Section 5 Limitation Act- ‘Sufficient Cause’ Is The Cause For Which Party Could Not Be Blamed: SC

The Supreme Court while dismissing an appeal filed by Sabarmati Gas Limited observed that ‘sufficient cause’ is the cause for which a party could not be blamed as per Section 5 of the Limitation Act, 1963.

The Bench comprising Justice Ajay Rastogi and Justice C.T. Ravikumar said, “… it is incumbent on the Adjudicating Authority to consider the claim for condonation of the delay when once the proceeding concerned is found filed beyond the period of limitation. … As relates Section 5 of the Limitation Act showing ‘sufficient cause’ is the only criterion for condoning delay. ‘Sufficient Cause’ is the cause for which a party could not be blamed.”

The Bench noted that there existed a pre-existing dispute between the parties.

Senior Advocate Shyam Divan appeared for the appellant while Senior Advocate S. Guru Krishna Kumar appeared for the respondent.

Facts of the Case –

The respondent i.e., Shah Alloys Limited required a commercial supply of natural gas for its manufacturing needs and to facilitate the same, the appellant and the respondent entered into a Gas Sales Agreement (GSA) whereby and whereunder the appellant was having the obligation to supply natural gas conforming to the specifications laid down in Annexure-2 forming part of the contract. As per clause 11.2, notwithstanding any dispute in relation to any amount invoiced, the respondent could not withhold payment in accordance with the GSA.

The respondent defaulted on payment of invoices inasmuch as it made only partial irregular payments and approached BIFR to get it declared as a ‘sick unit’. The reference was admitted by BIFR and as per order, the respondent was declared as a ‘sick company’.

The appellant filed an application under Section 9 of the Insolvency and Bankruptcy Code before NCLT seeking initiation of a Corporate Insolvency Resolution Process (CIRP) in its capacity as Operational Creditor of the respondent but the same got dismissed on the grounds of being barred by limitation and thereafter, the NCLAT also dismissed the appeal.

Hence, following were the twin questions for consideration before the Apex Court in this case:

1. Whether in computation of the period of limitation in regard to an application filed under Section 9, IBC the period during which the operational creditor’s right to proceed against or sue the corporate debtor that remain suspended by virtue of Section 22 (1) of the Sick Industrial Companies (Special Provisions Act, 1985) (SICA) can be excluded, as provided under Section 22 (5) of SICA?

2. Whether the respondent has raised a dispute which is describable as 'pre-existing dispute’ between itself and the appellant warranting dismissal of application under Section 9 of the IBC at the threshold?

The Supreme Court while considering the aforesaid questions, asserted, “True that, in terms of the decision in Mobilox Innovations (P) Ltd. (supra) what is to be looked into is the existence or otherwise of a dispute and/or the suit or arbitration proceedings prior to the receipt of demand notice or invoice, as the case may be.”

The counsel for the appellant contended that the respondent had agreed to effect the payments or bills and requested only to wait for the payments of the old bills till restructuring is agreed upon by BIFR while counsel for the respondent opposed such contention.

The Apex Court said that it is enough that a dispute exists between the parties and in other words, what is to be seen is whether there was a plausible contention requiring investigation for the purpose of adjudication.

The Court further observed, “Taking note of the nature of the dispute of the respondent as referred hereinbefore in respect of the claim made by the appellant, we do not find any reason to disagree with the concurrent findings of the Tribunals … the dismissal of the application under Section 9, IBC on the ground of ‘pre-existing dispute’ cannot be held to be patently illegal or perverse. We also do not find any reason, in the facts and circumstances, to hold that the case set up by the respondent was a patently feeble legal argument. At any rate, we are not inclined to brush aside the case of the respondent as spurious.”

It was further noted by the Court that there cannot be an order of remand of the matter to the Tribunal for reconsideration of Section 9 application under IBC.

The Court, at last, asserted, “… when the arbitration proceedings are pending, we are of the view that the parties shall be left with the liberty to raise all contentions before the arbitrator, except the legal questions discussed and decided in this judgment.”

Accordingly, the Court dismissed the appeal.

Cause Title- Sabarmati Gas Limited v. Shah Alloys Limited

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