Central Government in consultation with any financial sector

regulator or any other authority;]

(b) a surety in a contract of guarantee to a corporate debtor.]

30

(4) The order of moratorium shall have effect from the date of such order till

the completion of the corporate insolvency resolution process:

Provided that where at any time during the corporate insolvency resolution

process period, if the Adjudicating Authority approves the resolution plan

under sub-section (1) of Section 31 or passes an order for liquidation of

corporate debtor under Section 33, the moratorium shall cease to have effect

from the date of such approval or liquidation order, as the case may be.

15. Public announcement of corporate insolvency resolution process.

—(1) The public announcement of the corporate insolvency resolution process

under the order referred to in Section 13 shall contain the following

information, namely:—

(a) name and address of the corporate debtor under the corporate

insolvency resolution process;

(b) name of the authority with which the corporate debtor is incorporated

or registered;

(c) the last date for submission of claims, as may be specified;

(d) details of the interim resolution professional who shall be vested with

the management of the corporate debtor and be responsible for

receiving claims;

(e) penalties for false or misleading claims; and

(f) the date on which the corporate insolvency resolution process shall

close, which shall be the one hundred and eightieth day from the date of

the admission of the application under Sections 7, 9 or Section 10, as the

case may be.

(2) The public announcement under this section shall be made in such

manner as may be specified.

16. Appointment and tenure of interim resolution professional.—(1) The

Adjudicating Authority shall appoint an interim resolution professional on the

insolvency commencement date.

(2) Where the application for corporate insolvency resolution process is made

by a financial creditor or the corporate debtor, as the case may be, the

resolution professional, as proposed respectively in the application under

Section 7 or Section 10, shall be appointed as the interim resolution

professional, if no disciplinary proceedings are pending against him.

(3) Where the application for corporate insolvency resolution process is made

by an operational creditor and—

(a) no proposal for an interim resolution professional is made, the

Adjudicating Authority shall make a reference to the Board for the

recommendation of an insolvency professional who may act as an interim

resolution professional;

31

(b) a proposal for an interim resolution professional is made under subsection (4) of Section 9, the resolution professional as proposed, shall be

appointed as the interim resolution professional, if no disciplinary

proceedings are pending against him.

(4) The Board shall, within ten days of the receipt of a reference from the

Adjudicating Authority under sub-section (3), recommend the name of an

insolvency professional to the Adjudicating Authority against whom no

disciplinary proceedings are pending.

(5) The term of the interim resolution professional shall continue till the date

of appointment of the resolution professional under Section 22.

17. Management of affairs of corporate debtor by interim resolution

professional.—(1) From the date of appointment of the interim resolution

professional,—

(a) the management of the affairs of the corporate debtor shall vest in

the interim resolution professional;

(b) the powers of the board of directors or the partners of the corporate

debtor, as the case may be, shall stand suspended and be exercised by

the interim resolution professional;

(c) the officers and managers of the corporate debtor shall report to the

interim resolution professional and provide access to such documents

and records of the corporate debtor as may be required by the interim

resolution professional;

(d) the financial institutions maintaining accounts of the corporate

debtor shall act on the instructions of the interim resolution professional

in relation to such accounts and furnish all information relating to the

corporate debtor available with them to the interim resolution

professional.

18. Duties of interim resolution professional.—(1) The interim resolution

professional shall perform the following duties, namely—

(a) collect all information relating to the assets, finances and operations of the

corporate debtor for determining the financial position of the corporate

debtor, including information relating to—

(i) business operations for the previous two years;

(ii) financial and operational payments for the previous two years;

(iii) list of assets and liabilities as on the initiation date; and

(iv) such other matters as may be specified;

(b) receive and collate all the claims submitted by creditors to him,

pursuant to the public announcement made under Sections 13 and 15;

(c) constitute a committee of creditors;

(d) monitor the assets of the corporate debtor and manage its operations

until a resolution professional is appointed by the committee of creditors;

32

(e) file information collected with the information utility, if necessary;

and

(f) take control and custody of any asset over which the corporate debtor

has ownership rights as recorded in the balance sheet of the corporate

debtor, or with information utility or the depository of securities or any

other registry that records the ownership of assets including—

(i) assets over which the corporate debtor has ownership rights which

may be located in a foreign country;

(ii) assets that may or may not be in possession of the corporate

debtor;

(iii) tangible assets, whether movable or immovable;

(iv) intangible assets including intellectual property;

(v) securities including shares held in any subsidiary of the corporate

debtor, financial instruments, insurance policies;

(vi) assets subject to the determination of ownership by a court or

authority;

(g) to perform such other duties as may be specified by the Board.

Explanation.—For the purposes of this section, the term “assets” shall not

include the following, namely—

(a) assets owned by a third party in possession of the corporate debtor

held under trust or under contractual arrangements including bailment;

(b) assets of any Indian or foreign subsidiary of the corporate debtor; and

(c) such other assets as may be notified by the Central Government in

consultation with any financial sector regulator.

20. Management of operations of corporate debtor as going concern.

—(1) The interim resolution professional shall make every endeavour to

protect and preserve the value of the property of the corporate debtor and

manage the operations of the corporate debtor as a going concern.

21. Committee of creditors.—(1) The interim resolution professional shall

after collation of all claims received against the corporate debtor and

determination of the financial position of the corporate debtor, constitute a

committee of creditors.

(2) The committee of creditors shall comprise all financial creditors of the

corporate debtor:

Provided that a financial creditor or the authorised representative of the

financial creditor referred to in sub-section (6) or sub-section (6-A) or subsection (5) of Section 24, if it is a related party of the corporate debtor, shall

not have any right of representation, participation or voting in a meeting of

the committee of creditors:

33

Provided further that the first proviso shall not apply to a financial creditor,

regulated by a financial sector regulator, if it is a related party of the

corporate debtor solely on account of conversion or substitution of debt into

equity shares or instruments convertible into equity shares or completion of

such transactions as may be prescribed, prior to the insolvency

commencement date.

22. Appointment of resolution professional.—(1) The first meeting of the

committee of creditors shall be held within seven days of the constitution of

the committee of creditors.

(2) The committee of creditors, may, in the first meeting, by a majority vote of

not less than sixty-six] per cent of the voting share of the financial creditors,

either resolve to appoint the interim resolution professional as a resolution

professional or to replace the interim resolution professional by another

resolution professional.

(3) Where the committee of creditors resolves under sub-section (2)—

(a) to continue the interim resolution professional as resolution

professional subject to a written consent from the interim resolution

professional in the specified form], it shall communicate its decision to

the interim resolution professional, the corporate debtor and the

Adjudicating Authority; or

(b) to replace the interim resolution professional, it shall file an

application before the Adjudicating Authority for the appointment of the

proposed resolution professional along with a written consent from the

proposed resolution professional in the specified form.

(4) The Adjudicating Authority shall forward the name of the resolution

professional proposed under clause (b) of sub-section (3) to the Board for its

confirmation and shall make such appointment after confirmation by the

Board.

(5) Where the Board does not confirm the name of the proposed resolution

professional within ten days of the receipt of the name of the proposed

resolution professional, the Adjudicating Authority shall, by order, direct the

interim resolution professional to continue to function as the resolution

professional until such time as the Board confirms the appointment of the

proposed resolution professional.

23. Resolution professional to conduct corporate insolvency

resolution process.—(1) Subject to Section 27, the resolution professional

shall conduct the entire corporate insolvency resolution process and manage

the operations of the corporate debtor during the corporate insolvency

resolution process period:

Provided that the resolution professional shall continue to manage the

operations of the corporate debtor after the expiry of the corporate insolvency

resolution process period, until an order approving the resolution plan under

sub-section (1) of Section 31 or appointing a liquidator under Section 34 is

passed by the Adjudicating Authority.

34

(2) The resolution professional shall exercise powers and perform duties as

are vested or conferred on the interim resolution professional under this

Chapter.

(3) In case of any appointment of a resolution professional under sub-sections

(4) of Section 22, the interim resolution professional shall provide all the

information, documents and records pertaining to the corporate debtor in his

possession and knowledge to the resolution professional.

25. Duties of resolution professional.—(1) It shall be the duty of the

resolution professional to preserve and protect the assets of the corporate

debtor, including the continued business operations of the corporate debtor.

(2) For the purposes of sub-section (1), the resolution professional shall

undertake the following actions, namely—

(a) take immediate custody and control of all the assets of the corporate

debtor, including the business records of the corporate debtor;

(b) represent and act on behalf of the corporate debtor with third parties,

exercise rights for the benefit of the corporate debtor in judicial, quasijudicial or arbitration proceedings;

(c) raise interim finances subject to the approval of the committee of

creditors under Section 28;

25-A. Rights and duties of authorised representative of financial

creditors.—(1) The authorised representative under sub-section (6) or subsection (6-A) of Section 21 or sub-section (5) of Section 24 shall have the right

to participate and vote in meetings of the committee of creditors on behalf of

the financial creditor he represents in accordance with the prior voting

instructions of such creditors obtained through physical or electronic means.

(2) It shall be the duty of the authorised representative to circulate the

agenda and minutes of the meeting of the committee of creditors to the

financial creditor he represents.

(3) The authorised representative shall not act against the interest of the

financial creditor he represents and shall always act in accordance with their

prior instructions:

Provided that if the authorised representative represents several financial

creditors, then he shall cast his vote in respect of each financial creditor in

accordance with instructions received from each financial creditor, to the

extent of his voting share:

Provided further that if any financial creditor does not give prior instructions

through physical or electronic means, the authorised representative shall

abstain from voting on behalf of such creditor.

(3-A) Notwithstanding anything to the contrary contained in sub-section (3),

the authorised representative under sub-section (6-A) of Section 21 shall cast

his vote on behalf of all the financial creditors he represents in accordance

35

with the decision taken by a vote of more than fifty per cent. of the voting

share of the financial creditors he represents, who have cast their vote:

Provided that for a vote to be cast in respect of an application under Section

12-A, the authorised representative shall cast his vote in accordance with the

provisions of sub-section (3).

(4) The authorised representative shall file with the committee of creditors

any instructions received by way of physical or electronic means, from the

financial creditor he represents, for voting in accordance therewith, to ensure

that the appropriate voting instructions of the financial creditor he represents

is correctly recorded by the interim resolution professional or resolution

professional, as the case may be.

Explanation.—For the purposes of this section, the “electronic means” shall

be such as may be specified.]

27. Replacement of resolution professional by committee of

creditors.—(1) Where, at any time during the corporate insolvency resolution

process, the committee of creditors is of the opinion that a resolution

professional appointed under Section 22 is required to be replaced, it may

replace him with another resolution professional in the manner provided

under this section.

(2) The committee of creditors may, at a meeting, by a vote of sixty-six per

cent. of voting shares, resolve to replace the resolution professional appointed

under Section 22 with another resolution professional, subject to a written

consent from the proposed resolution professional in the specified form.

(3) The committee of creditors shall forward the name of the insolvency

professional proposed by them to the Adjudicating Authority.

(4) The Adjudicating Authority shall forward the name of the proposed

resolution professional to the Board for its confirmation and a resolution

professional shall be appointed in the same manner as laid down in Section

16.

(5) Where any disciplinary proceedings are pending against the proposed

resolution professional under sub-section (3), the resolution professional

appointed under Section 22 shall continue till the appointment of another

resolution professional under this section.

30. Submission of resolution plan.—(1) A resolution applicant may submit

a resolution plan along with an affidavit stating that he is eligible under

Section 29-A to the resolution professional prepared on the basis of the

information memorandum.

(2) The resolution professional shall examine each resolution plan received by

him to confirm that each resolution plan—

(a) provides for the payment of insolvency resolution process costs in a

manner specified by the Board in priority to the payment of other debts

of the corporate debtor;

36

(b) provides for the payment of debts of operational creditors in such

manner as may be specified by the Board which shall not be less than—

(i) the amount to be paid to such creditors in the event of a liquidation of

the corporate debtor under Section 53; or

(ii) the amount that would have been paid to such creditors, if the

amount to be distributed under the resolution plan had been distributed

in accordance with the order of priority in sub-section (1) of Section 53,

whichever is higher, and provides for the payment of debts of financial

creditors, who do not vote in favour of the resolution plan, in such

manner as may be specified by the Board, which shall not be less than

the amount to be paid to such creditors in accordance with sub-section

(1) of Section 53 in the event of a liquidation of the corporate debtor.

Explanation 1.—For the removal of doubts, it is hereby clarified that a

distribution in accordance with the provisions of this clause shall be fair

and equitable to such creditors.

Explanation 2.—For the purposes of this clause, it is hereby declared

that on and from the date of commencement of the Insolvency and

Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause

shall also apply to the corporate insolvency resolution process of a

corporate debtor—

(i) where a resolution plan has not been approved or rejected by the

Adjudicating Authority;

(ii) where an appeal has been preferred under Section 61 or Section 62

or such an appeal is not time barred under any provision of law for the

time being in force; or

(iii) where a legal proceeding has been initiated in any court against the

decision of the Adjudicating Authority in respect of a resolution plan;]

(c) provides for the management of the affairs of the corporate debtor

after approval of the resolution plan;

(d) the implementation and supervision of the resolution plan;

(e) does not contravene any of the provisions of the law for the time

being in force;

(f) conforms to such other requirements as may be specified by the

Board.

Explanation.—For the purposes of clause (e), if any approval of shareholders is

required under the Companies Act, 2013 (18 of 2013) or any other law for the

time being in force for the implementation of actions under the resolution plan,

such approval shall be deemed to have been given and it shall not be a

contravention of that Act or law.

37

(3) The resolution professional shall present to the committee of

creditors for its approval such resolution plans which confirm the

conditions referred to in sub-section (2).

(4) The committee of creditors may approve a resolution plan by a vote of not

less than sixty-six per cent of voting share of the financial creditors, after

considering its feasibility and viability, the manner of distribution proposed,

which may take into account the order of priority amongst creditors as laid

down in sub-section (1) of Section 53,including the priority and value of the

security interest of a secured creditor and such other requirements as may be

specified by the Board:

Provided that the committee of creditors shall not approve a resolution plan,

submitted before the commencement of the Insolvency and Bankruptcy Code

(Amendment) Ordinance, 2017, where the resolution applicant is ineligible

under Section 29-A and may require the resolution professional to invite a

fresh resolution plan where no other resolution plan is available with it:

Provided further that where the resolution applicant referred to in the first

proviso is ineligible under clause (c) of Section 29-A, the resolution applicant

shall be allowed by the committee of creditors such period, not exceeding

thirty days, to make payment of overdue amounts in accordance with the

proviso to clause (c) of Section 29-A:

Provided also that nothing in the second proviso shall be construed as

extension of period for the purposes of the proviso to sub-section (3) of

Section 12, and the corporate insolvency resolution process shall be

completed within the period specified in that sub-section.]

Provided also that the eligibility criteria in Section 29-A as amended by the

Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (Ord. 6 of

2018) shall apply to the resolution applicant who has not submitted resolution

plan as on the date of commencement of the Insolvency and Bankruptcy Code

(Amendment) Ordinance, 2018.

(5) The resolution applicant may attend the meeting of the committee of

creditors in which the resolution plan of the applicant is considered:

Provided that the resolution applicant shall not have a right to vote at the

meeting of the committee of creditors unless such resolution applicant is also

a financial creditor.

(6) The resolution professional shall submit the resolution plan as approved by

the committee of creditors to the Adjudicating Authority.

31. Approval of resolution plan.—(1) If the Adjudicating Authority is

satisfied that the resolution plan as approved by the committee of creditors

under sub-section (4) of Section 30 meets the requirements as referred to in

sub-section (2) of Section 30, it shall by order approve the resolution plan

which shall be binding on the corporate debtor and its employees, members,

creditors, including the Central Government, any State Government or any

local authority to whom a debt in respect of the payment of dues arising

under any law for the time being in force, such as authorities to whom

38

statutory dues are owed, guarantors and other stakeholders involved in the

resolution plan:

Provided that the Adjudicating Authority shall, before passing an order for

approval of resolution plan under this sub-section, satisfy that the resolution

plan has provisions for its effective implementation.

(2) Where the Adjudicating Authority is satisfied that the resolution plan does

not confirm to the requirements referred to in sub-section (1), it may, by an

order, reject the resolution plan.

(3) After the order of approval under sub-section (1),—

(a) the moratorium order passed by the Adjudicating Authority under

Section 14 shall cease to have effect; and

(b) the resolution professional shall forward all records relating to the

conduct of the corporate insolvency resolution process and the resolution

plan to the Board to be recorded on its database.

(4) The resolution applicant shall, pursuant to the resolution plan approved

under sub-section (1), obtain the necessary approval required under any law for

the time being in force within a period of one year from the date of approval of

the resolution plan by the Adjudicating Authority under sub-section (1) or within

such period as provided for in such law, whichever is later:

Provided that where the resolution plan contains a provision for combination,

as referred to in Section 5 of the Competition Act, 2002 (12 of 2003), the

resolution applicant shall obtain the approval of the Competition Commission

of India under that Act prior to the approval of such resolution plan by the

committee of creditors.]

33. Initiation of liquidation.—(1) Where the Adjudicating Authority,—

(a) before the expiry of the insolvency resolution process period or the

maximum period permitted for completion of the corporate insolvency

resolution process under Section 12 or the fast track corporate

insolvency resolution process under Section 56, as the case may be,

does not receive a resolution plan under sub-section (6) of Section 30; or

(b) rejects the resolution plan under Section 31 for the non-compliance

of the requirements specified therein,

it shall—

(i) pass an order requiring the corporate debtor to be liquidated in the

manner as laid down in this Chapter;

(ii) issue a public announcement stating that the corporate debtor is in

liquidation; and

(iii) require such order to be sent to the authority with which the

corporate debtor is registered.

(2) Where the resolution professional, at any time during the corporate

insolvency resolution process but before confirmation of resolution plan,

39

intimates the Adjudicating Authority of the decision of the committee of

creditors approved by not less than sixty-six per cent of the voting share] to

liquidate the corporate debtor, the Adjudicating Authority shall pass a

liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of

sub-section (1).

Explanation.—For the purposes of this sub-section, it is hereby declared that

the committee of creditors may take the decision to liquidate the corporate

debtor, any time after its constitution under sub-section (1) of Section 21 and

before the confirmation of the resolution plan, including at any time before the

preparation of the information memorandum.

(3) Where the resolution plan approved by the Adjudicating Authority is

contravened by the concerned corporate debtor, any person other than the

corporate debtor, whose interests are prejudicially affected by such

contravention, may make an application to the Adjudicating Authority for a

liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of

sub-section (1).

(4) On receipt of an application under sub-section (3), if the Adjudicating

Authority determines that the corporate debtor has contravened the

provisions of the resolution plan, it shall pass a liquidation order as referred to

in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

(5) Subject to Section 52, when a liquidation order has been passed, no suit or

other legal proceeding shall be instituted by or against the corporate debtor:

Provided that a suit or other legal proceeding may be instituted by the

liquidator, on behalf of the corporate debtor, with the prior approval of the

Adjudicating Authority…”.

69. The scheme of the IBC is to ensure that when a default takes

place, in the sense that a debt becomes due and is not paid, the

Corporate Insolvency Resolution Process begins. Where any corporate

debtor commits default, a financial creditor, an operational creditor or

the corporate debtor itself may initiate Corporate Insolvency Resolution

Process in respect of such corporate debtor in the manner as provided

in Chapter II of the IBC.

70. The provisions of the IBC are designed to ensure that the business

and/or commercial activities of the Corporate Debtor are continued by a

40

Resolution Professional, post imposition of a moratorium, which would

give the Corporate Debtor some reprieve from coercive litigation, which

could drain the Corporate Debtor of its financial resources. This is to

enable the Corporate Debtor to improve its financial health and at the

same time repay the dues of its creditors.

71. Under Section 7(2) of the IBC, read with the Statutory 2016

Adjudicating Authority Rules, made in exercise of powers conferred,

inter alia, by clauses (c) (d) (e) and (f) of sub-section (1) of Section 239

read with Sections 7, 8, 9 and 10 of the IBC, a financial creditor is

required to apply in the prescribed Form 1 for initiation of the Corporate

Insolvency Resolution Process, against a Corporate Debtor under

Section 7 of the IBC, accompanied with documents and records required

therein, and as specified in the Insolvency and Bankruptcy Board of

India (Insolvency Resolution Process for Corporate Persons) Regulations,

2016, hereinafter referred to as the 2016 IB Board of India Regulations.

72. Statutory Form 1 under Rule 4(1) of the 2016 Adjudicating

Authority Rules comprises Parts I to V, of which Part I pertains to

particulars of the Applicant, Part II pertains to particulars of the

Corporate Debtor and Part III pertains to particulars of the proposed

Interim Resolution Professional. Parts IV and V which require particulars

of Financial Debt with Documents, Records and Evidence of default, is

extracted hereinbelow:

41

PART IV

PARTICULARS OF FINANCIAL DEBT

1 TOTAL AMOUNT OF DEBT GRANTED DATE(S) OF

DISBURSEMENT

2 AMOUNT CLAIMED TO BE IN DEFAULT AND THE

DATE ON WHICH THE DEFAULT OCCURRED

(ATTACH THE WORKINGS FOR COMPUTATION OF

AMOUNT AND DAYS OF DEFAULT IN TABULAR

FORM)

PART V

PARTICULARS OF FINANCIAL DEBT [DOCUMENTS, RECORDS AND EVIDENCE OF

DEFAULT]

1 PARTICULARS OF SECURITY HELD, IF ANY, THE DATE OF ITS CREATION, ITS

ESTIMATED VALUE AS PER THE CREDITOR.

ATTACH A COPY OF A CERTIFICATE OF REGISTRATION OF CHARGE ISSUED BY THE

REGISTRAR OF COMPANIES (IF THE CORPORATE DEBTOR IS A COMPANY)

2 PARTICULARS OF AN ORDER OF A COURT, TRIBUNAL OR ARBITRAL PANEL

ADJUDICATING ON THE DEFAULT, IF ANY

(ATTACH A COPY OF THE ORDER)

3 RECORD OF DEFAULT WITH THE INFORMATION UTILITY, IF ANY (ATTACH A COPY OF

SUCH RECORD)

4 DETAILS OF SUCCESSION CERTIFICATE, OR PROBATE OF A WILL, OR LETTER OF

ADMINISTRATION, OR COURT DECREE (AS MAY BE APPLICABLE), UNDER THE INDIAN

SUCCESSION ACT, 1925 (10 OF 1925) (ATTACH A COPY)

5 THE LATEST AND COMPLETE COPY OF THE FINANCIAL CONTRACT REFLECTING ALL

AMENDMENTS AND WAIVERS TO DATE

(ATTACH A COPY)

6 A RECORD OF DEFAULT AS AVAILABLE WITH ANY CREDIT INFORMATION COMPANY

(ATTACH A COPY)

7 COPIES OF ENTRIES IN A BANKERS BOOK IN ACCORDANCE WITH THE BANKERS

BOOKS EVIDENCE ACT, 1891 (18 OF 1891)

(ATTACH A COPY)

8 LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE

THE EXISTENCE OF FINANCIAL, DEBT, THE AMOUNT AND DATE OF DEFAULT

73. Since a Financial Creditor is required to apply under Section 7 of

the IBC, in statutory Form 1, the Financial Creditor can only fill in

42

particulars as specified in the various columns of the Form. There is no

scope for elaborate pleadings. An application to the Adjudicating

Authority (NCLT) under Section 7 of the IBC in the prescribed form,

cannot therefore, be compared with the plaint in a suit. Such

application cannot be judged by the same standards, as a plaint in a

suit, or any other pleadings in a Court of law.

74. Section 7(3) requires a financial creditor making an application

under Section 7(1) to furnish records of the default recorded with the

information utility or such other record or evidence of default as may be

specified; the name of the resolution professional proposed to act as an

Interim Resolution Professional and any other information as may be

specified by the Insolvency and Bankruptcy Board of India.

75. Section 7(4) of the IBC casts an obligation on the Adjudicating

Authority to ascertain the existence of a default from the records of an

information utility or on the basis of other evidence furnished by the

financial creditor within fourteen days of the receipt of the application

under Section 7. As per the proviso to Section 7(4) of the IBC, inserted

by amendment, by Act 26 of 2019, if the Adjudicating Authority has not

ascertained the existence of default and passed an order within the

stipulated period of time of fourteen days, it shall record its reasons for

the same in writing. The application does not lapse for non-compliance

of the time schedule. Nor is the Adjudicating Authority obliged to

dismiss the application. On the other hand, the application cannot be

43

dismissed, without compliance with the requisites of the Proviso to

Section 7(5) of the IBC.

76. Section 7(5)(a) provides that when the Adjudicating Authority is

satisfied that a default has occurred, and the application under subsection (2) of Section 7 is complete and there is no disciplinary

proceeding pending against the proposed resolution professional, it may

by order admit such application. As per Section 7(5)(b), if the

Adjudicating Authority is satisfied that default has not occurred or the

application under sub-Section (2) of Section 7 is incomplete or any

disciplinary proceeding is pending against the proposed resolution

professional, it may, by order, reject such application, provided that the

Adjudicating Authority shall, before rejecting the application under subsection (b) of Section 5, give notice to the applicant, to rectify the

defects in his application, within 7 days of receipt of such notice from

the Adjudicating Authority.

77. The Corporate Insolvency Resolution Process commences on the

date of admission of the application under sub-section (5) of Section 7

of the IBC. Section 7(7) casts an obligation on the Adjudicating

Authority to communicate an order under clause (a) of sub-section (5) of

Section 7 to the financial creditor and the corporate debtor and to

communicate an order under clause (b) of sub-section (5) of Section 7

to the financial creditor within seven days of admission or rejection of

44

such application, as the case may be. Sections 8 and 9 of IBC pertain to

Insolvency Resolution by an operational creditor and are not attracted in

the facts and circumstances of this case. Section 10 pertains to

initiation of Corporate Insolvency Resolution Process by the Corporate

Debtor itself, and is also not attracted in the facts and circumstances of

the case.

78. Section 12(1) of the IBC requires the Corporate Insolvency Process

to be completed within a period of 180 days from the date of admission

of the application to initiate such process. The period of 180 days is not

extendable more than once.

79. The IBC is not just another statute for recovery of debts. Nor is it

a statute which merely prescribes the modalities of liquidation of a

Corporate body, unable to pay its debts. It is essentially a statute which

works towards the revival of a Corporate body, unable to pay its debts,

by appointment of a Resolution Professional.

80. In Innoventive Industries Ltd vs. ICICI Bank

9

, this Court,

speaking through Nariman, J. extracted excerpts from the Report of the

Bankruptcy Law Reforms Committee of November, 2015 some of which

are reproduced hereinbelow:-

“…When a firm (referred to as the corporate debtor in the draft law)

defaults, the question arises about what is to be done. Many

possibilities can be envisioned. One possibility is to take the firm into

9. (2018) 1 SCC 407

45

liquidation. Another possibility is to negotiate a debt restructuring,

where the creditors accept a reduction of debt on an NPV basis, and

hope that the negotiated value exceeds the liquidation value. Another

possibility is to sell the firm as a going concern and use the proceeds to

pay creditors. Many hybrid structures of these broad categories can be

envisioned.

***

Speed is of essence

Speed is of essence for the working of the bankruptcy code, for two

reasons. First, while the “calm period” can help keep an organisation afloat,

without the full clarity of ownership and control, significant decisions

cannot be made. Without effective leadership, the firm will tend to atrophy

and fail. The longer the delay, the more likely it is that liquidation will be

the only answer. Second, the liquidation value tends to go down with time

as many assets suffer from a high economic rate of depreciation.

From the viewpoint of creditors, a good realisation can generally be

obtained if the firm is sold as a going concern. Hence, when delays induce

liquidation, there is value destruction. Further, even in liquidation, the

realisation is lower when there are delays. Hence, delays cause value

destruction. Thus, achieving a high recovery rate is primarily about

identifying and combating the sources of delay.

***

Control of a company is not divine right.—When a firm defaults on its

debt, control of the company should shift to the creditors. In the absence of

swift and decisive mechanisms for achieving this, management teams and

shareholders retain control after default. Bankruptcy law must address this.

Objectives…”

81. In Innoventive Industries Ltd vs. ICICI Bank (supra) this Court

noted the objectives set by the Bankruptcy Law Reforms Committee in

recommending the IBC,

“The Committee set the following as objectives desired from

implementing a new Code to resolve insolvency and bankruptcy:

(1) Low time to resolution.

(2) Low loss in recovery.

(3) Higher levels of debt financing across a wide variety of debt

instruments.

………

Principles driving the design

The Committee chose the following principles to design the new

insolvency and bankruptcy resolution framework:

46

I. The Code will facilitate the assessment of viability of the enterprise

at a very early stage.

(1) The law must explicitly state that the viability of the enterprise is a

matter of business, and that matters of business can only be

negotiated between creditors and debtor. While viability is assessed as

a negotiation between creditors and debtor, the final decision has to be

an agreement among creditors who are the financiers willing to bear

the loss in the insolvency.

(2) The legislature and the courts must control the process of

resolution, but not be burdened to make business decisions.

(3) The law must set up a calm period for insolvency resolution where

the debtor can negotiate in the assessment of viability without fear of

debt recovery enforcement by creditors.

(4) The law must appoint a resolution professional as the manager of

the resolution period, so that the creditors can negotiate the

assessment of viability with the confidence that the debtors will not

take any action to erode the value of the enterprise. The professional

will have the power and responsibility to monitor and manage the

operations and assets of the enterprise. The professional will manage

the resolution process of negotiation to ensure balance of power

between the creditors and debtor, and protect the rights of all

creditors. The professional will ensure the reduction of asymmetry of

information between creditors and debtor in the resolution process.

II. The Code will enable symmetry of information between creditors and

debtors.

(5) The law must ensure that information that is essential for the

insolvency and the bankruptcy resolution process is created and

available when it is required.

(6) The law must ensure that access to this information is made available

to all creditors to the enterprise, either directly or through the regulated

professional.

(7) The law must enable access to this information to third parties who

can participate in the resolution process, through the regulated

professional.

III. The Code will ensure a time-bound process to better preserve

economic value.

(8) The law must ensure that time value of money is preserved, and that

delaying tactics in these negotiations will not extend the time set for

negotiations at the start.

IV. The Code will ensure a collective process.

(9) The law must ensure that all key stakeholders will participate to

collectively assess viability. The law must ensure that all creditors who

have the capability and the willingness to restructure their liabilities must

be part of the negotiation process. The liabilities of all creditors who are

not part of the negotiation process must also be met in any negotiated

solution.

V. The Code will respect the rights of all creditors equally.

(10) The law must be impartial to the type of creditor in counting their

weight in the vote on the final solution in resolving insolvency.

VI. The Code must ensure that, when the negotiations fail to establish

viability, the outcome of bankruptcy must be binding.

47

(11) The law must order the liquidation of an enterprise which has been

found unviable. This outcome of the negotiations should be protected

against all appeals other than for very exceptional cases.

VII. The Code must ensure clarity of priority, and that the rights of all

stakeholders are upheld in resolving bankruptcy.

(12) The law must clearly lay out the priority of distributions in

bankruptcy to all stakeholders. The priority must be designed so as to

incentivise all stakeholders to participate in the cycle of building

enterprises with confidence.

(13) While the law must incentivise collective action in resolving

bankruptcy, there must be a greater flexibility to allow individual action

in resolution and recovery during bankruptcy compared with the phase of

insolvency resolution.”

82. As observed by this Court, speaking through Nariman, J in P.

Mohanraj & Ors. v. Shah Brothers Ispat Private Limited

10

 :-

“10. A cursory look at Section 14(1) makes it clear that subject to the

exceptions contained in sub-sections (2) and (3), on the insolvency

commencement date, the Adjudicating Authority shall mandatorily, by

order, declare a moratorium to prohibit what follows in clauses (a) to

(d). Importantly, under sub-section (4), this order of moratorium does

not continue indefinitely, but has effect only from the date of the order

declaring moratorium till the completion of the corporate insolvency

resolution process which is time bound, either culminating in the order

of the Adjudicating Authority approving a resolution plan or in

liquidation.

11. The two exceptions to Section 14(1) are contained in sub-sections

(2) and (3) of Section 14. Under sub-section (2), the supply of essential

goods or services to the corporate debtor during this period cannot be

terminated or suspended or even interrupted, as otherwise the

corporate debtor would be brought to its knees and would not able to

function as a going concern during this period...”

83. In Swiss Ribbons Private Limited & Anr. v. Union of India

and Ors.

11

, authored by Nariman, J. this Court observed:-

“28. It can thus be seen that the primary focus of the legislation is to

ensure revival and continuation of the corporate debtor by protecting

the corporate debtor from its own management and from a corporate

death by liquidation. The Code is thus a beneficial legislation which

puts the corporate debtor back on its feet, not being a mere recovery

legislation for creditors. The interests of the corporate debtor have,

10. 2021 SCC Online SC 152

11. (2019) 4 SCC 17

48

therefore, been bifurcated and separated from that of its

promoters/those who are in management. Thus, the resolution process

is not adversarial to the corporate debtor but, in fact, protective of its

interests. The moratorium imposed by Section 14 is in the interest of

the corporate debtor itself, thereby preserving the assets of the

corporate debtor during the resolution process. The timelines within

which the resolution process is to take place again protects the

corporate debtor's assets from further dilution, and also protects all its

creditors and workers by seeing that the resolution process goes

through as fast as possible so that another management can, through

its entrepreneurial skills, resuscitate the corporate debtor to achieve

all these ends.”

84. IBC has overriding effect over other laws. Section 238 of the IBC

provides that the provisions of the IBC shall have effect,

notwithstanding anything inconsistent therewith contained in any other

law, for the time being in force, or any other instrument, having effect

by virtue of such law.

85. Unlike coercive recovery litigation, the Corporate Insolvency

Resolution Process under the IBC is not adversarial to the interests of

the Corporate Debtor, as observed by this Court in Swiss Ribbons

Private Limited v. Union of India (supra).

86. On the other hand, the IBC is a beneficial legislation for equal

treatment of all creditors of the Corporate Debtor, as also the protection

of the livelihoods of its employees/workers, by revival of the Corporate

Debtor through the entrepreneurial skills of persons other than those in

its management, who failed to clear the dues of the Corporate Debtor to

49

its creditors. It only segregates the interests of the Corporate Debtor

from those of its promoters/persons in management.

87. Relegation of creditors to the remedy of Coercive litigation against

the Corporate Debtors could be detrimental to the interests of the

Corporate Debtor and its creditors alike. While multiple coercive

proceedings against a Corporate Debtor in different forums could

impede its commercial/business activities, deplete its cash reserves,

dissipate its assets, moveable and immoveable and precipitate its

commercial death, such proceedings might not be economically viable

for the creditors as well, because of the length of time consumed in the

litigations, the expenses of litigation, and the uncertainties of realisation

of claims even after ultimate success in the litigation.

88. It is, therefore, imperative that the provisions of the IBC and the

Rules and Regulations framed thereunder be construed liberally, in a

purposive manner to further the objects of enactment of the statute,

and not be given a narrow, pedantic interpretation which defeats the

purposes of the Act.

89. In construing and/or interpreting any statutory provision one must

look into the legislative intent of the statute. The intention of the

statute has to be found in the words used by the legislature itself. In

case of doubt it is always safe to look into the object and purpose of the

statute or the reason and spirit behind it. Each word, phrase or

50

sentence has to be construed in the light of the general purpose of the

Act itself, as observed by Mukherjea J., in Popatlal Shah v. State of

Madras

12

 and a plethora of other judgments of this Court. To quote

Krishna Iyer J., the interpretative effort “must be illumined by the goal,

though guided by the words”.

90. When a question arises as to the meaning of a certain provision in

a statute the provision has to be read in its context. The statute has to

be read as a whole. The previous state of the law, the general scope

and ambit of the statute and the mischief that it was intended to

remedy are relevant factors.

91. On a careful reading of the provisions of the IBC and in particular

the provisions of Section 7(2) to (5) of the IBC read with the 2016

Adjudicating Authority Rules there is no bar to the filing of documents at

any time until a final order either admitting or dismissing the application

has been passed.

92. The time stipulation of fourteen days in Section 7(4) to ascertain

the existence of a default is apparently directory not mandatory. The

proviso inserted by amendment with effect from 28th December, 2019

provides that if the Adjudicating Authority has not ascertained the

default and passed an order under sub-section (5) of Section 7 of the

IBC within the aforesaid time, it shall record its reasons in writing for the

same. No other penalty is stipulated.

12. AIR 1953 SC 274

51

93. Furthermore, the proviso to Section 7(5)(b) of the IBC obliges the

Adjudicating Authority to give notice to an applicant, to rectify the

defect in its application within seven days of receipt of such notice from

the Adjudicating Authority, before rejecting its application under Clause

(b) of sub-section (5) of Section 7 of the IBC. When the Adjudicating

Authority calls upon the applicant to cure some defects that defect has

to be rectified within seven days. There is no penalty prescribed for

inability to cure the defects in an application within seven days from the

date of receipt of notice, and in an appropriate case, the Adjudicating

Authority may accept the cured application, even after expiry of seven

days, for the ends of justice.

94. Section 12 of the IBC imposes a time limit for completion of the

Corporate Insolvency Resolution Process. This time limit starts running

from the date of admission of an application to initiate the Corporate

Insolvency Resolution Process. Section 12 is, therefore, not attracted in

this case.

95. In any case, Section 12 has been considered by this Court in

Arcelormittal (India) Pvt. Ltd. V. Satish Kumar Gupta and Anr.

13

This Court held :-

“86. Given the fact that both the NCLT and NCLAT are to decide

matters arising under the Code as soon as possible, we cannot

shut our eyes to the fact that a large volume of litigation has now

to be handled by both the aforesaid Tribunals. What happens in a

case where the NCLT or the NCLAT decide a matter arising out of

13 . (2019) 2 SCC 1

52

Section 31 of the Code beyond the time-limit of 180 days or the

extended time-limit of 270 days? Actus curiae neminem

gravabit — the act of the court shall harm no man — is a maxim

firmly rooted in our jurisprudence (see Jang Singh v. Brij Lal [Jang

Singh v. Brij Lal, (1964) 2 SCR 145 : AIR 1966 SC 1631] , SCR at

p. 149 and A.R. Antulay v. R.S. Nayak [A.R. Antulay v. R.S. Nayak,

(1988) 2 SCC 602 : 1988 SCC (Cri) 372 : 1988 Supp (1) SCR 1] ,

SCR at p. 71). It is also true that the time taken by a Tribunal

should not set at naught the time-limits within which the

corporate insolvency resolution process must take place.

However, we cannot forget that the consequence of the chopper

falling is corporate death. The only reasonable construction of

the Code is the balance to be maintained between timely

completion of the corporate insolvency resolution process, and

the corporate debtor otherwise being put into liquidation. We

must not forget that the corporate debtor consists of several

employees and workmen whose daily bread is dependent on the

outcome of the corporate insolvency resolution process. If there

is a resolution applicant who can continue to run the corporate

debtor as a going concern, every effort must be made to try and

see that this is made possible. [ Regulation 32 of the Insolvency

and Bankruptcy Board of India (Liquidation Process) Regulations,

2016, states that the liquidator may also sell the corporate

debtor as a going concern.] A reasonable and balanced

construction of this statute would therefore lead to the result

that, where a resolution plan is upheld by the appellate authority,

either by way of allowing or dismissing an appeal before it, the

period of time taken in litigation ought to be excluded. This is not

to say that the NCLT and NCLAT will be tardy in decision-making.

This is only to say that in the event of the NCLT, or the NCLAT, or

this Court taking time to decide an application beyond the period

of 270 days, the time taken in legal proceedings to decide the

matter cannot possibly be excluded, as otherwise a good

resolution plan may have to be shelved, resulting in corporate

death, and the consequent displacement of employees and

workers.

87. Coming to the facts of the present case, let us first examine

the resolution plan presented by Numetal. Numetal was

incorporated in Mauritius on 13-10-2017, expressly for the

purpose of submission of a resolution plan qua the corporate

debtor i.e. ESIL. Two other companies viz. AHL and AEL, were also

incorporated on the same day in Mauritius. Shri Rewant Ruia, son

of Shri Ravi Ruia (who was the promoter of ESIL) held the entire

share capital of AHL, which in turn held the entire shareholding of

AEL, which in turn held the entire share capital of Numetal. At

this stage there can be no doubt whatsoever that Shri Rewant

53

Ruia, being the son of Shri Ravi Ruia, would be deemed to be a

person acting in concert with the corporate debtor, being

covered by Regulation 2(1)(q)(v) of the 2011 Takeover

Regulations.

96. Even in the case of Section 12 of the IBC, this Court taking note of

the workload of the Adjudicating Authority, in effect held that the time

stipulation was directory. This Court observed that failure to complete

the Resolution Process within stipulated time should not result in

corporate death by shelving of an otherwise good resolution plan. This

Court emphasized the need to maintain balance between timely

completion of the Corporate Insolvency Resolution Process and the

Corporate Debtor otherwise being put into liquidation, for failure to

maintain the time schedule.

97. The insolvency Committee of the Ministry of Corporate Affairs,

Government of India, in a report published in March 2018, stated that

the intent of the IBC could not have been to give a new lease of life to

debts which were already time barred. Thereafter Section 238A was

incorporated in the IBC by the Insolvency and Bankruptcy Code (Second

Amendment) Act, 2018 (Act 26 of 2018), with effect from 6th June 2018.

98. Section 238A of the IBC provides as follows:-

“238A. The provisions of the Limitation Act, 1963 (36 of 1963)

shall, as far as may be, apply to the proceedings or appeals

before the Adjudicating Authority, the National Company Law

Appellate Tribunal, the Debt Recovery Tribunal or the Debt

Recovery Appellate Tribunal, as the case may be.”

54

99. As observed by this Court in Sesh Nath Singh & Anr. Vs.

Baidyabati Sheoraphuli (supra), authored by one of us (Indira

Banerjee, J.), this Court held:-

“91. Legislature has in its wisdom chosen not to make the provisions

of the Limitation Act verbatim applicable to proceedings in

NCLT/NCLAT, but consciously used the words ‘as far as may be’. The

words ‘as far as may be’ are not meant to be otiose. Those words are

to be understood in the sense in which they best harmonise with the

subject matter of the legislation and the object which the Legislature

has in view. The Courts would not give an interpretation to those words

which would frustrate the purposes of making the Limitation Act

applicable to proceedings in the NCLT/NCLAT ‘as far as may be’.

xxx xxx xxx

94. The use of words ‘as far as may be’, occurring in Section 238A of

the IBC tones down the rigour of the words ‘shall’ in the aforesaid

Section which is normally considered as mandatory. The expression ‘as

far as may be’ is indicative of the fact that all or any of the provisions

of the Limitation Act may not apply to proceedings before the

Adjudicating Authority (NCLT) or the Appellate authority (NCLAT) if they

are patently inconsistent with some provisions of the IBC. At the same

time, the words ‘as far as may be’ cannot be construed as a total

exclusion of the requirements of the basic principles of Section 14 of

the Limitation Act, but permits a wider, more liberal, contextual and

purposive interpretation by necessary modification, which is in

harmony with the principles of the said Section.”

100. There is no specific period of limitation prescribed in the

Limitation Act, 1963, for an application under the IBC, before the

Adjudicating Authority (NCLT). An application for which no period of

limitation is provided anywhere else in the Schedule to the Limitation

Act, is governed by Article 137 of the Schedule to the said Act. Under

Article 137 of the Schedule to the Limitation Act, the period of limitation

55

prescribed for such an application is three years from the date of

accrual of the right to apply.

101. There can be no dispute with the proposition that the period of

limitation for making an application under Section 7 or 9 of the IBC is

three years from the date of accrual of the right to sue, that is, the date

of default. In Gaurav Hargovindbhai Dave v. Asset

Reconstruction Company (India) Ltd. (supra) authored by Nariman,

J. this Court held:-

“6. …...The present case being “an application” which is filed under

Section 7, would fall only within the residuary Article 137.”

102. In B. K. Educational Services Private Limited v. Parag

Gupta and Associates

14

, this Court speaking through Nariman, J.

held:-

“42. It is thus clear that since the Limitation Act is applicable to

applications filed under Sections 7 and 9 of the Code from the inception

of the Code, Article 137 of the Limitation Act gets attracted. “The right

to sue”, therefore, accrues when a default occurs. If the default has

occurred over three years prior to the date of filing of the application,

the application would be barred under Article 137 of the Limitation Act,

save and except in those cases where, in the facts of the case, Section

5 of the Limitation Act may be applied to condone the delay in filing

such application.”

103. In Jignesh Shah v. Union of India (supra) this Court speaking

through Nariman, J. reiterated the proposition that the period of

limitation for making an application under Section 7 or 9 of the IBC was

14 (2019) 11 SCC 633 

56

three years from the date of accrual of the right to sue, that is, the date

of default.

104. In Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank

Ltd. & Ors.

15

 this Court rejected the contention that the default was a

continuing wrong and Section 23 of the Limitation Act 1963 would

apply, relying upon Balkrishna Savalram Pujari Waghmare v.

Shree Dhyaneshwar Maharaj Sansthan

16

.

105. To quote P.B. Gajendragadkar, J in Balkrishna Savalram Pujari

Wagmare (supra):-

“......Section 23 refers not to a continuing right but to a continuing

wrong. It is the very essence of a continuing wrong that it is an act

which creates a continuing source of injury and renders the doer of

the act responsible and liable for the continuance of the said injury. If

the wrongful act causes an injury which is complete, there is no

continuing wrong even though the damage resulting from the act may

continue. If, however, a wrongful act is of such a character that the

injury caused by it itself continues, then the act constitutes a

continuing wrong. In this connection it is necessary to draw a

distinction between the injury caused by the wrongful act and what

may be described as the effect of the said injury. It is only in regard to

acts which can be properly characterised as continuing wrongs that

Section 23 can be invoked. .....”

106. There can be no dispute with the proposition of law laid down in

Babulal Vardharji Gurjar (supra) that limitation is essentially a mixed

question of law and facts and when a party seeks application of any

particular provision for extension or enlargement of the period of

15 (2019) 9 SCC 158

16. 1959 Supp (2) SCR 476

57

limitation, the relevant facts are required to be pleaded and requisite

evidence is required to be adduced.

107. The judgment of this Court in Babulal Vardharji Gurjar (supra)

was rendered in the facts of the aforesaid case, where the date of

default had been mentioned as 8.7.2011 being the date of N.P.A. and it

remained undisputed that there had neither been any other date of

default stated in the application nor had any suggestion about any

acknowledgement been made.

108. In the backdrop of the aforesaid facts, this court observed that

even if Section 18 of the Limitation Act and principles thereof were

applicable, the same would not apply to the application under

consideration, in view of the averments regarding default therein and

for want of any other averment with regard to acknowledgment.

109. It is well settled, that a judgment is a precedent for the issue of

law that is raised and decided and not any observations made in the

facts of the case. As very aptly penned by V. Sudhish Pai in

“Constitutional Supremacy-A Revisit”, “Judicial

utterances/pronouncements are in the setting of the facts of a particular

case. To interpret words and provisions of a statute it may become

necessary for judges to embark upon lengthy discussions, but such

discussion is meant to explain not define. Judges interpret statutes,

their words are not to be interpreted as statutes.” The aforesaid

58

passage was extracted and incorporated as part of the judgment of this

Court in Sesh Nath Singh (supra).

110. In this case, admittedly there were fresh documents before the

Adjudicating Authority (NCLT), including a letter of offer dated 3.03.2017

for one time settlement of the dues of the Corporate Debtor to the

Financial Creditor, upon payment of Rs.5.5 crores. The Appellant Bank

has also relied upon financial statements up to 31st March, 2018 apart

from the final judgment and order dated 27th March, 2017 in O.A.

16/2015 and the subsequent Recovery Certificate No.2060/2017 dated

25th May, 2017 which constituted cause of action for initiation of

proceedings under Section 7 of the IBC.

111. Babulal Vardharji Gurjar (supra) is not an authority for the

proposition that there can be no amendment of pleadings at the fag end

of the NCLT proceeding. Moreover, in this case, the amendments were

not made at the fag end of the proceedings but within 2/3 months of

their initiation, before admission of the petition under Section 7 of the

IBC.

112. It is not necessary for this Court to examine the relevance of all

the documents filed by the Appellant Bank pursuant to its interim

applications being I.A. No.27 of 2019 and I.A. No.131 of 2019. Suffice it

to mention that the documents enclosed with the applications being I.A.

No.27 of 2019 and I.A. No.131 of 2019 and the pleadings in the

59

supporting affidavits, made out a case for computation of limitation

afresh from the dates of the relevant documents. It would also be

pertinent to note that the reasons for the execution of the documents

are irrelevant. It is not the case of the Respondents, that any of those

documents were extracted through coercion.

113. As per Section 18 of Limitation Act, an acknowledgement of

present subsisting liability, made in writing in respect of any right

claimed by the opposite party and signed by the party against whom

the right is claimed, has the effect of commencing a fresh period of

limitation from the date on which the acknowledgement is signed. Such

acknowledgement need not be accompanied by a promise to pay

expressly or even by implication. However, the acknowledgement must

be made before the relevant period of limitation has expired.

114. In Sesh Nath Singh and Anr. v. Baidyabati Sheoraphuli

Cooperative Bank Ltd. (supra) this Court, speaking through one of

us (Indira Banerjee J.) held that the IBC does not exclude the

application of Section 14 or 18 or any other provision of the Limitation

Act. There is therefore no reason to suppose that Sections 14 or 18 of

the Limitation Act do not apply to proceedings under Section 7 or

Section 9 of the IBC.

115. In Laxmi Pat Surana v. Union Bank of India (supra) this Court

speaking through Khanwilkar J. held that there was no reason to exclude

60

the effect of Section 18 of the Limitation Act to proceedings initiated

under the IBC.

116. In Asset Reconstruction Company (India) Limited. v.

Bishal Jaiswal and Anr.(supra) where this Court speaking through

Nariman J. relied, inter alia, on Sesh Nath Singh (supra) and Laxmi

Pat Surana (supra) and held that the question of applicability of

Section 18 of the Limitation Act to proceedings under the IBC was no

longer res integra.

117. In Khan Bahadur Shapoor Fredoom Mazda v. Durga Prasad

Chamaria and Others

17

, this Court held:-

“6. It is thus clear that acknowledgment as prescribed by Section 19

merely renews debt; it does not create a new right of action. It is a

mere acknowledgment of the liability in respect of the right in

question; it need not be accompanied by a promise to pay

either expressly or even by implication. The statement on which a

plea of acknowledgment is based must relate to a present subsisting

liability though the exact nature or the specific character of the said

liability may not be indicated in words. Words used in the

acknowledgment must, however, indicate the existence of jural

relationship between the parties such as that of debtor and creditor,

and it must appear that the statement is made with the intention to

admit such jural relationship. Such intention can be inferred by

implication from the nature of the admission, and need not be

expressed in words. If the statement is fairly clear then the intention to

admit jural relationship may be implied from it. The admission in

question need not be express but must be made in circumstances and

in words from which the court can reasonably infer that the person

making the admission intended to refer to a subsisting liability as at

the date of the statement. In construing words used in the statements

made in writing on which a plea of acknowledgment rests oral

evidence has been expressly excluded but surrounding circumstances

can always be considered. Stated generally courts lean in favour of a

liberal construction of such statements though it does not mean that

where no admission is made one should be inferred, or where a

statement was made clearly without intending to admit the existence

of jural relationship such intention could be fastened on the maker of

17 AIR 1961 SC 1236

61

the statement by an involved or far-fetched process of reasoning.

Broadly stated that is the effect of the relevant provisions contained in

Section 19, and there is really no substantial difference between the

parties as to the true legal position in this matter.”

118. It is well settled that entries in books of accounts and/or balance

sheets of a Corporate Debtor would amount to an acknowledgment

under Section 18 of the Limitation Act. In Asset Reconstruction

Company (India) Limited v. Bishal Jaiswall and Anr. (supra)

authored by Nariman, J. this Court quoted with approval the judgments,

inter alia, of Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff,

18

[“Bengal Silk Mills”] and in Re Pandem Tea Co.

19 Ltd., the judgment

of the Delhi High Court in South Asia Industries (P) Ltd. v. General

Krishna Shamsher Jung Bahadur Rana

20

 and the judgment of

Karnataka High Court in Hegde Golay Ltd. v. State Bank of India

21

and held that an acknowledgement of liability that is made in a balance

sheet can amount to an acknowledgement of debt.

119. In Bengal Silk Mills Co. (supra) the Calcutta High Court held:-

“9. ….. I am unable to agree with the reasoning of the Nagpur

decision that a balance-sheet does not save limitation because it is

drawn up under a duty to set out the claims made on the company

and not with the intention of acknowledging liability. The balancesheet contains admissions of liability; the agent of the company who

makes and signs it intends to make those admissions. The

admissions do not cease to be acknowledgements of liability merely

on the ground that they were made in discharge of a statutory duty. I

18 AIR 1962 Cal 115

19 AIR 1974 Cal 170

20 ILR (1972) 2 Del 712

21 ILR 1987 Kar 2673 

62

notice that in the Nagpur case the balance-sheet had been signed by

a director and had not been passed either by the Board of Directors

or by the company at its annual general meeting and it seems that

the actual decision may be distinguished on the ground that the

balance-sheet was not made or signed by a duly authorized agent of

the company.”

……………..

11. To come under section 19 an acknowledgement of a debt need

not be made to the creditor nor need it amount to a promise to pay

the debt. In England it has been held that a balance-sheet of a

company stating the amount of its indebtedness to the creditor is a

sufficient acknowledgement in respect of a specialty debt under

section 5 of the Civil Procedure Act, 1833 (3 and 4 Will — 4c. 42),

see Re : Atlantic and Pacific Fibre Importing and Manufacturing Co.

Ltd., [1928] Ch. 836…….”

120. In Re Pandem Tea Co. Ltd. (supra), Sabyasachi Mukharji J.

held:

“4. Now the question is whether the statements, which are contained

in the profits and loss accounts and the assets and liabilities side

indicating the liability of the petitioning creditor along with the

statement of the Directors made to the shareholders as Directors'

report should be read together and if so whether reading these two

statements together these amount to an acknowledgement as

contemplated under Section 18 of the Limitation Act, 1963, or Section

19 of the Limitation Act, 1908. In my opinion, both these statements

have to be read together. The balance-sheet is meant to be presented

and passed by the shareholders and is generally accompanied by the

Directors' report to the shareholders. Therefore in understanding the

balance-sheets and in explaining the statements in the balancesheets, the balance-sheets together with the Directors' report must be

taken together to find out the true meaning and purport of the

statements. Counsel appearing for petitioning creditor contended that

under the statute the balance-sheet was a separate document and as

such if there was unequivocal acknowledgement on the balance-sheet

the statement of the Directors' report should not be taken into

consideration. It is true the balance-sheet is a statutory document and

perhaps is a separate document but the balance-sheet not confirmed

or passed by the shareholders cannot be accepted as correct.

Therefore, in order to validate the balance-sheet, it must be duly

passed by the shareholders at the appropriate meeting and in order to

do so it must be accompanied by a report, if any, made by the

Directors. Therefore, even though the balance-sheet may be a

separate document these two documents in the facts and

circumstances of the case should be read together and should be

construed together. It was held by the Supreme Court in the case

of L.C. Mills v. Aluminium Corpn. of India Ltd., (1971) 1 SCC 67 : AIR

1971 SC 1482, that it was clear that the statement on which the plea

63

of acknowledgement was founded should relate to a subsisting liability

as the section required and it should be made before the expiration of

the period prescribed under the Act. It need not, however, amount to

a promise to pay for an acknowledgement did not create a new right

of action but merely extended the period of limitation. The statement

need not indicate the exact nature or the specific character of the

liability. The words used in the statement in question must, however,

relate to a present subsisting liability and indicate the existence of a

jural relationship between the parties such as, for instance, that of a

debtor and a creditor and the intention to admit such jural

relationship. Such an intention need not, however, be in express terms

and could be inferred by implication from the nature of the admission

and the surrounding circumstances. Generally speaking, a liberal

construction of the statement in question should be given. That of

course did not mean that where a statement was made without

intending to admit the existence of jural relationship, such intention

should be fastened on the person making the statement by an

involved and far-fetched reasoning. In order to find out the intention of

the document by which acknowledgement was to be construed the

document as a whole must be read and the intention of the parties

must be found out from the total effect of the document read as a

whole. …”

121. In South Asia Industries (P) Ltd. v. General Krishna

Shamsher Jung Bahadur Rana (supra), this Court observed:-

“46. Shri Rameshwar Dial argued that statements in the balancesheet of a company cannot amount to acknowledgement of liability

because the balance-sheet is made under compulsion of the

provisions in the Companies Act. There is no force in this argument. In

the first place, section 18 of the Limitation Act, 1963, requires only

that the acknowledgement of liability must have been made in

writing, but it does not prescribe that the writing should be in any

particular kind of document. So, the fact that the writing is contained

in a balance-sheet is immaterial. In the second place, it is true that

section 131 of the Companies Act, 1913 (section 210 of the

Companies Act, 1956) makes it compulsory that an annual balance

sheet should be prepared and placed before the Company by the

Directors, and section 132 (section 211 of the Companies Act, 1956)

requires that the balance-sheet should contain a summary, inter alia,

of the current liabilities of the company. But, as pointed out by

Bachawat J. in Bengal Silk Mills v. Ismail Golam Hossain Ariff, AIR 1962

Cal 115 although there was statutory compulsion to prepare the

64

annual balance-sheet, there was no compulsion to make any

particular admission, and a document is not taken out of the purview

of section 18 of the Indian Limitation Act, 1963 (section 19 of the

Indian Limitation Act, 1908) merely on the ground that it is prepared

under compulsion of law or in discharge of statutory duty. Reference

may also be made to the decisions in Raja of

Vizianagram v. Vizianagram Mining Co. Ltd., AIR 1952 Mad

136, Jones v. Bellgrove Properties Ltd., (1949) 1 All ER 498; and Lahore

Enamelling and Stamping Co. v. A.K. Bhalla, AIR 1958 Punj 341, in

which statements in balance-sheets of companies were held to

amount to acknowledgements of liability of the companies.

47. Shri Rameshwar Dial referred to the decision of the Privy Council

in Consolidated Agencies Ltd. v. Bertram Ltd., (1964) 3 All ER 282. We

shall advert to this decision presently when we deal with another

argument of Shri Rameshwar Dial, and it is sufficient to state so far as

the argument under consideration is concerned that even in this

decision of the Privy Council it has been recognised that balancesheets could in certain circumstances amount to acknowledgements

of liability. It cannot, therefore, be said as a general proposition of law

that statements in balance-sheets of a company cannot operate at all

as acknowledgements of liability as contended by Shri Rameshwar

Dial.”

122. In Hegde & Golay Limited v. State Bank of India reported

in ILR 1987 Kar 2673, the Karnataka High Court held:

“43. The acknowledgement of liability contained in the balance-sheet

of a company furnishes a fresh starting point of limitation. It is not

necessary, as the law stands in India, that the acknowledgement

should be addressed and communicated to the creditor.”

123. In Reliance Asset Reconstruction Co. Ltd. v. Hotel Poonja

International Pvt. Ltd.

22

, the Appellant had relied on two documents

in the Paper Book, that is, (i) the Balance Sheet of the Corporate Debtor

dated 16th August, 2017 and (ii) a letter dated 23rd April, 2019 issued by

22. 2021 SCC Online SC 289

65

the Corporate Debtor to contend that the proceedings under Section 7

of the IBC were not barred by limitation, as limitation would start

running afresh for a period of three years from the respective dates of

those documents in acknowledgment of liability.

124. This Court, however, did not accept the balance sheet dated 16th

August, 2017 and 23rd April, 2019 for two reasons, the first reason being

that there was no evidence or materials to show that the documents

had been signed before the expiry of the prescribed period of limitation.

In addition, the Court found that there had been no pleading with regard

to the alleged acknowledgement in the application under Section 7 of

the IBC. This Court also found that the two documents could not be

construed as admission that amounted to acknowledgement of the jural

relationship and the existence of liability, since the balance sheet dated

16th August, 2017 did not acknowledge or admit any liability. Rather the

Corporate Debtor had disputed and denied its liability. Similarly, the

letter dated 23rd April, 2019 was also found not be an acknowledgment

or admission of liability. On the other hand, the language of the letter

made it absolutely clear that the liability had in fact been denied.

125. Significantly, in Reliance Asset Reconstruction (supra), the

loan had been sanctioned by Vijaya Bank in May 1986. The loan

amount was declared NPA on 1st April 1993, an original application

moved under the Debt Recovery Act was compromised in 2001 and the

DRT had issued a Recovery Certificate in May 2003. Vijaya Bank

66

assigned its Reliance Asset Reconstruction in May 2011 after which

amended Recovery Certificate was issued in December 2012. The

petition under Section 7 of the IBC was, however filed on 27th July 2018.

126. The finding of the NCLAT that there was nothing on record to

suggest that the ‘Corporate Debtor’ acknowledged the debt within three

years and agreed to pay debt is not sustainable in law, in view of the

Statement of Accounts/Balance sheets/Financial Statements for the

years 2016-2017 and 2017-2018 and the offer of One Time Settlement

referred to above including in particular, the offer of One Time

Settlement made on 3rd March, 2017.

127. Section 18 of the Limitation Act speaks of an Acknowledgment in

writing of liability, signed by the party against whom such property or

right is claimed. Even if the writing containing the acknowledgment is

undated, evidence might be given of the time when it was signed. The

explanation clarifies that an acknowledgment may be sufficient even

though it is accompanied by refusal to pay, deliver, perform or permit to

enjoy or is coupled with claim to set off, or is addressed to a person

other than a person entitled to the property or right. ‘Signed’ is to be

construed to mean signed personally or by an authorised agent.

128. In the instant case, Rs.111 lakhs had been paid towards

outstanding interest on 28th March, 2014 and the offer of One Time

Settlement was within three years thereafter. In any case, NCLAT

67

overlooked the fact that a Certificate of Recovery has been issued in

favour of Appellant Bank on 25th May 2017. The Corporate Debtor did

not pay dues in terms of the Certificate of Recovery. The Certificate of

Recovery in itself gives a fresh cause of action to the Appellant Bank to

institute a petition under Section 7 of IBC. The petition under Section 7

IBC was well within three years from 28th March 2014.

129. In Jignesh Shah and Another v. Union of India (supra), this

Court relied upon a judgment of the Patna High Court in Ferro Alloys

Corporation Limited v. Rajhans Steel Limited

23

, the relevant

portion whereof is extracted hereinbelow:-

“….In my opinion, the contention lacks merit. Simply because a suit

for realization of the debt of the petitioner Company against Opposite

Party 1 was instituted in the Calcutta High Court on its Original Side,

such institution of the suit and the pendency thereof in that Court

cannot enure for the benefit of the present winding-up proceeding.

The debt having become time-barred when this petition was presented

in this Court, the same could not be legally recoverable through this

Court by resorting to winding-up proceedings because the same cannot

legally be proved under Section 520 of the Act. It would have been

altogether a different matter if the petitioner Company approached this

Court for winding-up of the opposite party No.1, after obtaining a

decree from the Calcutta High Court in Suit No.1073 of 1987, and the

decree remaining unsatisfied, as provided in clause (b) of sub-section

(1) of Section 434.”

130. In effect, this Court speaking through Nariman J., approved

the proposition that an application under Section 7 or 9 of the IBC

may be time barred, even though some other recovery proceedings

might have been instituted earlier, well within the period of

limitation, in respect of the same debt. However, it would have been

23. (1999) SCC Online Pat 1196

68

a different matter, if the applicant had approached the Adjudicating

Authority after obtaining a final order and/or decree in the recovery

proceedings, if the decree remained unsatisfied. This Court held that

a decree and/or final adjudication would give rise to a fresh period of

limitation for initiation of the Corporate Insolvency Resolution

Process.

131. It is true that the finding of Patna High Court in Ferro Alloys

Corporation Limited v. Rajhans Steel Limited (supra) was rendered

in the context of Section 434(1)(b) of the Companies Act 1956, which

provided that a company would be deemed to be unable to pay its

debts if execution or other process issued on a decree or order of any

Court or Tribunal in favour of a creditor of the company was returned

unsatisfied in whole or in part.

132. We see no reason why the principles should not apply to an

application under Section 7 of the IBC which enables a financial creditor

to file an application initiating the Corporate Insolvency Resolution

Process against a Corporate Debtor before the Adjudicating Authority,

when a default has occurred. As observed earlier in this judgment, on a

conjoint reading of the provisions of the IBC quoted above, it is clear

that a final judgment and/or decree of any Court or Tribunal or any

Arbitral Award for payment of money, if not satisfied, would fall within

the ambit of a financial debt, enabling the creditor to initiate

proceedings under Section 7 of the IBC.

69

133. It is not in dispute that the Respondent No.2 is a Corporate Debtor

and the Appellant Bank, a Financial Creditor. The question is, whether

the petition under Section 7 of the IBC has been instituted within 3

years from the date of default. ‘Default’ is defined in Section 3(12) to

mean “non-payment’ of a debt which has become due and payable

whether in whole or any part and is not paid by the Corporate Debtor”.

134. It is true that, when the petition under Section 7 of IBC was filed,

the date of default was mentioned as 30th September 2013 and 31st

December 2013 was stated to be the date of declaration of the Account

of the Corporate Debtor as NPA. However, it is not correct to say that

there was no averment in the petition of any acknowledgment of debt.

Such averments were duly incorporated by way of amendment, and the

Adjudicating Authority rightly looked into the amended pleadings.

135. As observed above, the Appellant Bank filed the Petition under

Section 7 of the IBC on 12th October 2018. Within three months, the

Appellant Bank filed an application in the NCLT, for permission to place

additional documents on record including the final judgment and

order/decree dated 27.3.2017 in O.A. 16/2015 and the Recovery

Certificate dated 25.5.2017, enabling the Appellant Bank to recover

Rs.52 crores odd. The judgment and order/decree of the DRT and the

Recovery Certificate gave a fresh cause of action to the Appellant Bank

to initiate a petition under Section 7 of the IBC. 

70

136. On or about 5th March 2019, the Appellant Bank filed another

application for permission to place on record additional documents

including inter alia financial statements, Annual Report etc. of the

period from 1st April 2016 to 31st March 2017, and again, from 1st April

2017 to 31st March 2018 and a letter dated 3rd March 2017 proposing a

One Time Settlement. This application was also allowed on 6th March

2021. The Adjudicating Authority, took into consideration the new

documents and admitted the petition under Section 7 of the IBC.

137. Even assuming that documents were brought on record at a later

stage, as argued by Mr. Shivshankar, the Adjudicating Authority was not

precluded from considering the same. The documents were brought on

record before any final decision was taken in the Petition under Section

7 of IBC.

138. A final judgment and order/decree is binding on the judgment

debtor. Once a claim fructifies into a final judgment and order/decree,

upon adjudication, and a certificate of Recovery is also issued

authorizing the creditor to realize its decretal dues, a fresh right accrues

to the creditor to recover the amount of the final judgment and/or

order/decree and/or the amount specified in the Recovery Certificate.

139. The Appellant Bank was thus entitled to initiate proceedings

under Section 7 of the IBC within three years from the date of issuance

of the Recovery Certificate. The Petition of the Appellant Bank, would

not be barred by limitation at least till 24th May, 2020.

71

140. While it is true that default in payment of a debt triggers the right

to initiate the Corporate Resolution Process, and a Petition under

Section 7 or 9 of the IBC is required to be filed within the period of

limitation prescribed by law, which in this case would be three years

from the date of default by virtue of Section 238A of the IBC read with

Article 137 of the Schedule to the Limitation Act, the delay in filing a

Petition in the NCLT is condonable under Section 5 of the Limitation Act

unlike delay in filing a suit. Furthermore, as observed above Section 14

and 18 of the Limitation Act are also applicable to proceedings under

the IBC.

141. Section 18 of the Limitation Act cannot also be construed with

pedantic rigidity in relation to proceedings under the IBC. This Court

sees no reason why an offer of One Time Settlement of a live claim,

made within the period of limitation, should not also be construed as an

acknowledgment to attract Section 18 of the Limitation Act. In Gaurav

Hargovindbhai Dave (supra) cited by Mr. Shivshankar, this Court had

no occasion to consider any proposal for one time settlement. Be that

as it may, the Balance Sheets and Financial Statements of the Corporate

Debtor for 2016-2017, as observed above, constitute acknowledgement

of liability which extended the limitation by three years, apart from the

fact that a Certificate of Recovery was issued in favour of the Appellant

Bank in May 2017. The NCLT rightly admitted the application by its

order dated 21st March, 2019.

72

142. To sum up, in our considered opinion an application under Section

7 of the IBC would not be barred by limitation, on the ground that it had

been filed beyond a period of three years from the date of declaration of

the loan account of the Corporate Debtor as NPA, if there were an

acknowledgement of the debt by the Corporate Debtor before expiry of

the period of limitation of three years, in which case the period of

limitation would get extended by a further period of three years.

143. Moreover, a judgment and/or decree for money in favour of the

Financial Creditor, passed by the DRT, or any other Tribunal or Court, or

the issuance of a Certificate of Recovery in favour of the Financial

Creditor, would give rise to a fresh cause of action for the Financial

Creditor, to initiate proceedings under Section 7 of the IBC for initiation

of the Corporate Insolvency Resolution Process, within three years from

the date of the judgment and/or decree or within three years from the

date of issuance of the Certificate of Recovery, if the dues of the

Corporate Debtor to the Financial Debtor, under the judgment and/or

decree and/or in terms of the Certificate of Recovery, or any part

thereof remained unpaid.

144. There is no bar in law to the amendment of pleadings in an

application under Section 7 of the IBC, or to the filing of additional

documents, apart from those initially filed along with application under

Section 7 of the IBC in Form-1. In the absence of any express provision

which either prohibits or sets a time limit for filing of additional

73

documents, it cannot be said that the Adjudicating Authority committed

any illegality or error in permitting the Appellant Bank to file additional

documents. Needless however, to mention that depending on the facts

and circumstances of the case, when there is inordinate delay, the

Adjudicating Authority might, at its discretion, decline the request of an

applicant to file additional pleadings and/or documents, and proceed to

pass a final order. In our considered view, the decision of the

Adjudicating Authority to entertain and/or to allow the request of the

Appellant Bank for the filing of additional documents with supporting

pleadings, and to consider such documents and pleadings did not call

for interference in appeal.

145. For the reasons discussed above, the impugned judgment and

order is unsustainable in law and facts. The appeal is accordingly

allowed, and the impugned judgment and order of the NCLAT is set

aside.

….……………………………………. J.

[INDIRA BANERJEE]

 ………..……………………………… J.

[V. RAMASUBRAMANIAN]

NEW DELHI;

AUGUST 04, 2021

(a) Whether the party whose conduct is in question is before the court or has an opportunity of explaining or defending himself; (b) Whether there is evidence on record bearing on that conduct justifying the remarks; and (c) Whether it is necessary for the decision of the case, as an integral part thereof, to animadvert on that conduct. - “Use of intemperate language or making disparaging remarks against anyone, unless that be the requirement for deciding the case, is inconsistent with judicial behaviors. Written words in judicial orders are for permanent record which make it even more necessary to practice selfrestraint in exercise of judicial power while making written orders.”-In view of the forgoing, we are of the considered opinion that the offending remarks recorded by the learned judge against the appellant should not have been recorded in the manner it was done. The appellant whose professional conduct was questioned, was not provided any opportunity to explain his conduct or defend himself. The comments were also unnecessary for the decision of the Court. It is accordingly held that the offending remarks should be recalled to avoid any future harm to the appellant’s reputation or his work as a member of the Bar. We therefore order expunction of the extracted remarks in paragraphs 4,5,6, and 7 of this judgement. The appeals are accordingly disposed of with this order.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

    CIVIL APPEAL NOs.    4555 ­ 4559 OF 2021

(Arising out of SLP (C) Nos.8643­8647 of 2021)

NEERAJ GARG         APPELLANT(S)

VERSUS

SARITA RANI AND ORS. ETC RESPONDENT(S)

J U D G M E N T

Hrishikesh Roy, J.

1. Leave granted. The appellant is a practicing lawyer, before the High

Court of Uttarakhand with around 17 years standing as member of the

Bar. The present appeal is limited to expunging certain observations

made against the appellant by the learned Judge of the High Court while

deciding four cases in which the appellant was representing one of the

contesting parties. The following are the orders and proceedings of the

High Court with which, we are concerned in this matter: 

“W.P. (M/S) No.2216 of 2017 and W.P. (M/S) No.2208 of

2017   titled  Vira   Wali   Manga   Vs.   Sarita   Rani,  S.A.

No.190/2019   titled  Landour   Community   Hospital   Vs.

1

Sandeep   Bishnoi.   S.A.   No.   182   of   2019   titled  Vinod

Kumar Vs. Mandir Laxmi,  W.P. (M/S) No. 519 of 2019

titled Parul Prakash Vs. Anil Prakash.”

2. This Court issued returnable notice in the matter on 02.07.2021 and

appointed Mr. Amar Dave as the amicus curiae to assist the Court. Mr.

Dave appears and makes submissions accordingly. The Office Report in

the case reflects that the Counsel for the Appellant has circulated a

letter dated 13.07.2021 stating therein that the Petition has been filed

only for expunging certain observations recorded against the Appellant

by the High Court in the concerned cases and the Appellant is not

seeking any relief against any of the arrayed Respondents and as such

they be treated as Proforma Respondents. 

3. Representing the appellant, Mr. Mukul Rohatgi, the learned Senior

Counsel   submits   that   the   appellant   is   regularly   practicing   in   the

Uttarakhand High Court with a fairly large practice. The Counsel then

submits   that   the   remarks/observations   made   by   the   learned   Judge

against  the  Appellant   were   recorded   without  putting  the  counsel   to

notice or providing any hearing to him, before recording the adverse

comments.     It   is   also   submitted   that   those   recordings   are   neither

essential nor necessary for the Court’s verdict in the concerned cases.

According   to   Mr.   Rohatgi,   such   adverse   comments   will   not   only

2

undermine the professional reputation of the Appellant but would also

impact his standing and practice as a lawyer.

4. The   learned  amicus   curiae,   Mr.   Amar   Dave,   together   with   the

learned   Senior   Counsel   Mr.   Mukul   Rohatgi   have   drawn   specific

attention of this Court to the following remarks in the High Court’s

judgement dated 14.11.2017, in the W.P. (M/S) No.2216 of 2017 and

W.P. (M/S) No.2208 of 2017, where the Appellant was appearing for one

of the contesting parties in the case. 

“*** *** *** *** ***

16.  I   express   my   deep   anguish   and   hesitantly

refraining myself from taking any action against the

counsel for the petitioner for producing only part of

document   and   placing   reliance   on   the   same   for

procuring   an   interim   order   by   suppressing   material

fact.

17.  The   counsel   for   the   petitioner   is   a   seasonal

advocate   he   owes   a   responsibility   towards   the

institution   and   fraternity   too,   he   had   deliberately

created a wrong example for the pious institution.

*** *** *** *** *** ” 

5. Similarly, in the second case, i.e., S.A. No.190/2019 the learned

Judge on 22.11.2019 recorded the following comments: 

“**** *** *** ***           ***

2. In the present Second Appeal , when the argument

for the learned counsel for the appellant was initiated

too be addressed for quite some time, this Court is of

3

the view that the tenacity of argument of the learned

counsel for the plaintiff/ appellant was in a manner as

if, he was intentionally attempting to make a mountain

of a mole, which this Court will not hesitate to re mark

that was a brutal assassination of time for those other

litigants, whose matters were pending consideration

on the said date before this Court. 'It further reflected

that as if it was not an argument for the case but

rather for the visitors' gallery.

*** *** *** ***  ***” 

6. In the third judgement, i.e., S.A. 182 of 2019 dated 12.03.2020, the

following unacceptable conduct of the counsel was noted: 

“*** *** *** ***           ***

In order to avoid an argument at admission stage of

the   present   Second   Appeal,   before   this   Court,   the

learned counsel for the appellant submitted that in a

prior proceedings which was held before this Court by

way of Writ Petition (M/S) No. 604 of 2009, Sri Vinod

Goel v. Sri Sushi/ Chandra Sabbarwal & Another,

since I had appeared as a counsel on behalf of the

defendant/appellant herein, an attempt was made at

a later stage of arguments, to avoid to address of the

Second Appeal on its merits before this Court. 

*** *** *** ***  ***” 

7. In the fourth case, W.P.(M/S) 519 of 2019, the Court on 22.02.2021,

noted its displeasure against the counsel in the following manner: 

“**** *** *** ***           ***

4

2.  Though this Court should have avoided to make

this   remark,   but   owning   to   the   deliberate   and

intentional,   modus   operandi,   which   is   normally

adopted, which has now, become a regular feature,

almost in most of the cases, which are filed by the

learned   counsel   for   the   petitioner,   this   Court   is

constraint to make certain observations, which has

been invariably found, to be followed by the learned

Counsel,   basically   intended   so   as   to   mislead   the

Court   or   to   avoid   an   adjudication   of   the   case   on

merits and to pose the difficulty to the Court, at the

time of hearing of the Writ Petition itself at admission

stage, itself, by putting uncalled for documents, which

are   not   even   relevant,   including   the   copy   of   the

citation/judgments,  on  which  he  wants  to  rely,  as

part of the records of the Writ Petition, making the

records   of   the   Writ   Petition,   running   into   several

volumes, and that too in a writ jurisdiction under

Article   227   of   the   Constitution   of   India,   which   is

arising of the concurrent judgments.

3. This has been a clear and a consistent device, and

a   tactics   which   has   been   adopted   by   the   learned

counsel   for   the   petitioner,   by   placing   voluminous

records in the Writ Petition, including the copies of

precedent/   judgments,   on   which,   the   reliance   has

been placed by the learned counsel for the petitioner,

which in the instant case happens to be about 20

judgments, which the petitioner's counsel contends to

rely   on,   in   support   of   his   case,   as   against   the

concurrent finding of facts, which has been recorded

by both the Courts, below and that too in a summary

proceedings, which were held, under Section 21(1)(a)

of Act No. 13 of 1972. Though for the reasons to be

recorded hereinafter, it could be apparently inferred,

that even most of the judgments, on which, reliance

has been made, are not even relevant for the purposes

of consideration of the case, and even they may not be

applicable under the facts and circumstances of the

present case.

5

4. This attitude, adopted cannot be ruled out to be a

professional and a strategic device, which  is being

adopted, so that Court may at the stage of hearing for

admission of writ, due to paucity of time, would be

constraint to admit, even the Writ Petitions, which are

arising   from   concurrent   judgments,   in   a   summary

rent control proceedings, where grant of interim order

would become inevitable during its pendency, besides

being   taxing   on   the   litigant   also,   to   meet   the

artificially escalated expenses too, and this strategy is

not an isolated example, but rather it is a regular

feature, which had been adopted by the Counsel, as a

routine   in   most   of   the   cases,   which   are   being

instituted   from   his   Chamber.   This   methodology   is

being deliberately adopted with a premonition, that if

judgment   is   put   to   challenge   before   a   superior

platform, he may have his argument protected that

the   judgment   relied   by   him,   and   which   were   on

record, before the Court, were not considered by the

Court, and thus the judgment is a consequence of

non­application of mind, by the High Court.

52. This Court before addressing the judgment relied,

on its merit, this Court had a l ready observed in para

2, 3 and 4 of the judgment, the modus operandi, of

the counsel for the petitioner to place reliance on the

irrelevant judgments, which had got no significance or

its applicability, under the facts and circumstances of

the   present   case,   and   this   Court   has   already

consciously   observed   that   the   intention   behind

making reference to the judgement, was to mislead

the  Court   and   to   buy   time   in   prolonging   the

proceedings   in   order   to   overcome   the   effect   of

dismissal of the concurrent,  Writ Petitions in limine

by placing voluminous judgements on records, and

making references of them, by quoting its excerpts.

*** *** *** ***  ***” 

6

8. The Appellant contends that the above referred comments in the

judicial orders of the High Court against the Counsel’s conduct were not

needed for adjudication of the matters under consideration. In any case,

the   observations   could   not   have   been   recorded   without   putting   the

counsel on notice about the intention of the Court. It is also submitted

that by virtue of the remarks recorded against the Appellant, his hardearned reputation has been tarnished. To project that such remarks

were unmerited, Mr. Rohatgi points out that the Appellant, with an

otherwise unblemished professional record, had no occasion to suffer

such adverse remarks from any other judge of the High Court.  Since

the concerned Presiding Judge, before his elevation on 19.05.2017 to

the Bench, was a member of the same Bar as the Appellant and both

were rival counsel in several contested matters, Mr. Rohatgi submits

that the comments may have emanated from personal prejudice and

may not be  otherwise  warranted.  Accordingly,  it is  argued  that the

Appellant   should   not   be   made   to   suffer   adverse   comments   on   his

conduct   as   a   lawyer   only   because   the   concerned   Judge   may   not

appreciate the efforts made by the Counsel, on behalf of his client. 

9. To press home the argument that the offending remarks against the

counsel are unmerited, and do not meet the required parameters, the

7

learned Sr. Counsel has cited State of U.P. vs. Mohammad Naim1 where

Justice S.K. Das laid down the following tests to be applied while dealing

with the question of expunction of disparaging remarks against a person

whose conduct comes in for consideration before a Court of law. Those

tests are: 

(a) Whether the party whose conduct is in question is before

the court or has an opportunity of explaining or defending

himself; 

(b)   Whether   there   is   evidence   on   record   bearing   on   that

conduct justifying the remarks; and 

(c) Whether it is necessary for the decision of the case, as an

integral part thereof, to animadvert on that conduct.

10. In Alok Kumar Roy Vs. Dr. S.N. Sarma2

, in the opinion written by

Justice   C.K.Wanchoo   for   a   Five   Judges   Bench,   this   Court   had

emphasized   that   even   in   cases   of   justified   criticism,   the   language

employed must be of utmost restraint. The use of carping language to

disapprove   of   the   conduct   of   the   Counsel   would   not   be   an   act   of

sobriety, moderation or restraint. 

1 AIR 1964 SC 703

2 (1968) 1 SCR 813

8

11.The  judgement of this  Court in  A.M.   Mathur   Vs.   Pramod   Kumar

Gupta3

, delivered by Justice K Jagannatha Shetty, elaborates on the

need to avoid even the appearance of bitterness. The Court observed

that, 

“13…The duty of restraint, this humility of function

should   be   constant   theme   of   our   judges.   This

quality in decision making is as much necessary for

judges   to   command   respect   as   to   protect   the

independence of the judiciary. Judicial restraint in

this regard might be better called judicial respect,

that is respect by the judiciary…” 

12. The importance of avoiding unsavory remarks in judicial orders as

per established norms of judicial propriety has also been succinctly

noted in Abani Kanta Ray Vs. State of Orissa4

 by Justice J.S. Verma, in

the following words, 

“Use   of   intemperate   language   or   making

disparaging remarks against anyone, unless that be

the   requirement   for   deciding   the   case,   is

inconsistent with judicial behaviors. Written words

in judicial orders are for permanent record which

make   it   even   more   necessary   to   practice   selfrestraint in exercise of judicial power while making

written orders.”

3 (1990) 2 SCC 533

4 1995 Supp (4) SCC 169

9

13. The   principles   laid   down   as   above,   have   been   quoted   with

approval and applied by this Court in several subsequent judgments,

including for a 3 Judge Bench in Samya Sett Vs. Shambhu Sarkar and

Another5

.   In this case Justice C.K. Thakker, writing for the Court

opined that the adverse remarks recorded were neither necessary for

deciding the controversy raised before the Court nor an integral part of

the judgement, and accordingly directed deletion of those remarks. 

14. The proposition of law laid down by Justice S.K. Das on behalf

of the Four Judges Bench in Mohammed Naim (Supra) on recording of

adverse remarks has been approved in a catena of decisions since

1964. It was also cited by the Supreme Court of Sri Lanka in  A.N.

Perera Vs. D.L.H. Perera and Ors.6

  where Abdul Kadir J. speaking for

the Bench approved of the tests laid down by this Court and concluded

that the judge’s comments against the petitioner in that case were

thoroughly unwarranted under each of those tests. 

15. While   it   is   of   fundamental   importance   in   the   realm   of

administration of justice to allow the judges to discharge their functions

freely and fearlessly and without interference by anyone, it is equally

important   for   the   judges   to   be   exercising   restraint   and   avoid

5 (2005) 6 SCC 767

6 1982 SCC SL SC 20

10

unnecessary remarks on the conduct of the counsel which may have no

bearing on the adjudication of the dispute before the Court.   

16. Having perused the offending comments recorded in the High

Court judgments, we feel that those could have been avoided as they

were unnecessary for deciding the disputes.  Moreover, they appear to

be based on the personal perception of the learned Judge.   It is also

apparent that the learned Judge did not, before recording the adverse

comments,   give   any   opportunity   to   the   Appellant   to   put   forth   his

explanation.   The remarks so recorded have cast aspersion on the

professional   integrity   of   the   appellant.     Such   condemnation   of   the

Counsel, without giving him an opportunity of being heard would be a

negation of the principles of audi alteram partem.   The requisite degree

of restraint and sobriety expected in such situations is also found to be

missing in the offending comments. 

17.    The tenor of the remarks recorded against the appellant will not

only demean him amongst his professional colleagues but may also

adversely impact his professional career.     If the comments remain

unexpunged   in   the   court   judgments,   it   will   be   a   cross   that   the

Appellant will have to bear, all his life.   To allow him to suffer thus,

would in our view be prejudicial and unjust.

11

18. In view of the forgoing, we are of the considered opinion that

the   offending   remarks   recorded   by   the   learned   judge   against   the

appellant should not have been recorded in the manner it was done.

The appellant whose professional conduct was questioned, was not

provided any opportunity to explain his conduct or defend himself.  The

comments were also unnecessary for the decision of the Court.   It is

accordingly held that the offending remarks should be recalled to avoid

any future harm to the appellant’s reputation or his work as a member

of the Bar.  We therefore order expunction of the extracted remarks in

paragraphs 4,5,6, and 7 of this judgement. The appeals are accordingly

disposed of with this order. 

…………………………………………J.

         [ROHINTON FALI NARIMAN]

…………………………………………J.

        [HRISHIKESH ROY]

NEW DELHI

AUGUST  02, 2021

12

The case for premature release of the prisoner in terms of the policy of the State Government dated 13.8.2008, the policy which was applicable on the date of his conviction, can be considered only after he completes 14 years of actual imprisonment. However, the State Government can consider the prisoner in question for premature release after undergoing imprisonment for less than 14 years only under Article 161 of the Constitution.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 721 OF 2021

(ARISING OUT OF SLP (CRIMINAL) NO. 4407 OF 2020)

THE STATE OF HARYANA & ORS. .....APPELLANT(S)

VERSUS

RAJ KUMAR @ BITTU .....RESPONDENT(S)

W I T H

CRIMINAL APPEAL NO. 722 OF 2021

(ARISING OUT OF SLP (CRIMINAL) NO. 4634 OF 2020)

A N D

CRIMINAL APPEAL NO. 723 OF 2021

(ARISING OUT OF SLP (CRIMINAL) NO. 2350 OF 2021)

J U D G M E N T

HEMANT GUPTA, J.

1. The State and the writ petitioner before the High Court,1

 are aggrieved by an order passed by the learned Single Bench of the

High Court of Punjab & Haryana at Chandigarh on 12.5.2020

whereby the policies of the State Government to grant remission

to the prisoners were decided, inter alia, directing the State to

consider the feasibility of drafting a fresh policy particularly in re1 Hereinafter referred to as the ‘prisoner’

1

spect of exercise of powers conferred under Article 161 of the

Constitution. It was also held that the State may also consider

the feasibility of having a policy with retrospective operation,

provided the same does not lead to discrimination amongst substantial number of identically situated prisoners. The Court further observed that till such time a decision is taken, the appropriate Government can exercise its powers under Sections 432 and

433 of the Code of Criminal Procedure, 19732

 in terms of policy

dated 13.8.2008, but while strictly adhering to the restrictions

imposed under Section 433-A of the Code.

2. The learned Single Bench has referred to certain policies circulated by the State Government. First policy referred to was circulated on 23.4.1987 wherein the convicts on whom punishment of

life imprisonment is imposed on conviction of an offence for

which death is one of the punishments provided by law, or where

the sentence of death imposed on a person had been commuted

under Section 433 of the Code on or after 18.12.78, would be

considered by the State Government for premature release after

they have undergone 14 years of substantive sentence. Thereafter, policies dated 28.9.1988, 19.11.1991, 8.8.2000 and

12.4.2002 were issued contemplating that case of premature release would be considered on individual basis after review by the

State Level Committee falling within the purview of Section 433

of the Code and cases thereafter shall be put up to the Hon’ble

Governor. However, the policy dated 13.8.2008 did not contem2 For short, the ‘Code’

2

plate that the individual cases will have to be placed before the

Hon’ble Governor.

3. The relevant provisions of the Constitution and the Code read as

thus:

 Constitution of India

“Article 161 – Power of Governor to grant pardons etc.,

and to suspend, remit or commute sentences in certain

cases. - The Governor of a State shall have the power to

grant pardons, reprieves, respites or remissions of

punishment or to suspend, remit or commute the

sentence of any person convicted of any offence against

any law relating to a matter to which the executive

power of the State extends.

Code of Criminal Procedure 1973

432. Power to suspend or remit sentences. - (1) When

any person has been sentenced to punishment for an

offence, the appropriate Government may, at any

time, without conditions or upon any conditions which

the person sentenced accepts, suspend the execution of

his sentence or remit the whole or any part of the

punishment to which he has been sentenced.

(2) xxxx xxxx

(5) The appropriate Government may, by general rules or

special orders, give directions as to the suspension of

sentences and the conditions on which petitions should

be presented and dealt with:

Provided that in the case of any sentence (other than

a sentence of fine) passed on a male person above the

age of eighteen years, no such petition by the person

sentenced or by any other person on his behalf shall be

entertained, unless the person sentenced is in jail, and—

(a) where such petition is made by the person

sentenced, it is presented through the officer in

charge of the jail; or

(b) where such petition is made by any other

person, it contains a declaration that the person

sentenced is in jail.

(6) xxxx xxxx

3

(7) In this section and in Section 433, the expression “appropriate Government” means—

(a) in cases where the sentence is for an offence

against, or the order referred to in sub-section

(6) is passed under, any law relating to a matter

to which the executive power of the Union extends, the Central Government;

(b) in other cases, the Government of the State

within which the offender is sentenced or the

said order is passed.

433. Power to commute sentence. - The appropriate

Government may, without the consent of the person

sentenced, commute—

(a) a sentence of death, for any other punishment provided by the Indian Penal Code (45 of

1860);

(b) a sentence of imprisonment for life, for imprisonment for a term not exceeding fourteen

years or for fine;

(c) a sentence of rigorous imprisonment, for

simple imprisonment for any term to which that

person might have been sentenced, or for fine;

(d) a sentence of simple imprisonment, for fine.

433-A. Restriction on powers of remission or

commutation in certain cases. - Notwithstanding

anything contained in Section 432, where a sentence of

imprisonment for life is imposed on conviction of a

person for an offence for which death is one of the

punishments provided by law, or where a sentence of

death imposed on a person has been commuted under

Section 433 into one of imprisonment for life, such

person shall not be released from prison unless he had

served at least fourteen years of imprisonment.”

4. The issue arising in the present appeals is regarding applicability

of policy dated 12.4.2002 or the policy dated 13.8.2008 to the

prisoner convicted on 25.3.2010. This Court in State of

4

Haryana & Ors. v. Jagdish

3

inter-alia held (para 52) that the

policy dated 4.2.1993 refers to the exercise of powers under

Article 161 of the Constitution whereas the policy dated

13.8.2008 is in exercise of the powers conferred under Section

432 read with Sections 433 and 433-A of the Code. The said

policy is a rule of procedure, thus, subordinate to the

Constitution. The power exercised under Article 161 is a

mandate of the Constitution, therefore, the policy dated

13.8.2008 cannot override the policy dated 4.2.1993. It is the

said finding which is required to be examined in the present

appeals, though in the context of similar later policy dated

12.4.2002. The two polices are reproduced hereinbelow before

the case of premature release can be considered. The two

polices in juxtaposition read as thus:

3 (2010) 4 SCC 216

5

 12th

 April, 2002

In supersession of Haryana Government Memo No. 36/135/91-1JJ(II), dated 8-

8-2000 which was further substituted bearing same number and date on 23-

2-2001, the Government have decided to revise the policy regarding

premature release of life convicts as follows:

(aa) Convicts whose Death Their cases may be considered

sentence has been Commuted after completion of 20 years actual

to life imprisonment and convicts sentence and 25 years total

who have been imprisoned for life sentence with remissions.

Having committed a heinous crime

such as”

 (i) Murder after rape repeated/chained

 rape/unnatural offences.

 xxx xxx xxx

(a) Convicts who have been imprisoned Their cases may be considered

 for life having committed a heinous after completion of 14 years

actual

 crime such as: sentence including undertrial

 period provided that the total

 period of such sentence including

 remissions is not less than 20

 years.

(i) Murder with wrongful confinement

 for extortion/robbery.

(b) Adult life convicts who have been Their cases may be considered

 imprisoned for life but whose cases after completion of 10 years

are not covered under (aa) and (a) actual sentence including undertrial

above and who have committed period provided that the total

crime which are not considered period of such sentence including

heinous as mentioned in clause remissions is not less than 14 years.

 13th

 August, 2008

No. 36/135/91-1JJ(II)- In exercise of the powers conferred by Sub-section (1) of

Section 432 read with Section 433 of the Code of Criminal Procedure, 1973 (Act 2 of

1974) and in supersession of Haryana Government Memo No. 36/135/91-1JJ(II), dated

the 12

th

 April, 2002 and all other earlier policies, the Governor of Haryana hereby

frames the following policy regarding premature release of life convicts, namely:

(a) Convicts whose death sentence has Their cases for pre-mature release may

been commuted to life imprisonment and considered after completion of 20 years

convicts who have been imprisoned for actual sentence and 25 years total

 life having committed a heinous crime sentence with remissions.

 such as:

(i) Murder with rape/unnatural

offences.

 xxx xxx xxx

(b) Convicts who have been imprisoned Their cases for pre-mature release may

for life having committed any crime be considered after completion of 14

which is defined in IPC and/or NDPS years actual sentence including

Act as punishable with death sentence. Undertrial period; provided that the

 total period of such sentence including

 remissions is not less than 20 years.

(c) Convicts who have been imprisoned Their cases may be considered after

for life having committed a crime completion of 10 years actual sentence

which is defined in IPC as punishable including undertrial period; provided

with life imprisonment but not with that the total period of such sentence

death sentence. Including remissions is not less than

 14 years.

6

(aa) & (a) above.

 xxx xxx xxx

5. The Director General of Prisons, Haryana shall put up all such premature

release cases to the State Level Committee for consideration. The Committee

will meet once in three months according to the convenience of the Minister

for jails, Haryana so that cases of review under this policy are not delayed.

The Director General of Prisons, Haryana further will forward a copy of the

decision taken by the Committee alongwith the roll of each of the life convict

to the State Government within one week for further action. Such cases will

be put up to the Governor through the Minister for Jails and the Chief

Minister, Haryana with full background of the prisoner and recommendations

of the committee alongwith the copy of judgment etc. for orders under Article

161 of the Constitution of India.

 xxx xxx xxx

8. The Director General of Prisons, Haryana shall put up all such premature release

cases to the State Level Committee for consideration. The Committee will meet once

in three months, so that cases of review under this policy are not delayed. The

Director General of Prisons, Haryana will forward a copy of the decision taken by the

Committee along with the commutation roll of each of the life convict to the State

Government within one week for further action. Such cases will be put up to the Chief

Minister, Haryana along with full background of the convicts and recommendations of

the Committee and a copy of the Court judgement etc. for orders under Section 432

Cr.P.C. It is reiterated that no convict has fundamental right of remission or

shortening of sentence. The State Government in exercise of its executive

discretionary power of remission is to consider each individual case keeping in view

all the relevant factors. This policy is issued in exercise of the power of the State in

such a way that no discrimination is made while considering the case of life convicts

for premature release. This policy shall be applicable to all premature release cases

of life convicts with effect from date of notification irrespective of their date of

conviction.

The date for consideration of premature release of a convict would be the date of

completion of his requisite sentence in the policy.

7

5. In Jagdish, this Court did not approve the judgment of this Court

in Sadhu Singh & Ors. v. State of Punjab

4

 wherein it was

held that these policies are executive instructions. Instead, this

Court approved the judgment of this Court reported as State of

Haryana v. Mahender Singh & Ors.

5

 wherein it was held that

these policies of remission are in exercise of the powers

conferred under Section 59(5) of the Prisons Act, 1894,

contemplating “for the award of marks and the shortening of

sentences” and thus, they are statutory rules. Sections 401 and

402 of the Code were not empowering the appropriate

Government to issue general or special orders and the conditions

on which petitions for premature release should be presented

and dealt with. The Sections 432 and 433 of the Code had

corresponding provisions in Sections 401 and 402 of the Code

but sub-section (5) of Section 432 empowers an appropriate

Government to issue general or special orders. Therefore, after

the commencement of the Code on 1.4.1974, the power to issue

general or special orders allowing remissions is traceable to

Section 432 of the Code. Hence, the policies issued thereafter

are statutory in nature, having being framed in exercise of

powers conferred on appropriate Government under Section 432

of the Code.

6. None of the policies framed after 1974, except the one which

4 (1984) 2 SCC 310

5 (2007) 13 SCC 606

8

was published in the State Government Gazette on 13.8.2008,

referred to any provision of law under which such decisions have

been communicated to the Director General of Prisons. The

Constitution Bench judgment of this Court reported as L. Hazari

Mal Kuthiala v. Income Tax Officer, Special Circle, Ambala

Cantt.

6

 held that exercise of powers will be referrable to a

jurisdiction which confers validity upon it and not to a jurisdiction

under which it will be nugatory. This Court held as under:

“5. …The Commissioner, when he transferred this case,

referred not to the Patiala Income Tax Act, but to the

Indian Income Tax Act, and it is contended that if the

Patiala Income Tax Act was in force for purposes of

reassessment, action should have been taken under that

Act and not the Indian Income Tax Act. This argument,

however, loses point, because the exercise of a power will

be referable to a jurisdiction which confers validity upon it

and not to a jurisdiction under which it will be nugatory.

This principle is well-settled. See Pitamber

Vajirshet v. Dhandu Navlapa [ILR 12 Bom 486, 489] .”

7. Such principle of law was reiterated in a three-Judge Bench

judgment of this Court reported as N. Mani v. Sangeetha

Theatre & Ors.

7

 wherein it was held as under:

“9. It is well settled that if an authority has a power under

the law merely because while exercising that power the

source of power is not specifically referred to or a

reference is made to a wrong provision of law, that by

itself does not vitiate the exercise of power so long as the

power does exist and can be traced to a source available

in law.”

8. Therefore, even if there is no specific reference to the statutory

power under which such policies have been issued or even if a

6 AIR 1961 SC 200

7 (2004) 12 SCC 278

9

wrong provision is mentioned, the policy instructions would

continue to be statutory instructions framed either under the

Prisons Act, 1894 or under Section 432 of the Code.

9. In Maru Ram v. Union of India & Ors.

8

, a Constitution Bench

considering the scope of Article 161 of the Constitution and the

provisions of the Code held as under:

“54. …. The second plea, revolves round ‘pardon

jurisprudence”, if we may coarsely call it that way,

enshrined impregnably in Articles 72 and 161 and the

effect of Section 433-A thereon. The power to remit is a

constitutional power and any legislation must fail which

seeks to curtail its scope and emasculate its mechanics.

Thirdly, the exercise of this plenary power cannot be left

to the fancy, frolic or frown of government, State or

Central, but must embrace reason, relevance and

reformation, as all public power in a republic must. On this

basis, we will have to scrutinize and screen the survival

value of the various remission schemes and shortsentencing projects, not to test their supremacy over

Section 433-A, but to train the wide and beneficent power

to remit life sentence without the hardship of fourteen

fettered years.

xxx xxx xxx

57. We now move on to the second contention which

deals with the power of remission under the Constitution

and the fruits of its exercise vis-à-vis Section 433-A.

Nobody has a case – indeed can be heard to contend –

that Article 72 and 161 must yield to Section 433-

A…………………...

xxx xxx xxx

59. It is apparent that superficially viewed, the two

powers, one constitutional and the other statutory, are

coextensive. But two things may be similar but not the

same. That is precisely the difference. We cannot agree

that the power which is the creature of the Code can be

equated with a high prerogative vested by the

8 (1981) 1 SCC 107

10

Constitution in the highest functionaries of the Union and

the States. The source is different, the substance is

different, the strength is different, although the stream

may be flowing along the same bed. We see the two

powers as far from being identical, and, obviously, the

constitutional power is ‘untouchable’ and

‘unapproachable’ and cannot suffer the vicissitudes of

simple legislative processes. Therefore, Section 433-A

cannot be invalidated as indirectly violative of Articles 72

and 161. What the Code gives, it can take, and so, an

embargo on Sections 432 and 433(a) is within the

legislative power of Parliament.

60. Even so, we must remember the constitutional status

of Articles 72 and 161 and it is common ground that

Section 433-A does not stand and cannot affect even a

wee bit the pardon power of the Governor or the

President. The necessary sequel to this logic is that

notwithstanding Section 433-A the President and the

Governor continue to exercise the power of commutation

and release under the aforesaid articles.

61. … The upshot is that the State Government, whether

the Governor likes it or not, can advice and act under

Article 161, the Governor being bound by that advice. The

action of commutation and release can thus be pursuant

to a governmental decision and the order may issue even

without the Governor's approval although, under the Rules

of Business and as a matter of constitutional courtesy, it

is obligatory that the signature of the Governor should

authorise the pardon, commutation or

release…………....The Governor vis-à-vis his Cabinet is no

higher than the President save in a narrow area which

does not include Article 161. The constitutional conclusion

is that the Governor is but a shorthand expression for the

State Government and the President is an abbreviation for

the Central Government.

xxx xxx xxx

69. …. We have no hesitation to reject the notion that

Articles 72/161 should remain uncanalised. We have to

direct the provisional acceptance of the remission and

short-sentencing schemes as good guide-lines for exercise

of pardon power – a jurisdiction meant to be used as often

and as systematically as possible and not to be abused,

much as the temptation so to do may press upon the pen

of power.

11

70. The learned Solicitor-General is right that these Rules

are plainly made under the Prisons Act and not under the

constitutional power, the former fail under the pressure of

Section 433-A. But that, by no means, precludes the

States from adopting as working rules the same remission

schemes which seem to us to be fairly reasonable. After

all, the government cannot meticulously study each

prisoner and the present praxis of marks, until a more

advanced and expertly advised scheme is evolved, may

work. Section 433-A cannot forbid this method because it

is immunized by Article 161. We strongly suggest that,

without break, the same rules and schemes of remission

be continued as a transmigration of soul into Article 161,

as it were, and benefits extended to all who fall within

their benign orbit – save, of course, in special cases which

may require other relevant consideration. The wide power

of executive clemency cannot be bound down even by

self-created rules.

xxx xxx xxx

72. We conclude by formulating our findings:

(1) xxx xxx

(2) We affirm the current supremacy of Section 433-A

over the Remission Rules and short-sentencing

statutes made by the various States.

(3) xxx xxx

(4) We hold that Section 432 and Section 433 are not a

manifestation of Articles 72 and 161 of the

Constitution but a separate, though similar power,

and Section 433-A, by nullifying wholly or partially

these prior provisions does not violate or detract

from the full operation of the constitutional power to

pardon, commute and the like.

(5) xxx xxx

(6) We follow Godse case to hold that imprisonment for

life lasts until the last breath, and whatever the

length of remissions earned, the prisoner can claim

release only if the remaining sentence is remitted by

government.

(7) xxx xxx

(8) The power under Articles 72 and 161 of the

Constitution can be exercised by the Central and

State Governments, not by the President or Governor

on their own. The advice of the appropriate

Government binds the Head of the State. No

12

separate order for each individual case is necessary

but any general order made must be clear enough to

identify the group of cases and indicate the

application of mind to the whole group.

(9) xxx xxx

(10) Although the remission rules or short-sentencing

provisions proprio vigore may not apply as against

Section 433-A, they will override Section 433-A if the

government, Central or State, guides itself by the

self-same rules or schemes in the exercise of its

constitutional power. We regard it as fair that until

fresh rules are made in keeping with experience

gathered, current social conditions and accepted

penological thinking – a desirable step, in our view –

the present remission and release schemes may

usefully be taken as guide-lines under Articles 72/161

and orders for release passed. We cannot fault the

government, if in some intractably savage

delinquents, Section 433-A is itself treated as a

guide-line for exercise of Articles 72/161. These

observations of ours are recommendatory to avoid a

hiatus, but it is for Government, Central or State, to

decide whether and why the current Remission Rules

should not survive until replaced by a more

wholesome scheme.

(11) The U.P. Prisoners’ Release on Probation Act, 1938,

enabling limited enlargement under licence will be

effective as legislatively sanctioned imprisonment of

a loose and liberal type and such licensed

enlargement will be reckoned for the purpose of the

14-year duration. Similar other statutes and rules will

enjoy similar efficacy.

xxx xxx”

10. The Constitution Bench in Union of India v. V. Sriharan &

Ors.

9

inter alia examined the provisions of Articles 161 and 162

of the Constitution. It was held as under:

“22. Therefore, the resultant position would be that the

Executive Power of the Union and its authorities in relation

to grant of remission, commutation, etc. are available and

can be exercised by virtue of the implication of Article

73(1)(a) read along with its proviso and the exercise of

9 (2016) 7 SCC 1

13

such power by the State would be controlled and limited

as stipulated in the proviso to Article 162 to the extent to

which such control and limitations are prescribed in the

Criminal Procedure Code.”

11. Thus, the power under Article 161 of the Constitution can be

exercised by the State Governments, not by the Governor on his

own. The advice of the appropriate Government binds the Head

of the State. No separate order for each individual case is

necessary but any general order made must be clear enough to

identify the group of cases and indicate the application of mind

to the whole group. Therefore, the policies of the State

Government are composite policies encompassing both

situations under Article 161 of the Constitution and Sections 432,

433 and 433-A of the Code. The remission under Article 161 of

the Constitution will override Section 433-A of the Code, if the

State Government decides to be governed of its constitutional

power.

12. In State of Haryana v. Nauratta Singh & Ors.

10

, this Court

referred to Maru Ram’s case holding that period of 14 years as

specified in Section 433-A of the Code is the actual period of

imprisonment undergone by the prisoner without including any

period of remission. This Court was examining the case where

the accused was acquitted by the trial court but was convicted

by the High Court. He was on bail during the pendency of the

appeal before the High Court. The claim of the prisoner was that

10 (2000) 3 SCC 514

14

the period of bail in terms of the order of the High Court has to

be included in the period of 14 years of imprisonment. The Court

held as under:

“5. We may point out that Section 433-A of the Code was

introduced in the statute-book on 8-12-1978 by which the

power of a State Government to release a person (who

has been convicted and sentenced to life imprisonment of

any offence punishable with death or imprisonment for

life) has been curtailed by introducing the rider that such

convicted person should have served at least 14 years of

imprisonment. A Constitutional Bench of this Court has

held in Maru Ram v. Union of India that the period of 14

years envisaged in the new provision is the actual period

of imprisonment undergone by the prisoner without

including any period of remission.”

9. In Jagdish, the question raised was as to whether the policy

which makes a provision for remission of sentence should be the

one which was existing on the date of the conviction of the

accused or the one which existed on the date of consideration of

his case for premature release by the appropriate authority. The

Court held that the amendment inserting Section 433-A in the

Code would apply prospectively. The life convicts who had been

sentenced prior to 18.12.1978 i.e., date of enforcement of

amendment would not come within the purview of the provisions

of Section 433-A of the Code. The remission rules/short-sentencing policies could be taken as guidelines for exercise of powers

under Article 72 or 161 of the Constitution and in such an eventuality, remission rules would override Section 433-A of the

Code. This Court held that Section 433-A of the Code cannot and

does not in any way affect the constitutional power conferred on

15

the President/Governor under Articles 72/161 of the Constitution.

It was held as under:

“26. This Court in Ashok Kumar [(1991) 3 SCC 498 : 1991

SCC (Cri) 845 : AIR 1991 SC 1792] considered the matter

elaborately taking into consideration a large number of its

earlier judgments including Maru Ram [(1981) 1 SCC 107 :

1981 SCC (Cri) 112] , Bhagirath v. Delhi Admn. [(1985) 2

SCC 580 : 1985 SCC (Cri) 280 : AIR 1985 SC 1050] ; Kehar

Singh v. Union of India [(1989) 1 SCC 204 : 1989 SCC (Cri)

86 : AIR 1989 SC 653] and came to the following

conclusions:

(i) Section 433-A CrPC denied premature release

before completion of actual 14 years of incarceration to only those limited convicts convicted of a

capital offence i.e. exceptionally heinous crime;

(ii) Section 433-A CrPC cannot and does not in any

way affect the constitutional power conferred on

the President/Governor under Articles 72/161 of the

Constitution;

(iii) Remission Rules have a limited scope and in

case of a convict undergoing sentence for life imprisonment, it acquires significance only if the sentence is commuted or remitted subject to Section

433-A CrPC or in exercise of constitutional power

under Article 72/161 of the Constitution; and

(iv) Case of a convict can be considered under Articles 72 and 161 of the Constitution treating the

1958 Rules.

xx xx xx

28. Nevertheless, we may point out that the power of

the sovereign to grant remission is within its exclusive

domain and it is for this reason that our Constitution

makers went on to incorporate the provisions of Article

72 and Article 161 of the Constitution of India. This responsibility was cast upon the executive through a

constitutional mandate to ensure that some public

purpose may require fulfilment by grant of remission

in appropriate cases. This power was never intended

to be used or utilised by the executive as an unbridled

power of reprieve. Power of clemency is to be exercised cautiously and in appropriate cases, which in effect, mitigates the sentence of punishment awarded

and which does not, in any way, wipe out the convic16

tion. It is a power which the sovereign exercises

against its own judicial mandate. The act of remission

of the State does not undo what has been done judicially. The punishment awarded through a judgment is

not overruled but the convict gets benefit of a liberalised policy of State pardon. However, the exercise of

such power under Article 161 of the Constitution or under Section 433-A CrPC may have a different flavour in

the statutory provisions, as short-sentencing policy

brings about a mere reduction in the period of imprisonment whereas an act of clemency under Article 161

of the Constitution commutes the sentence itself. as

guidelines.”

13. Thus, a prisoner has to undergo a minimum period of

imprisonment of 14 years without remission in the case of an

offence, the conviction of which carries death sentence, to take

benefit of policy of remission framed by an appropriate

government under Section 432 of the Code in view of the

overriding provision of Section 433-A of the Code. However, the

power of the Hon’ble Governor to commute sentence or to pardon

is independent of any such restriction or limitation. The State

Government can frame a policy of grant of remissions either under

Section 432 of the Code or under Article 161 of the Constitution.

The Governor continues to exercise the power of commutation and

release under Article 161 of the Constitution, notwithstanding

Section 433-A of the Code. The action of commutation and release

can thus be pursuant to a governmental decision and the order

may be issued even without the Governor's approval. However,

under the Rules of Business and as a matter of constitutional

courtesy, it may seek approval of the Governor, if such release is

under Article 161 of the Constitution.

17

14. Still further, it is the consistent view of this Court that the policy

prevalent at the time of conviction shall be taken into

consideration for considering the premature release of a prisoner.

In Jagdish, while determining the policy which would be

applicable for the remission of sentence, this Court held as under:

“27. In Mahender Singh, this Court as referred to

hereinabove held that the policy decision applicable

in such cases would be which was prevailing at the

time of his conviction. This conclusion was arrived on

the following ground: (SCC p. 619, para 38)

38. A right to be considered for remission,

keeping in view the constitutional safeguards of

a convict under Articles 20 and 21 of the

Constitution of India, must be held to be a legal

one. Such a legal right emanates from not only

the Prisons Act but also from the Rules framed

thereunder.”

15. The policy of premature release dated 13.8.2008 was issued in

the name of the Governor and was published in the official

Gazette. Such notification is said to have been issued in exercise

of the powers conferred under sub-section (1) of Sections 432

and 433 of the Code. Keeping in view the principles of law

enunciated above, such policy is in exercise of the powers

conferred on the appropriate Government in terms of the

provisions of the Code and is thus statutory in nature. The other

policy dated 12.4.2002 is in fact a memo issued by the Financial

Commissioner and Secretary to Government, Haryana, Jails

Department, Chandigarh to the Director General of Prisons,

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Haryana, Chandigarh. Such policy of premature release would

again be traceable to the provisions of the Code.

16. Mr. Nikhil Goel, learned Additional Advocate General for the State

of Haryana, submitted that different policies have been issued

from time to time and the later policy has superseded the earlier

one, so there was no hiatus when a policy of premature release

was not in operation or at any given point of time, the two

polices were operational. The argument of Mr. Goel merit

acceptance inasmuch as the policy dated 12.4.2002 is in

supersession of earlier policy circulated on 8.8.2000 substituted

later on 23.2.2001. The policy dated 13.8.2008 has substituted

the earlier policy dated 12.4.2002 and such policy has been

published on behalf of the Governor of the State. The policy

dated 13.8.2008 has been issued in exercise of powers conferred

by sub-section (1) of Section 432 read with Section 433 of the

Code and in supersession of Government Memorandum dated

12.4.2002 and all other policies. The policy dated 13.8.2008 is a

statutory policy. The said policy cannot and has not tried to take

over the discretion vested in the Hon’ble Governor to grant

pardons, remissions or commute sentence in exercise of powers

conferred under Article 161 of the Constitution but it is the policy

issued under a Statute and therefore, such policy has a statutory

force. The policy dated 12.4.2002 is again a statutory policy and

cannot be put at a higher pedestal than the policy dated

13.8.2008 for the reason that it seeks approval from the Hon’ble

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Governor. Such policy has been specifically superseded on

13.8.2008, ceases to be operative for the convicts who are

convicted after 13.8.2008.

17. Section 433-A of the Code starts with a non-obstante clause

restricting the right of the appropriate Government, to suspend

the sentence of imprisonment for life imposed on conviction of a

person for an offence for which death is one of the punishments

provided by law, that such person shall not be released from

prison unless he has served at least 14 years of imprisonment.

Therefore, the power of the appropriate Government to release a

prisoner after serving 14 years of actual imprisonment is vested

with the State Government. On the other hand, the power

conferred on the Governor, though exercised on the aid and

advice of the State, is without any restriction of the actual period

of imprisonment undergone by the prisoner. Thus, if a prisoner

has undergone more than 14 years of actual imprisonment, the

State Government, as an appropriate Government, is competent

to pass an order of premature release, but if the prisoner has not

undergone 14 years or more of actual imprisonment, the

Governor has a power to grant pardons, reprieves, respites and

remissions of punishment or to suspend, remit or commute the

sentence of any person de hors the restrictions imposed under

Section 433-A of the Constitution. Such power is in exercise of

the power of the sovereign, though the Governor is bound to act

on the aid and advice of the State Government.

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18. The policy of 12.4.2002 is applicable in the cases of the

prisoners who have undergone actual sentence of 14 years of

imprisonment and also the prisoners who have not completed 14

years of actual imprisonment. Therefore, the cases of the

prisoners who have completed 14 years of actual imprisonment

can be decided by the State Government in terms of Sections

432 and 433 of the Code unless the State Government choses to

seek the approval of the Hon’ble Governor. There is nothing

illegal or improper to seek approval of the Hon’ble Governor in

all cases but in the cases where the prisoner has not undergone

14 years of actual imprisonment falling within scope of Section

433-A of the Code, it is for the Hon’ble Governor to exercise the

power conferred under Article 161 of the Constitution, though on

the aid and advice of the State Government. We find that clause

(b) of the policy dated 12.4.2002 provided for the cases of the

prisoners to be considered after completion of 10 years of actual

sentence including undertrial period provided the total period of

such sentence including remission is not less than 14 years. The

remissions not contemplated by Section 433-A of the Code, the

power to remit or commute sentence can be exercised by the

Governor in exercise of the power conferred under Article 161 of

the Constitution. This explains the last line in the policy that

such cases will be put up before the Governor with full

background of the prisoner and recommendation of the

Committee including copy of the judgment for orders under

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Article 161 of the Constitution.

19. The Notification dated 13.8.2008 published in exercise of the

powers conferred upon an appropriate Government under

Section 432(5) of the Code, provides that the appropriate

Government may, by general rules or special orders, give

directions as to the suspension of sentences and the conditions

on which petitions should be presented and dealt with. Therefore,

all the polices issued from time to time are under Section 432 of

the Code, though no reference is made to such provisions in any

of the policies except the last one dated 13.8.2008. The source of

power to frame guidelines or the policies for remission etc.

was earlier in Section 59(5) of the Prisons Act, 1894 and now in

terms of Section 432(5) of the Code. Therefore, such policies are

statutory in nature, framed in exercise of power conferred upon

appropriate government under Section 432(5) of the Code.

20. The clause 2(c) of the policy dated 13.8.2008 deals with the

convicts who have been imprisoned for life having committed a

crime which is defined in the Indian Penal Code, 1860 (IPC) as

punishable for life imprisonment but not with death sentence.

The cases of such prisoners can be considered after completion

of 10 years of actual sentence including undertrial period

provided the total period of such sentence including remission is

not less than 14 years. The distinction is that in such cases, the

remission is taken into consideration whereas, the remissions

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earned by a prisoner convicted for an offence under Section 302

IPC, an offence punishable with death, cannot be considered for

premature release. If such a prisoner is to be considered for

premature release in the cases of life imprisonment for an

offence under IPC, the bar under Section 433-A of the Code

would not apply. The judgment in Jagdish has to be read in the

light of the distinction which we have drawn between the power

exercised by the Hon’ble Governor and the power to be exercised

by the State Government.

21. Therefore, we find that the directions issued by the High Court

are not sustainable for the reason that the policies have to be

read keeping in view the period of imprisonment undergone by a

prisoner. The power of remission is to be exercised by the State

Government, as an appropriate Government, if the prisoner has

undergone 14 years of actual imprisonment in the cases falling

within the scope of Section 433-A of the Code and in case the

imprisonment is less than 14 years, the power of premature

release can be exercised by the Hon’ble Governor though on the

aid and advice of the State Government.

22. Consequently, the directions issued by the learned Single Bench

are not sustainable and are hereby set aside.

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23. The prisoner herein has completed 12 years and 25 days as on

6.7.2021 as per the custody certificate produced by the State.

The case for premature release of the prisoner in terms of the

policy of the State Government dated 13.8.2008, the policy

which was applicable on the date of his conviction, can be

considered only after he completes 14 years of actual

imprisonment. However, the State Government can consider the

prisoner in question for premature release after undergoing

imprisonment for less than 14 years only under Article 161 of the

Constitution.

24. The appeals are disposed of accordingly.

.............................................J.

(HEMANT GUPTA)

.............................................J.

(A.S. BOPANNA)

NEW DELHI;

AUGUST 03, 2021.

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