Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member-Technical), has held that the right to sue under Section 9 of the Insolvency and Bankruptcy Code (IBC) begins when the MSME arbitral award becomes final and operative, and not from the date of issuance of a demand notice under Section 8.

Also Read: Himalayas Under Watch: NGT Weighs Strategy to Safeguard Fragile Mountain Ecosystem

Background of the Case

The MSME Council passed an arbitral award in favour of the operational creditor on 26.02.2011. The award was challenged before the City Civil Court, Hyderabad, but the challenge was dismissed on 05.03.2012. The corporate debtor further appealed before the Andhra Pradesh High Court, which was also dismissed on 30.01.2013. A subsequent appeal filed before the Supreme Court was withdrawn on 11.03.2013. Thus, the award attained finality on 11.03.2013.

The operational creditor issued a demand notice under Section 8 of the IBC on 01.12.2019 and thereafter filed an application under Section 9 in 2020. The Adjudicating Authority rejected the application as barred by limitation. Aggrieved, the operational creditor preferred the present appeal before the NCLAT.

Contentions of the Appellant

The appellant argued that although the arbitral award became final in March 2013, the Section 8 demand notice was served only in December 2019, and hence, the Section 9 application filed in March 2020 should be treated as within the prescribed time. It was contended that limitation should begin only after the expiry of ten days from the service of the demand notice.

NCLAT’s Findings

The Tribunal rejected the appellant’s contention, holding that the limitation period for filing a Section 9 application cannot be computed from the date of issuing a Section 8 demand notice. Referring to Article 137 of the Limitation Act, 1963, the bench reiterated that an application under Section 9 must be filed within three years from the date when the “right to sue accrues.”

The bench observed: "The ‘Right to Sue Accrues’ when the award in favour of the appellant became final and operative. Section 8 notice cannot give any fresh period of limitation to the operational creditor to initiate proceedings which had already become barred by time.”

Since the arbitral award attained finality on 11.03.2013, the operational creditor was required to file the Section 9 application within three years from that date. The application filed in 2020 was clearly beyond the limitation period.

Also Read: NCLAT: Homebuyers Can Maintain Section 7 IBC Plea Against Multiple Corporate Debtors in Same Real Estate Project

The NCLAT upheld the order of the Adjudicating Authority, dismissing the appeal as time-barred. However, the bench clarified that the dismissal of the Section 9 application shall not preclude the appellant from proceeding in accordance with law with respect to pending execution of the award.

Appearance

For Appellant: Mr. Ajit Anekar a/w Ms. Madhuri Negi, Advocates

For Respondent: Mr. Gaurav Mitra, Mr. Rohan Dakshini, Ms. Shweta Jaydev, Ms. Anjula Bhansali, Mr. Anirudh Bhat, Ms. Lavanya Pathak, Mr. Nirmal Prasad, Mr. Aman Sadiwala and Ms. Abhyarthana Singh, Advocates

Cause Title: Haabia Resources Pvt. Ltd. V. Vidyut Metallics Pvt. Ltd.

Case No: Company Appeal (AT) (Ins) No. 1027 of 2025

Coram: Justice Ashok Bhushan (Chairperson) and Barun Mitra (Member-Technical)