Revival of Withdrawn CIRP Applications: NCLAT Clarifies Limitation under Article 137 of the Limitation Act

Case Note on Metalrod Pvt. Ltd. vs. Harshit Finvest Pvt. Ltd.

Introduction

The Insolvency and Bankruptcy Code, 2016 (“IBC”) is a landmark legislation designed to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate entities, individuals, and partnerships. One recurring issue in insolvency jurisprudence is the applicability of limitation laws when an application under Section 7 of the IBC (Corporate Insolvency Resolution Process – CIRP) is withdrawn and subsequently sought to be restored.

The recent decision of the National Company Law Appellate Tribunal (NCLAT) in Metalrod Pvt. Ltd. vs. Harshit Finvest Pvt. Ltd. sheds significant light on this question. The tribunal clarified that the three-year limitation period under Article 137 of the Limitation Act, 1963 applies, rather than the 30-day window under Rule 48 of the NCLT Rules, 2016. This ruling is critical as it ensures procedural fairness and prevents undue hardship to financial creditors.

Legal Provisions Involved

1. Section 7, Insolvency and Bankruptcy Code, 2016 (IBC)
   Provides that a financial creditor may initiate CIRP against a corporate debtor upon occurrence of a default.

2. Rule 48, National Company Law Tribunal Rules, 2016
   Deals with applications for restoration of cases dismissed for default, providing a 30-day period for filing such applications.

3. Article 137, Limitation Act, 1963
   The residuary provision prescribing a three-year limitation period for any application for which no specific limitation is provided elsewhere in the Act.

Facts of the Case

• Corporate Debtor: Metalrod Pvt. Ltd.

• Financial Creditor: Harshit Finvest Pvt. Ltd.

• A CIRP application under Section 7 of the IBC was filed by the Financial Creditor against the Corporate Debtor.

• On 7th March 2023, the application was withdrawn.

• Later, a restoration application was filed by the Financial Creditor seeking to revive the withdrawn petition.

• The central question was: Should the restoration be filed within 30 days (Rule 48) or within three years (Article 137)?

Issue Before the NCLAT

Whether the restoration of a withdrawn Section 7 CIRP application is governed by the 30-day limitation under Rule 48 of the NCLT Rules, 2016, or the three-year residuary limitation period under Article 137 of the Limitation Act, 1963.

Court’s Observations

1. Nature of Restoration Applications
   The NCLAT observed that restoration of a withdrawn CIRP application does not fall strictly under the procedural scope envisaged under Rule 48, which is limited to “cases dismissed for default.” Restoration in insolvency matters often involves substantive rights of creditors and debtors.

2. Applicability of Article 137
   Since no specific limitation period is prescribed for such restoration under the IBC or Rules, the residuary Article 137 applies, granting a three-year period from the date the right to apply accrues.

3. Need for Substantive Justice
   Restricting restoration to a 30-day window would cause injustice in insolvency disputes, where negotiations, settlements, and defaults often occur over extended periods. The tribunal emphasized that insolvency law is intended to be facilitative, not restrictive.

4. Consistency with Precedents
   The NCLAT noted earlier rulings where Article 137 has been applied to IBC proceedings in the absence of a specific statutory limitation, reinforcing consistency in judicial interpretation.

Decision

The NCLAT held that:

• The restoration of a withdrawn CIRP application under Section 7 of the IBC is governed by Article 137 of the Limitation Act, 1963.

• The applicant, therefore, has three years from the date of withdrawal to seek restoration.

• The 30-day limitation under Rule 48 of the NCLT Rules, 2016 does not apply in such cases.

Significance of the Ruling

1. Clarity on Procedural Timelines
   The decision removes ambiguity by clearly stating that CIRP revival applications are not bound by the narrow 30-day window.

2. Fairness to Creditors
   Financial creditors are now assured of a reasonable three-year timeframe, allowing them flexibility to reinstate applications, particularly where partial settlements have failed.

3. Strengthening Insolvency Jurisprudence
   By harmonizing the IBC with the Limitation Act, the judgment ensures consistency and reduces the risk of conflicting interpretations across tribunals.

Conclusion

The NCLAT’s verdict in Metalrod Pvt. Ltd. vs. Harshit Finvest Pvt. Ltd. provides much-needed clarity on the applicability of limitation provisions for restoring withdrawn CIRP applications. By affirming that Article 137 of the Limitation Act governs such restorations, the tribunal has reinforced a principle of substantive justice and procedural fairness.

For financial creditors, insolvency professionals, and corporate debtors alike, this ruling underscores the importance of the Limitation Act’s residuary provision in insolvency matters. It balances the need for certainty with the practical realities of debt resolution, thereby strengthening the overall insolvency framework in India.

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Anshul Goel

LegalMantra.net Team