NCLAT Rules Right to Invoke IBC Accrues When MSEFC Arbitral Award Becomes Final, Not When Demand Notice Issued

New Delhi, Sep 16 (KNN) The Principal Bench of the National Company Law Appellate Tribunal (NCLAT) in New Delhi has ruled that the right to sue under Section 9 of the Insolvency and Bankruptcy Code (IBC) begins when a Micro, Small and Medium Enterprises Development Council (MSEFC) arbitral award becomes final and operative.

Consequently, the tribunal dismissed an appeal filed by Haabia Resources Pvt. Ltd. against Vidyut Metallics Pvt. Ltd., upholding the adjudicating authority’s order that the Section 9 application was time-barred.

The case involved an arbitral award passed by the MSME Council in favour of the appellant in 2011. The award was challenged before the city civil court and later before the Andhra Pradesh High Court, both of which dismissed the challenges.

An appeal against the dismissal was subsequently withdrawn from the Supreme Court of India on 11 March 2013. This withdrawal rendered the award final and operative from that date.

Despite this, the operational creditor issued a demand notice under Section 8 of the IBC on 1 December 2019 and subsequently filed an application under Section 9, which the adjudicating authority dismissed as being time-barred.

The appellant argued that the limitation period should begin only after the service of the demand notice, claiming the application was filed within time.

However, the NCLAT, comprising Ashok Bhushan (Chairperson) and Barun Mitra (Member-Technical), clarified that the issuance of a demand notice cannot restart the limitation period.

The tribunal held that under Article 137 of the Limitation Act, 1963, the three-year limitation runs from when the “right to sue accrues,” which, in this case, was in 2013 when the award became final.

It concluded that since the limitation had already lapsed, the demand notice could not revive it, and dismissed the appeal.

(KNN Bureau)