25 September 2019
Supreme Court


Case number: W.P.(C) No.-000455 / 2019
Diary number: 12679 / 2019






Jignesh Shah & Anr. …Petitioners


Union of India & Anr.  …Respondents


CIVIL APPEAL NO.               OF 2019 (Arising out of Special Leave Petition (Civil) No.______ of 2019)                                                                     (D. No.13468 of 2019)




CIVIL APPEAL NO. 7618-19 OF 2019                                                                     (D. No.16521 of 2019)




R.F. Nariman, J.

W.P.(C) No.645 OF 2019

1. The issues involved in Writ Petition (Civil) No.645 of 2019 are

entirely different from the Writ Petition (Civil) No.455 of 2019 and its



other connected matters. This writ petition is accordingly de-tagged

from Writ Petition (Civil) No.455 of 2019. The Registry is directed to

list this writ petition separately.

W.P.(C) No.455 of 2019 & Civil Appeal (Diary No.16521 of 2019)

2. Delay is condoned. Civil Appeal (Diary No. 16521 of 2019) is


3. Writ Petition (Civil) No.455 of 2019 and Civil Appeal (Diary No.

16521 of  2019)  have been filed  by Shri  Jignesh Shah and Smt.

Pushpa Shah respectively, both of whom are shareholders of La-Fin

Financial Services Pvt. Ltd. (hereinafter “La-Fin”) assailing the order

of the National Company Law Tribunal, Mumbai Bench (hereinafter

referred to as the “NCLT”) admitting a winding up petition that was

filed  by  IL&FS Financial  Services  Ltd.  (hereinafter  referred  to  as

“IL&FS”)  against  La-Fin  before  the  High  Court  of  Judicature  at

Bombay (hereinafter referred to as the “Bombay High Court”), which

was  transferred  to  the  NCLT  and  then  heard  as  a  Section  7

application  under  the  Insolvency  and  Bankruptcy  Code,  2016

(hereinafter referred to the “the Code”).



4. The brief facts necessary to appreciate the narrow controversy

that arises in Writ Petition (Civil) No.455 of 2019 and its connected

matters are as follows:

(i) On  20th August,  2009,  a  share  purchase  agreement  was

executed  between  Multi-Commodity  Exchange  India  Limited

(hereinafter  referred to as “MCX”),  MCX Stock Exchange Limited

(hereinafter referred to as “MCX-SX”) and IL&FS, whereby IL&FS

agreed to purchase 442 lakh equity shares of MCX-SX from MCX.

(ii) Pursuant  to  this  agreement,  La-Fin,  as  a  group  company of

MCX, issued a ‘Letter of Undertaking’ to IL&FS on 20 th August, 2009

(hereinafter referred to as the “Letter of Undertaking”) stating that

La-Fin  or  its  appointed  nominees  would  offer  to  purchase  from

IL&FS the shares of MCX-SX after a period of one year, but before a

period of  three years,  from the date of investment.  On facts, this

period of three years expired in August, 2012.

(iii) IL&FS, therefore, by its letter dated 3rd August, 2012, exercised

its option to sell its entire holding of shares in MCX-SX, and called

upon La-Fin to purchase these shares in accordance with the Letter

of  Undertaking.  On 16th August,  2012,  La-Fin  replied  that  it  was

under no legal or contractual obligation to buy the aforesaid shares.  



(iv) Thereafter, correspondence between the parties continued, until

finally, on 19th June, 2013, IL&FS filed a Suit No.449 of 2013 in the

Bombay  High  Court  for  specific  performance  of  the  Letter  of

Undertaking  by  La-Fin  or,  in  the  alternative,  for  damages.  It  is

important to note that the cause of action for the suit - as stated in

the  plaint  -  arose  on  16th August,  2012,  i.e.  the  day  La-Fin

purportedly  refused  to  honour  its  obligation  under  the  Letter  of


(v) On 13th October, 2014, a learned Single Judge of the Bombay

High  Court  passed  an  injunction  order  restraining  La-Fin  from

alienating  its  assets  pending  disposal  of  the  suit,  subject  to

attachments  of  La-Fin’s  properties  that  had  been  made  by  the

Economic Offences Wing of the Mumbai Police (hereinafter referred

to as the “EOW”) during the pendency of the suit. An appeal against

this order was dismissed by a Division Bench of the Bombay High

Court on 11th September, 2015.    

(vi) On 3rd November, 2015, a statutory notice under Section 433

and 434 of the Companies Act, 1956 was issued by IL&FS to La-Fin,

referring to the attachment by the EOW, and stating that La-Fin was

obviously  in  no  financial  position  to  pay  the  sum  of  INR

232,50,00,000/- which, according to IL&FS, was owing to them as of



31st October, 2015. On 18th November, 2015, a reply was promptly

given by La-Fin to the aforesaid notice referring to the pending suit,

and stoutly disputing the fact that any amount was due and payable.

The reply went on to state that La-Fin was otherwise commercially

sound and that the statutory notice issued under Sections 433 and

434 of the Companies Act, 1956 was only a pressure tactic.  

(vii)  On  21st October,  2016,  a  winding  up  petition  (hereinafter

referred to as the “Winding up Petition”) was then filed by IL&FS

against La-Fin in the Bombay High Court under Section 433(e) of

the Companies Act, 1956.

(viii) The Code came into force on 1st December, 2016, and as a

result,  as  per  the  Insolvency  and  Bankruptcy  (Application  to

Adjudicating  Authority)  Rules,  2016,  the Winding up  Petition  was

transferred to the NCLT as a Section 7 application under the Code.

The statutory form under these Rules, namely, Form-1 was filled up

by IL&FS indicating that the date of default was 19th August, 2012.  

(ix) On  28th August,  2018,  the  said  Winding  up  Petition  was

admitted  by  the  NCLT as  an  application  under  Section  7  of  the

Code, stating on a reading of the share purchase agreement and the

Letter of Undertaking that a financial debt had, in fact, been incurred

by  La-Fin.  The  National  Company  Law  Appellate  Tribunal



(hereinafter  referred  to  as  the  “NCLAT”)  by  an  order  dated  21st

January,  2019  dismissed  the  appeal  filed  by  Shri  Jignesh  Shah

against the aforesaid admission order, agreeing with the NCLT that

the aforesaid transaction would fall within the meaning of “financial

debt” under the Code, and that the bar of limitation would not be

attracted as the Winding up Petition was filed within three years of

the date on which the Code came into force,  viz.,  1st December,


(x) A Writ  Petition was filed by Smt. Pushpa Shah against these

orders in the Bombay High Court, challenging certain provisions of

the Code, with which we are not directly concerned. Writ  Petition

(Civil) No.455 of 2019 was then filed in this Court on 4 th April, 2019

challenging the constitutionality of certain provisions of the Code, as

well as the NCLT and NCLAT orders, after which the Civil  Appeal

(Diary No. 16521 of 2019) was also filed against the NCLAT order

under Section 62 of the Code.

5. Dr. Abhishek Manu Singhvi, learned Senior Advocate appearing

on behalf of the Petitioners/Appellants, did not go into the merits of

the case, but has raised only the statutory bar of limitation against

IL&FS. According to the learned Senior Advocate, after this Court’s

judgment in  B.K. Educational Services Pvt. Ltd. v. Parag Gupta



and  Associates 2018  SCC  OnLine  1921,  it  is  clear  that  the

Limitation Act, 1963 (hereinafter referred to as the “Limitation Act”)

would apply to all  Section 7 applications that  are filed under  the

Code and that the residuary Article, i.e., Article 137 of the Limitation

Act would be attracted to the facts of this case. Inasmuch as the

Winding up Petition that has been transferred to the NCLT was filed

on  21st October,  2016,  i.e.,  beyond  the  period  of  three  years

prescribed (as the cause of action had arisen in August, 2012), it is

clear that a time-barred winding up petition filed under Section 433

of the Companies Act, 1956 would not suddenly get resuscitated into

a Section 7 petition under the Code filed within time, by virtue of the

transfer  of  such  petition.  He  relied  heavily  on  B.K.  Educational

Services Pvt.  Ltd. (supra)  which,  according to him,  covered this

case on all fours. In addition, he relied upon High Court judgments,

Judgments  from  the  United  States  of  America,  and  one  English

judgment to buttress the proposition that the mere filing of a suit for

specific performance would not in any manner impact the limitation

period  for  a  winding  up  petition,  which  as  a  separate  and

independent  remedy,  must fall  or  stand on its  own legs.  He also

painstakingly took us through the statutory notice under  Sections

433 and 434 sent by IL&FS, as well as the Winding up Petition filed



by IL&FS, and relied heavily on the fact that the Form-1 (which was

filled by IL&FS in order to transfer the aforesaid Winding up Petition

to the NCLT) itself stated that the date of default was 19 th August,

2012, clearly indicating that the Winding up Petition, being beyond

three years of the cause of action, was time-barred.

6. On the other  hand,  Shri  Neeraj  Kishan Kaul,  learned Senior

Advocate appearing on behalf of the Respondents IL&FS, argued

that the cause of action for the suit and the cause of action for the

Winding up Petition filed were separate and distinct. He argued that

it is well-settled that a winding up petition cannot be filed in order to

recover  a  debt,  but  is  a  proceeding  ‘in  rem’,  which  involves

commercial  insolvency  of  the  company  sought  to  be  wound  up.

Therefore, according to the learned Senior Advocate, the cause of

action for  filing the Winding up Petition arose only in  2015/2016,

after Shri Jignesh Shah (the Petitioner before us) was arrested; after

attachment of the assets of La-Fin; and as stated in the Winding up

Petition, after  La-Fin’s assets had fallen from being worth around

INR 1000 crores in 2013, to only being worth around INR 200 crores

in October,  2016.  He relied on several  judgments to support  this

argument.  According to  him,  the suit  that  was filed by IL&FS for

specific performance of the Letter of Undertaking on 19 th June, 2013



kept alive the debt that was owed to his client and, therefore, in any

event, the Winding up Petition filed after such debt was kept alive

would be in time, notwithstanding that it was filed at a subsequent

period after the suit. According to him, in any event, limitation being

a mixed question of fact  and law, at  best the matter ought to be

remanded to the NCLT for a determination on this mixed question.

7. Having heard the learned Senior Counsel for the parties, it is

important to first advert to this Court’s decision in B.K. Educational

Services Pvt. Ltd. (supra) in which Section 238A of the Code was

referred to, which states as follows:

“238A. Limitation.—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.”

8. In  paragraph  7  of  the  said  judgment,  the  Report  of  the

Insolvency  Law  Committee  of  March,  2018  was  referred  to  as


“7. Having heard the learned counsel for both sides, it  is important to first set out the reason for the introduction of Section  238A into  the  Code.  This  is  to  be  found in  the Report of the Insolvency Law Committee of March, 2018, as follows:




28.1 The question of applicability of the Limitation Act, 1963 (“Limitation Act”) to the Code has been deliberated upon in several judgments of the NCLT and the NCLAT. The existing jurisprudence on this subject indicates that if  a  law  is  a  complete  code,  then  an  express  or necessary  exclusion  of  the  Limitation  Act  should  be respected.1 In light of the confusion in this regard, the Committee  deliberated  on  the  issue  and unanimously agreed that the intent of the Code could not have been to  give  a  new  lease  of  life  to  debts  which  are  time- barred. It  is settled law that when a debt is barred by time, the right to a remedy is time-barred.2 This requires being read with the definition of ‘debt’ and ‘claim’ in the Code. Further, debts in winding up proceedings cannot be time-barred,3 and there appears to be no rationale to exclude  the  extension  of  this  principle  of  law  to  the Code.

28.2  Further,  non-application  of  the  law  on  limitation creates the following problems: first, it re-opens the right of financial and operational creditors holding time-barred debts under the Limitation Act to file for CIRP, the trigger for which is default on a debt above INR one lakh. The purpose  of  the  law  of  limitation  is  “to  prevent disturbance  or  deprivation  of  what  may  have  been acquired in equity and justice by long enjoyment or what may  have  been  lost  by  a  party's  own  inaction, negligence or latches”4. Though the Code is not a debt recovery  law,  the trigger  being  ‘default  in  payment  of debt’  renders  the  exclusion  of  the  law  of  limitation counter-intuitive.  Second,  it  re-opens  the  right  of claimants (pursuant to issuance of a public notice) to file time-barred  claims  with  the  IRP/RP,  which  may potentially  be  a  part  of  the  resolution  plan.  Such  a resolution  plan  restructuring  time-barred  debts  and claims may not be in compliance with the existing laws for the time being in force as per section 30(4) of the Code.

28.3 Given that the intent was not to package the Code as a fresh opportunity for creditors and claimants who did not exercise their remedy under existing laws within the prescribed limitation period, the Committee thought



it  fit to insert a specific section applying the Limitation Act to the Code. The relevant entry under the Limitation Act may be on a case to case basis. It was further noted that the Limitation Act may not apply to applications of corporate  applicants,  as  these  are  initiated  by  the applicant for its own debts for the purpose of CIRP and are not in the form of a creditor's remedy.”

(emphasis supplied)

9. After referring to Rule 5 of the Companies (Transfer of Pending

Proceedings) Rules, 2016, the Court extracted passages from the

judgment in  M.P. Steel Corporation v. CCE (2015) 7 SCC 58 and

then concluded:

“20. A  perusal  of  this  judgment  would  show  that limitation, being procedural in nature, would ordinarily be applied retrospectively, save and except that the new law of limitation cannot revive a dead remedy. This was said in the context of a new law of limitation providing for a longer period of limitation than what was provided earlier. In the present case, these observations are apposite in view of what has been held by the Appellate Tribunal. An application that is filed in 2016 or 2017, after the Code has  come  into  force,  cannot  suddenly  revive  a  debt which is no longer due as it is time-barred.

21. In State  of  Kerala v. V.R.  Kalliyanikutty, (1999)  3 SCC  657,  (“V.R.  Kalliyanikutty”),  this  Court  dealt  with whether  a  time-barred  debt  can  be  recovered  by resorting  to  recovery  proceedings  under  the  Kerala Revenue Recovery Act of 1968. In stating that the said Act cannot extend to recovery of a time-barred debt, this Court stated in paragraph 8,

“8. …… In every  case the exact  meaning of  the word “due” will  depend upon the context  in which that word appears.”



22. It  was  held  in  that  case  that  Section  17(3)  of  the Kerala Revenue Recovery Act, 1968 made it clear that a person making payment under protest will have a right to institute a suit for refund of the whole or part of the sum paid by him under protest. It was thus held that when the right to file such a suit is expressly preserved, there is a necessary  implication  that  the  shield  of  limitation available to a debtor in a suit  is  also preserved,  as a result of which, a wide interpretation of the expression “amount due” to include time-barred debts would destroy an  important  defence  available  to  a  debtor  in  a  suit against him by the creditor, and may fall foul of Article 14 of the Constitution of India.

23. Another judgment referred to by learned counsel for the  appellants  is  contained  in Union  of  India v. Uttam Steels Ltd., (2015) 13 SCC 209. Here the question was whether  Section  11-B  of  the  Central  Excise  Act  as amended on 12.05.2000 would apply to the fact situation in that case. Section 11-B provided a longer period of limitation  by  substituting  “six  months”  with  “one  year”. Since the rebate application was filed within a period of one  year,  the  respondent  contended  that  they  were within  time.  This  Court  held,  in  paragraph  10,  that limitation,  being  procedural  law,  would  ordinarily  be retrospective in nature. This is however with one proviso superadded,  which  is  that  the  claim  made  under  the amended provision should not itself have been a dead claim  in  the  sense  that  it  was  time-barred  before  the amending Act came into force, bringing a larger period of limitation with it.  On the facts of that case, it was held that  since  the claim for  rebate  was made beyond the period of six months but within the extended period of one  year,  such  extended  period  would  not  avail  the respondent in that case.

24. In Allied  Motors  (P)  Ltd. v. CIT, (1997)  3  SCC 472, this Court  took the view that  the amendment made to Section 43-B in the Income Tax Act was retrospective, holding:



“14. ……  As  observed  by  G.P.  Singh  in his Principles  of  Statutory  Interpretation,  4th Edn.  at  p. 291:  “It  is  well  settled  that  if  a  statute  is  curative  or merely  declaratory  of  the  previous  law  retrospective operation is generally intended.” In fact the amendment would not serve its object in such a situation unless it is construed as retrospective……”

25. In  the  present  case  also,  it  is  clear  that  the amendment of Section 238A would not serve its object unless  it  is  construed  as  being  retrospective,  as otherwise, applications seeking to resurrect time-barred claims would have to be allowed, not being governed by the law of limitation.”

The Court then held:

“38. This case is most apposite. As in the present case, and  as  is  reflected  in  the  Insolvency  Law  Committee Report  of  March,  2018,  the  legislature  did  not contemplate  enabling  a  creditor  who  has  allowed  the period of limitation to set in to allow such delayed claims through the mechanism of the Code. The Code cannot be triggered in the year 2017 for a debt which was time- barred, say, in 1990, as that would lead to the absurd and extreme consequence of the Code being triggered by  a  stale  or  dead  claim,  leading  to  the  drastic consequence of instant removal of the present Board of Directors of the corporate debtor permanently, and which may  ultimately  lead  to  liquidation  and,  therefore, corporate  death.  This  being  the  case,  the  expression “debt due” in the definition sections of the Code would obviously only refer to debts that are “due and payable” in law, i.e., the debts that are not time-barred.”

Finally, the Court held:

“48. 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.”

10. This  judgment  clinches  the  issue  in  favour  of  the

Petitioner/Appellant. With the introduction of Section 238A into the

Code, the provisions of the Limitation Act apply to applications made

under the Code. Winding up petitions filed before the Code came

into  force are  now converted into  petitions filed  under  the Code.

What  has,  therefore,  to  be  decided  is  whether  the  Winding  up

Petition, on the date that it was filed, is barred by lapse of time. If

such petition is found to be time-barred, then Section 238A of the

Code will not give a new lease of life to such a time-barred petition.

On the facts of this case, it is clear that as the Winding up Petition

was filed beyond three years from August, 2012 which is when, even

according to IL&FS, default in repayment had occurred, it is barred

by time.

11. Dr.  Singhvi  relied  upon  a  number  of  judgments  in  which

proceedings  under  Section  433  of  the  Companies  Act,1956  had

been initiated after suits for recovery had already been filed. These

judgments  have  held  that  the  existence  of  such  suit  cannot  be

construed as having either revived a period of limitation or having



extended it, insofar as the winding up proceeding was concerned.

Thus,  in  Hariom Firestock  Limited  v.  Sunjal  Engineering  Pvt.

Ltd. (1999) 96 Comp Cas 349, a Single Judge of  the Karnataka

High Court, in the fact situation of a suit for recovery being filed prior

to a winding up petition being filed, opined:

“8…To  my  mind,  there  is  a  fallacy  in  this  argument because  the  test  that  is  required  to  be  applied  for purposes of ascertaining whether the debt is in existence at a particular point of time is the simple question as to whether  it  would  have  been  permissible  to  institute  a normal  recovery  proceeding  before  a  civil  court  in respect of that debt at that point of time. Applying this test and de hors that fact that the suit had already been filed, the question is as to whether it would have been permissible to institute a recovery proceeding by way of a suit for enforcing that debt in the year 1995, and the answer to that question has to be in the negative. That being so, the existence of the suit cannot be construed as  having  either  revived  the  period  of  limitation  or extended it.  It  only  means that  those proceedings are pending but  it  does not  give the party  a legal  right  to institute any other proceedings on that basis. It  is well settled law that the limitation is extended only in certain limited situations and that the existence of a suit is not necessarily one of them. In this view of the matter, the second point will have to be answered in favour of the respondents and it will have to be held that there was no enforceable claim in  the year  1995,  when the present petition was instituted.”

12. Likewise,  a  Single  Judge  of  the  Patna  High  Court  in  Ferro

Alloys Corporation Ltd. v. Rajhans Steel Ltd. (2000) Comp Cas

426 also held:



“12….In my opinion, the contention lacks merit. Simply because a suit for realisation of the debt of the petitioner- company against opposite party No. 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 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.  Therefore,  since the debt of the petitioner-company has become time-barred and cannot be legally proved in this court in course of the present proceedings, winding up of opposite party No. 1 cannot be ordered due to non-payment of the said debt.”

13. In  Rameswar Prasad Kejriwal & Sons Ltd. v. M/s. Garodia

Hardware Stores (2002) 108 Comp Cas 187, a money suit that was

filed in 1994 was decreed in 1997, after which a winding up petition

under Section 433 of the Companies Act, 1956 was filed in 2001. In

this fact situation, the learned Single Judge held:

“13. It is an admitted position that the cause of action of the company arose in 1992. The suit was filed in 1994 and the decree was obtained in 1997. But on the basis of the said debt which is said to be merged in the decree, the winding up petition cannot be filed after the period of limitation that means after a period of three years.

14. It is not in dispute that in the instant case, the period of limitation is covered by residuary article namely Article 137 of Limitation Act. A special Bench of this Court, in the



case of Hari Mohan Dalai v. Parmeshwar Shau, reported in  56  Indian  Law  Reports,  61,  has  made  certain observations  on  how  the  residuary  article  is  to  be construed.

15. Construing the provisions of Article 181 the residuary article under the old Act, Chief Justice Rankin, speaking for  the  Special  Bench,  held  that  “In  Article  181  the legislature makes provisions not for any definite type of cases but for an unknown number of cases of all kinds. The  provision  which  it  makes  specific  as  regard  the period of limitation, but as regarded the terminus a quo it is content to state in general language and quite simply the fundamental principle that, for the purposes of any particular application, time is to run from the moment at which the applicant first had the right to make it.”

16. This Court goes by the same principle and holds that period  of  limitation  should  be  counted from 1992.  But assuming  it  is  not  counted  from  1992,  it  has  to  be counted  from 1997.  Therefore,  considering  the  matter from all  possible angles,  this  Court  is of  the view that instant  winding up petition  has become barred on the date on which it is presented. It cannot be held that in case of winding up petition, limitation period will  be 12 years which may be the case in matters of execution of a decree.

17. Therefore,  this  winding  up  petition  is,  therefore, dismissed but in the facts of this case, there will be no order as to costs.”

14. In Dr. Dipankar Chakraborty v. Allahabad Bank & Ors. 2017

SCC OnLine Cal 8742, the fact situation was that a suit had been

filed  by  the  petitioner  in  the  City  Court  at  Calcutta  for  damages

against the Allahabad Bank. The Bank, in turn, filed a proceeding

under  Section  19  of  the  Recovery  of  Debts  Due  to  Banks  and



Financial Institutions Act,  1993 in 2001 before the Debt Recovery

Tribunal, Calcutta. The Civil  Suit was also transferred to the Debt

Recovery Tribunal, Calcutta where both proceedings were pending

adjudication. Meanwhile, under the Securitisation and Restructure of

Financial Assets and Enforcement of Securities Interest Act, 2002

(hereinafter referred to as the “SARFAESI Act”), a notice dated 3 rd

March, 2016 was issued under Section 13(2) of the SARFAESI Act.

The  question  which  arose  before  the  Court  was  whether  the

invocation of the SARFAESI Act, being beyond limitation, would be

saved because of the pending proceedings under Section 19 of the

Recovery  of  Debts  Due  to  Banks  and  Financial  Institutions  Act,

1993. The Court negatived the plea of the Bank, stating:

“22. Section  14  of  the  Limitation  Act,  1963  permits exclusion of  the time taken to proceed bona fide in  a Court without jurisdiction. Such section permits a plaintiff to present the same suit, if the Court of the first instance, returns a plaint from defect of jurisdiction or other causes of like nature, being unable to entertain it. In the present case, a secured creditor is not withdrawing a proceeding pending  before  the  Debts  Recovery  Tribunal  under Section 19 of the Act of 1993 to invoke the provisions of the  Act  of  2002.  Rather  the  secured  creditor  is proceeding, independent of its right to proceed under the Act of 1993, while invoking the provisions of the Act of 2002. This choice of the secured creditor to invoke the Act of 2002 is independent of and despite the pendency of  the  proceedings  under  the  Act  of  1993,  has  to  be looked at from the perspective of whether or not such an action meets the requirement of Section 36 of the Act of 2002, when the secured creditor is proposing to take a



measure  under  Section  13(4)  of  the  Act  of  2002. Although,  a  secured  creditor,  as  held in Transcore (supra),  is  entitled  to  take a  remedy or  a measure  as  available  in  the  Act  of  2002,  despite  the pendency of other proceedings, including a proceeding under Section 19 of the Act of 1993, in respect of the self-same cause of action, in my view, the invocation of such independent right under the Act of 2002, has to be done within the period of limitation prescribed under the Limitation Act, 1963 in terms of Section 36 of the Act of 2002. The Act of 2002 gives an independent right to a secured creditor to proceed against its financial assets and in respect of which such asset the secured creditor has security interest. The right to proceed, however, is subject to the adherence to the provisions of limitation as enshrined in the Limitation Act, 1963. The provisions of the  Limitation  Act,  1963  are,  therefore,  attracted  to  a proceeding initiated under the Act of  2002. That being the legal position, the invocation of the provisions of the Act of 2002 in the facts of the present case, on July 5, 2011, without there being an extension of the period of limitation by the act of the parties cannot be sustained.

xxx xxx xxx

25. The  issues  raised  are,  therefore,  answered  by holding that, the initiation of the proceedings by the bank was barred by the laws of limitation on July 5, 2011 and all proceedings taken by the bank consequent upon and pursuant to the notice under Section 13(2) of the Act of 2002  dated  July  5,  2011  are  quashed  including  such notice.”

15. In Indo Alusys Industries v. Assotech Contracts (India) Ltd.

2009 (110) DRJ 384, a learned Single Judge of the Delhi High Court

opined that  a suit  for  recovery and a winding up proceeding are

distinct and independent remedies, as follows:



“12. So far as the objection that the petitioner has filed a suit  disentitling  it  to  maintain  the  present  petition  is concerned,  it  is  well  settled  that  the  right  to  bring  a winding up action is  statutory conferred under  Section 433 of  the Companies Act,  1956. However,  no person has  a  statutory  right  to  winding  up  of  a  company incorporated under the Companies Act, 1956. Action to recover amounts and to winding up of the company are two wholly distinct and independent remedies. It  is not necessary that every petition under Section 433 of the Companies Act, 1956 ends up in an order of winding up. Several essential  factors as public interest,  justice and convenience  enter  into  the  consideration  before  the prayed for order results. The nature of the defence and extent of dispute raised by the respondent also impact adjudication  in  winding  up  action.  At  the  same  time, limitation for seeking the remedy of recovery against the company continues  to  run.  The  two remedies  are  not alternative remedies. More often than not, as a matter of abundant caution, parties do not wait for final decision in one remedy before invoking the other.

xxx xxx xxx

14. In view of the above, mere filing of the suit  by the petitioner  in  order  to  protect  its  right  and  by  way  of abundant caution certainly would not prohibit filing of the winding  up  petition  or  preclude  the  petitioner  from maintaining the same.”

16. In  Board of Regents of the University of the State of New

York et. al. v. Mary Tomanio 100 S. Ct. 1790, the Supreme Court of

the United States of America held that a federal action under the

Civil Rights Act of 1871 was barred by the application of a three-year

New  York  statute  of  limitations.  What  was  argued  was  that  the

federal  remedy  became available  only  as  a  consequence  of  the



State remedy being denied, as the Respondent had commenced a

proceeding in the New York states courts attacking a decision of the

Board of Regents not to grant a waiver of a licence to practice as a

chiropractor.  By  November  1975,  the  appeals  in  the  State

proceedings  being  exhausted,  and  the  Respondent  being  denied

any relief, the Respondent instituted an action in the Federal District

Court on 25th June, 1976. The Supreme Court of the United States

of America held that the second action was clearly barred by the law

of limitation, being filed three years after the cause of action had

arisen. It was held that once the limitation period started running, it

did not stop because a separate and independent remedy had been

pursued in the meanwhile. The Court held:

“No section of the law provides, however, that the time for filing a cause of action is tolled during the period in which a litigant pursues a related, but independent cause of action.”

17. In  Martiza  Alamo-Hornedo v.  Juan Carlos  Puig  and Jose

Perez-Riera 745 F.3d 578, the US Court of Appeals, First Circuit

held  on  the  facts  of  the  case,  that  a  separate  and  independent

action which was otherwise barred by limitation could not be brought

within  limitation  merely  because a  prior  suit  had  been filed.  The

Court held:



“4.  The plaintiff  also suggests that her prior suit  in the Court  of  First  Instance  somehow tolled  the  statute  of limitations.  This suggestion is fanciful.  

5.  To   begin,  exhaustion  of  state  remedies  is  not  a condition  precedent  to  the  maintenance  of  a  section 1983 action.  See  Patsy v.  Bd. of  Regents,  457 U.S. 496,  516,  102  S.Ct.  2557,  73  L.Ed.2d  172  (1982); Rogers v. Okin, 738 F.2d 1, 5 (1st Cir. 1984). Thus, the commencement  and  pendency  of  a  state  proceeding ordinarily does not toll the limitations period for a parallel action under Section 1983. See,  e.g., Rodriguez-Garcia v. Municipality of Caguas, 354 F.3d 91, 93 (1st Cir.2004); Ramirez de Arellano v.  Alvarez de Choudens, 575 F.2d 315, 319 (1st Cir. 1978). The plaintiff attempts to parry his thrust by noting that, under Puerto Rico law, the statute of limitations can be “interrupted” by, among other things, suing on the relevant claim. P.R. Laws Ann. tit. 31, 5303. Once  the  court  action  “comes  to  a  definite  end,”  the “statute  of  limitations begins to  run anew.”  Rodriguez- Gracia, 354 F.3d at 97 (internal quotation marks omitted).

*582.  The plaintiff’s reliance on this principle elevates hope over  reason.   In  order  to  have  the  tolling  effect desired by the plaintiff,  the complaint in the first action “must assert causes of action identical to” those asserted in  the  second  action.  Id. (internal  quotation  marks omitted).

6. The identicality requirement has three facets. The two actions “must seek the same form of relief”; they “must be  based  on  the  same  substantive  claims”;  and  they “must be asserted against the same defendants in the same  capacities.”  Id. at  98.   The  plaintiff  offers  no developed  argumentation  sufficient  to  show  that  she satisfies these conditions.

In all events, it is readily apparent that the plaintiff has not satisfied the identicality requirement. The first action, brought  in  the  Court  of  First  Instance,  sought  the equitable remedies of reinstatement and back pay; the second  action,  brought  in  the  federal  district  court, sought the legal remedies of compensatory and punitive



damages.  Thus, it is nose-on-the-face plain that the two actions did not seek the “same form of relief.”

We hasten to add that  this  conclusion breaks no new ground.  This  court  has  held,  squarely  and  repeatedly, that under Puerto Rico law, “seeking only equitable relief does  not  toll  the  statute  of  limitations  where  the subsequent complaint… seeks damages.”  Nieves-Vega v.  Ortiz-Quinones, 443  F.3d  134,  137  (1st Cir.  2006) (collecting cases).

In view of the plaintiff’s failure to satisfy the first facet of the identicality requirement, we need not inquire into the other  two  facets.   Puerto  Rico  law  is  pellucid  that  a plaintiff who seeks to interrupt the running of a statute of limitations on this basis must satisfy all  three facets of the identicality requirement. See, e.g., Santana-Castro v. Toledo-Davila, 579 F.3d 109, 116 (1st Cir. 2009); Nieves- Vega, 443 F.3d at 137-38.

That ends this aspect of the matter.  When all is said and done,  the  plaintiff’s  decision  to  sit  idly  by  while  the proceedings  in  the  Court  of  First  Instance  unfolded dooms  her  tardy  attempt  to  assert  a  federal  claim. Although  waiting  for  the  Commonwealth  court’s  ruling may have served to strengthen the plaintiff’s belief that her  firing  was  illegal,  there  is  no  requirement  that  a period  who  wishes  to  pursue  a  Section  1983  claim premised  on  an  allegedly  wrongly  termination  of employment  await  an  independent  finding  that  her dismissal  was  unlawful.  Consequently,  the  plaintiff’s election to await a ruling by the Court of First Instance does  not  justify  her  failure  to  bring  her  federal  claim within the time allotted by statute.”

18. In Re Karnos Property Co. Ltd. (1989) 5 B.C.C. 14, a learned

Single Judge of the Chancery Division (Companies Court) held that

a local authority’s petition to wind up a company for non-payment of

rates was barred by the law of limitation, being presented more than



six  years  after  the  cause  of  action  arose.  The  fact  that  the  rate

demanded had been the subject of distress warrants did not in any

manner impact the limitation period for  the winding up petition.  It

was thus held:

“Applying those words to the petition proceedings now in train it seems that the cause of the proceedings arose at the latest when the company failed to pay the latest rate demand on 1 April  1981.  That  is  more than six  years before  the  presentation  of  the  petition.  Accordingly  I conclude that the petition must be dismissed because it is founded on rates unpaid for more than six years. In other words a local authority petition for non-payment of rates is subject to the provisions of the Limitation Acts.

Mr.  Acton  for  the  local  authority  conceded,  as  I understand, that rates unpaid for six years and never the subject of a distress warrant were irrecoverable in any way; so that the local authority ceases to be a creditor and thus may not petition. But, said Mr. Acton, once a distress  warrant  has  been  obtained  it  remains  always available  for  execution  and  thus  preserves  the  local authority  its  character  as  a  creditor  and  ever  able  to petition. I do not accept this submission.  If one assumes that the two distress warrants issued in this case remain available to the local authority,  I  do not think it  follows that  the  provisions  of  the  Limitation  Acts  that  I  have mentioned do not operate to stop the presentation of a petition. The effect of Section 2(1) of the 1939 Act (or Section 9(1) of the 1980 Act) is that a petition may not be presented if six years have passed since the rates were demanded. There is nothing there to qualify the position if a distress warrant happens to be current. A petition lies not  because  a  distress  warrant  has  been  or  may  be issued but because a local authority is a “creditor” as that word is and has been used in the Companies Acts (see the North Bucks case).  



The  remedies  by  way  of  distress  and  petition  are separate and distinct.”

19. 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 acknowledgement 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


20. Shri Kaul, however, relied heavily on the judgment of a Single

Judge of the Bombay High Court reported as  Re: Messrs: Bhimji

Nanji  and  Co. (1969)  Mh.L.J.  827.  That  case  arose  under  the

Presidency-towns Insolvency Act,  1909, the question raised being

as follows:

“4.  Whether the debt on the basis of which the petition for adjudication is presented and an adjudication order is sought should be a subsisting debt  at  the date of  the



hearing of the petition or is it enough that it subsisted at the date of the presentation of the petition?”

Section 13 of the Presidency-towns Insolvency Act, 1909 laid down

what factors are required to be proved by a petitioning-creditor at the

hearing of the petition before the Court. Section 13(2) of the said

Act, which fell for consideration before the Bombay High Court, is

set out hereinbelow:

“At the hearing the Court shall require proof of – (a) the debt of the petitioning creditor, and  (b) the act of insolvency or, if more than one act of

insolvency is alleged in the petition, some one of the alleged acts of insolvency.”

The observation that was made by the Court which is relied upon

heavily by Shri Kaul is contained in paragraph 9, which is set out


“9. Mr. Shah urged that if this view were accepted by the Court it would cause great hardship to the creditor.  Once an  insolvency  petition  is  presented  by  a  creditor,  he normally  expects  that  the adjudication  order  would  be passed at the hearing of his petition and simply because the hearing of the petition is delayed not for any default on his part but say on account of the exigencies of the Court work the creditor will have to meet the fate which he may not have thought of  or  contemplated, if  in the meantime the debt becomes barred by limitation.  I do not see any hardship arising to the creditor as suggested by Mr. Shah, for it would be open to the creditor or rather it would be his duty to see that he keeps the debt alive either by means of an acknowledgement or part payment or by filing a suit in respect thereof in a proper court well within the period of limitation, but to my mind, it is clear



that  mere  pendency  of  an  insolvency  petition  without anything  more  cannot  have  the  effect  of  saving  the limitation prescribed by the Indian Limitation Act.”

The context in which the learned Single Judge made an observation

that the filing of a suit within limitation would keep the debt alive, is

in the context of Section 13 of the Presidency-towns Insolvency Act,

1909 - which requires that the debt of the petitioning creditor should

be alive even at the hearing of the insolvency petition. Obviously, if

at the hearing of the petition, the debt was time-barred, the stringent

result of insolvency of the individual concerned would not follow. It is

in this context that the learned Single Judge held that a debt would

be subsisting at the date of hearing of the insolvency petition if a suit

was filed to recover it within the period of limitation. The context of

Section  13  of  the  Presidency-towns  Insolvency  Act,  1909  is  far

removed from the present context, in which what has to be seen is

whether a winding up proceeding has been filed within the limitation

period provided. In the facts of the present case, no question as to

subsistence of a live debt at the hearing of a winding up petition is at

all involved. This case is, therefore, wholly distinguishable.

21. Shri  Kaul  then  relied  strongly  on  the  rationale  for  laws  of

limitation generally, which was set out in Rajender Singh and Ors.

v. Santa Singh and Ors. (1973) 2 SCC 705 as follows:



“17. The policy underlying statutes of limitation, spoken of as statutes of “repose”, or of “peace” has been thus stated  in Halsbury's  Laws  of  England Vol.  24,  p.  181 (para 330):

“330. Policy of Limitation Acts.—The Courts have expressed at least three differing reasons supporting the existence of statutes of limitation, namely: (1) that long dormant claims have more of cruelty than justice in them, (2)  that  a  defendant  might  have  lost  the  evidence  to disprove a stale claim, and (3) that persons with good causes of actions should pursue them with reasonable diligence.”

18. The  object  of  the  law  of  limitation  is  to  prevent disturbance  or  deprivation  of  what  may  have  been acquired in equity and justice by long enjoyment or what may  have  been  lost  by  a  party's  own  inaction, negligence, or laches.”

These observations are apposite in the context of the facts of the

present  case.  It  is  clear  that  IL&FS  pursued  with  reasonable

diligence the cause of action which arose in August, 2012 by filing a

suit  against  La-Fin  for  specific  performance  of  the  Letter  of

Undertaking in  June,  2013.  What  has been lost  by the aforesaid

party’s own inaction or laches, is the filing of the Winding up Petition

long after  the trigger  for  filing of  the aforesaid petition had taken

place;  the  trigger  being  the  debt  that  became  due  to  IL&FS,  in

repayment of which default has taken place.

22. At  this  stage,  it  is  necessary  to  set  out  Section  433(e)  and

Section 434 of the Companies Act, 1956, which read as follows:



“433.  Circumstances  in  which  company  may  be wound up by Tribunal.-  A company may be wound up by the Tribunal,-

xxx xxx xxx

(e)if the company is unable to pay its debts;”

“434.  Company  when  deemed  unable  to  pay  its debts.-(1) A company shall be deemed to be unable to pay its debts-

(a)if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding one lakh rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due  and  the  company  has  for  three  weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor;

(b)if execution or other process issued on a decree or order if any Court or Tribunal in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c) if it is proved to the satisfaction of the Tribunal that the  company  is  unable  to  pay  its  debts,  the Tribunal shall take into account the contingent and prospective liabilities of the company.

(2) The demand referred to in clause (a) of sub-section (1) shall be deemed to have been duly given under the hand of the creditor if it is signed by any agent or legal adviser duly authorised on his behalf, or in the case of a firm if it is signed by any such agent or legal adviser or by any member of the firm.”

A reading of the aforesaid provisions would show that the starting

point of the period of limitation is when the company is unable to pay

its debts, and that Section 434 is a deeming provision which refers



to  three  situations  in  which  a  Company  shall  be  deemed  to  be

“unable to pay its debts” under Section 433(e). In the first situation, if

a demand is made by the creditor to whom the company is indebted

in a sum exceeding one lakh then due, requiring the company to pay

the sum so due, and the company has for three weeks thereafter

“neglected to pay the sum”, or to secure or compound for it to the

reasonable  satisfaction  of  the  creditor.  “Neglected  to  pay”  would

arise only on default to pay the sum due, which would clearly be a

fixed  date  depending  on  the  facts  of  each  case.  Equally  in  the

second situation, if execution or other process is issued on a decree

or  order  of  any  Court  or  Tribunal  in  favour  of  a  creditor  of  the

company, and is returned unsatisfied in whole or in part, default on

the part of the debtor company occurs. This again is clearly a fixed

date depending on the facts of each case. And in the third situation,

it is necessary to prove to the “satisfaction of the Tribunal” that the

company is unable to pay its debts. Here again, the trigger point is

the date on which default  is  committed,  on account  of  which the

Company is unable to pay its debts. This again is a fixed date that

can be proved on the facts of each case. Thus, Section 433(e) read

with Section 434 of the Companies Act, 1956 would show that the

trigger point for the purpose of limitation for filing of a winding up



petition  under  Section  433(e)  would  be  the  date  of  default  in

payment  of  the  debt  in  any  of  the  three  situations  mentioned  in

Section 434.

23. Shri Kaul relied upon several well-known judgments, which lay

down the law under Section 433 and 434 of  the Companies Act,

1956.  He  relied  upon  M/s  Madhusudan  Gordhandas  &  Co.  v.

Madhu Woollen Industries Pvt. Ltd. (1971) 3 SCC 632, wherein in

a case of a winding up petition filed under Section 433(e), the High

Court  had  rejected  the  claim  of  the  Appellant  to  wind  up  the

Company as creditors of the Company. Unlike the present case, the

Appellant therein gave no statutory notice to raise any presumption

of inability to pay debts. In this context, this Court held:

“20. Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court  will  not  wind  up  the  company.  The  court  has dismissed a petition for  winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and  the  sum  demanded  by  the  creditor  was unreasonable.  (See London  and  Paris  Banking Corporation [(1874) LR 19 Eq 444] ) Again, a petition for winding  up  by  a  creditor  who claimed  payment  of  an agreed sum for  work done for  the company when the company contended that the work had not been properly was  not  allowed.  (See Re.  Brighton  Club  and  Horfold Hotel Co. Ltd. [(1865) 35 Beav 204] )

21. Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the  debt  but  the  company  chooses  not  to  pay  that



particular debt, see Re. A Company. [94 SJ 369] Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a  winding  up  order  without  requiring  the  creditor  to quantify  the  debt  precisely  See Re  Tweeds  Garages Ltd. [1962 Ch 406] The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima  facie  proof  of  the  facts  on  which  the  defence depends.”

The Court then stated that as the making of a winding up order is

discretionary, the Court will ordinarily consider the wishes of all the

creditors, and if they are opposed to winding up the company, the

Court may, in its discretion, refuse such order. What was relied upon

strongly by Shri Kaul was paragraph 29, in which the Court held:

“29…In determining whether or not the substratum of the company has gone, the objects of the company and the case of  the company on that  question will  have to be looked into.  In  the present  case  the  company alleged that with the proceeds of sale the company intended to enter into some other profitable business. The mere fact that  the  company  has  suffered  trading  losses  will  not destroy  its  substratum  unless  there  is  no  reasonable prospect of it ever making a profit in the future, and the court is reluctant to hold that it  has no such prospect. (See Re  Suburban  Hotel  Co. [(1867)  2  Ch  App  737] and Davis  and  Co.  v.  Brunswick  (Australia)   Ltd.  [(1936) 1 AER 299])…The company has not abandoned objects of business. There is no such allegation or proof. It cannot in the facts and circumstances of the present case  be  held  that  the  substratum  of  the  company  is gone. Nor can it be held in the facts and circumstances of the present case that the company is unable to meet the  outstandings  of  any  of  its  admitted  creditors.  The



company has deposited in court the disputed claims of the appellants. The company has not ceased carrying on its business. Therefore, the company will meet the dues as and when they fall due. The company has reasonable prospect of business and resources.”

24. According  to  Shri  Kaul,  it  was  not  possible  for  his  client  to

approach the High Court with a winding up petition as on the date on

which he filed the suit for specific performance, because La-Fin (i.e.

the Company sought to be wound up), could not be said to have lost

its  substratum  as  on  such  date.  It  was  for  this  reason  that  he

approached the winding up Court in 2016, when the assets of La-

Fin,  which,  as of  2013 were worth over INR 1000 crores,  had in

2016 become only worth INR 200 crores.  

25. This judgment does not take Shri Kaul’s argument any further.

Nowhere in the Winding up Petition is it alleged that the company

sought to be wound-up has lost its substratum, in the sense that

there is  no reasonable  prospect  of  it  ever  making a profit  in  the

future,  nor  can  it  be  said  that  the  company  had  abandoned  its

business and is, therefore, unable to meet the outstandings owed by

it.  On  the  other  hand,  what  emerges  from  this  judgment  (and

paragraph  21  therein  in  particular),  is  that  it  is  not  open  for  a

company to say that a debt is undisputed, that it has ability to pay

the debt, but will not pay the debt.  Equally, where a debt is clearly



owed, but the exact amount of debt is disputed, the company will be

held to be unable to pay its debts.   What has to be seen in each

case is whether the debt is bona fide disputed. If so, without more, a

winding up petition would then be dismissed. One other thing must

be noticed at this stage. The trigger for limitation is the inability of a

company to pay its debts.   Undoubtedly, this trigger occurs when a

default takes place, after which the debt remains outstanding and is

not  paid.  It  is  this  date  alone that  is  relevant  for  the purpose of

triggering limitation for the filing of a winding up petition. Though it is

clear that a winding up proceeding is a proceeding ‘in rem’ and not a

recovery proceeding, the trigger of limitation, so far as the winding

up petition is concerned, would be the date of default. Questions as

to commercial solvency arise in cases covered by Sections 434(1)

(c)  of  the  Companies  Act,  1956,  where  the  debt  has  first  to  be

proved, after which the Court will then look to the wishes of the other

creditors and commercial solvency of the company as a whole. The

stage at which the Court, therefore, examines whether the company

is commercially insolvent is once it begins to hear the winding up

petition  for  admission  on  merits.   Limitation  attaches  insofar  as

petitions filed under Section 433(e) are concerned at the stage that

default occurs for, it is at this stage that the debt becomes payable.



For this reason, it is difficult to accept Shri Kaul’s submission that the

cause  of  action  for  the  purposes  of  limitation  would  include  the

commercial insolvency or the loss of substratum of the company.

26. The next judgment referred to and relied upon by Shri Kaul is

Pradeshiya Industrial & Investment Corporation of U.P. v. North

India  Petrochemicals  Ltd.  and Anr. (1994)  3  SCC 348.  In  this

case, it was found that Dalmia Industries had resorted to arbitration

proceedings, in which there was a substantial dispute raised on the

amount claimed. The passage strongly relied upon by Shri Kaul is

set out hereinbelow:

“27. What then is inability when the section says “unable to pay its dues”? That should be taken in the commercial sense. In that, it is unable to meet current demands. As stated  by  William  James,  V.C.  it  is  “plainly  and commercially insolvent — that is to say, that its assets are such, and its existing liabilities are such, as to make it  reasonably  certain  —  as  to  make  the  Court  feel satisfied — that the existing and probable assets would be  insufficient  to  meet  the  existing  liabilities”. (In European Life Assurance Society, Re [LR (1869) 9 Eq 122]  ; V.V.  Krishna  Iyer  &  Sons v. New  Era  Mfg.  Co. Ltd. [(1965) 35 Comp Cas 410 : (1965) 1 Comp LJ 179 (Ker)])”

This  passage  is  in  the  context  of  an  order  under  433(e)  of  the

Companies Act, 1956 being discretionary, which is referred to in the

preceding  paragraph  25.  As  stated  hereinabove,  the  facts  as  to

commercial  insolvency  are  to  be  pleaded  and  proved  at  the



admission  stage  of  the  winding  up  petition;  the  trigger  for  the

winding up proceeding for limitation purposes, as has been stated

hereinabove, being the date of default.  

27. Shri  Kaul  then  relied  upon  Mediquip  Systems  (P)  Ltd.  v.

Proxima  Medical  System  GMBH (2005)  7  SCC  42  and  in

particular, paragraphs 18 and 23 thereof, which state as follows:

“18. This Court in a catena of decisions has held that an order  under  Section  433(e)  of  the  Companies  Act  is discretionary.  There  must  be  a  debt  due  and  the company must be unable to pay the same. A debt under this section must be a determined or a definite sum of money payable immediately or at a future date and that the inability referred to in the expression “unable to pay its debts” in Section 433(e) of the Companies Act should be  taken  in  the  commercial  sense  and  that  the machinery  for  winding  up  will  not  be  allowed  to  be utilised merely as a means for realising debts due from a company.

xxx xxx xxx

23. The Bombay High Court has laid down the following principles in Softsule (P) Ltd., Re [(1977) 47 Comp Cas 438 (Bom)] : (Comp Cas pp. 443-44)

 Firstly, it is well settled that a winding-up petition is not legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company. If the debt  is  not  disputed  on  some  substantial  ground,  the court/Tribunal may decide it on the petition and make the order.

 Secondly,  if  the debt  is  bona fide disputed,  there cannot be “neglect to pay” within the meaning of Section 433(1)(a)  of  the  Companies  Act,  1956.  If  there  is  no



neglect, the deeming provision does not come into play and the winding up on the ground that the company is unable to pay its debts is not substantiated.

 Thirdly, a debt about the liability to pay which at the time of the service of the insolvency notice, there is a bona  fide  dispute,  is  not  “due”  within  the  meaning  of Section  434(1)(a)  and  non-payment  of  the  amount  of such  a  bona fide  disputed  debt  cannot  be  termed  as “neglect to pay” the same so as to incur the liability under Section  433(e)  read  with  Section  434(1)(a)  of  the Companies Act, 1956.

 Fourthly,  one  of  the  considerations  in  order  to determine whether the company is able to pay its debts or  not  is  whether  the  company  is  able  to  meet  its liabilities  as and when they accrue due.  Whether  it  is commercially solvent means that the company should be in  a  position  to  meet  its  liabilities  as  and  when  they arise.”

28. The Bombay High Court judgment referred to in paragraph 23

of the judgment above states the law on winding up petitions filed

under  Section  433(a)  of  the  Companies  Act,  1956 correctly.  The

primary test is set out in paragraph 1, which is that a winding up

petition is not a legitimate means of seeking to enforce payment of a

debt  which  is    bona  fide   disputed  by  the  Company.  Absent  such

dispute,  the petition may be admitted.  Equally,  where the debt  is

bona  fide disputed,  there  cannot  be  ‘neglect  to  pay’  within  the

meaning of Section 434(1)(a) of the Companies Act, 1956 so that

the  deeming  provision  then  does  not  come  into  play.  Also,  the

moment there is a bona fide dispute, the debt is then not ‘due’. The



High Court also correctly appreciates that whether the company is

commercially  solvent  is  one  of  the  considerations  in  order  to

determine whether the company is able to pay its debts or not.  

29. Even on the facts of this case, the Winding up Petition alleges

that the  ultimatum to the Respondent company asserting that the

Respondent company was legally obliged to purchase the requisite

shares in accordance with the terms of  the Letter  of Undertaking

was on 7th January, 2013. By this date at the very latest, the cause

of action for filing a petition under Section 433(e) certainly arose.

Also, as has been correctly pointed out by Dr. Singhvi, the statutory

notice given on 3rd November, 2015 does not refer to any facts as to

the commercial insolvency of La-Fin. The statutory notice only refers

to  the  suit  proceedings  and  attachment  by  the  EOW which  had

taken place long before in December 2013. Factually, therefore, no

basis is laid for the legal contentions argued before us by Shri Kaul.

30. In the Winding up Petition itself, what is referred to is the fall in

the assets of La-Fin to being worth approximately INR 200 crores as

of October, 2016, which again does not correlate with 3 rd November,

2015, being the date on which the statutory notice was itself issued.

This again is only for the purpose of appointing an Officer of the

Court as Official Liquidator in order to manage the day-to-day affairs



and otherwise secure and safeguard the assets of the Respondent

company. There is no averment in the petition that thanks to these or

other facts the Company’s substratum has disappeared, or that the

Company is otherwise commercially insolvent. It  is clear therefore

that even on facts, the company’s substratum disappearing or the

commercial  insolvency  of  the  company  has  not  been  pleaded.

Whereas, in Form-1, upon transfer of the winding up proceedings to

the NCLT, what is correctly stated is that the date of default is 19 th

August, 2012; making it  clear that three-years from that date had

long  since  elapsed  when  the  Winding  up  Petition  under  Section

433(e) was filed on 21st October, 2016.  

31. We therefore allow Civil Appeal (Diary No. 16521 of 2019) and

dispose of the Writ Petition (Civil) No.455 of 2019 by holding that the

Winding up Petition filed on 21st October, 2016 being beyond the

period of three-years mentioned in Article 137 of the Limitation Act is

time-barred,  and cannot  therefore be proceeded with any further.

Accordingly, the impugned judgment of the NCLAT and the judgment

of the NCLT is set aside.



SLP(C) (Diary No.13468 of 2019) & T.P. (C) No.817 of 2019

32. In  view of  the  aforesaid,  nothing survives  insofar  as  Special

Leave Petition (Diary No.13468 of 2019) and Transfer Petition (Civil)

No.817 of 2019 are concerned, and they are accordingly disposed of

as having become infructuous.

…………………………J.                                          (R.F. Nariman)

…………………………J.                                          (R. Subhash Reddy)

…………………………J. (Surya Kant)

New Delhi: September 25, 2019.