The Supreme Court on Wednesday set aside an order of the National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT), thereby quashing the insolvency proceedings against Jignesh Shah and Pushpa Shah’s La-Fin Financial Services.
A three judge-Bench of the apex court said that since the winding up petition filed by IL&FS Financial Services was more than three years after the debt had occurred, it had to be struck down since it did not pass the muster of time limitation mentioned in Article 137 of the Limitation Act.
The Limitation Act sets deadlines for different cases within which a petitioner must approach the court seeking justice, failing which the case can be stuck down by the court for falling outside the limitation period.
IL&FS Financial Services Limited, a subsidiary of Infrastructure Leasing & Financial Services (IL&FS) had filed a winding up petition against the La-Fin for failing to honour a Letter of Undertaking (LoU) signed by the latter on behalf of its group company Multi-Commodity Exchange (MCX).
In 2009, IL&FS Financial Services purchased 442 lakh equity shares of MCX Stock Exchange (MCX-SX) from MCX. Following this agreement, La Fin gave a LoU to IL&FS Financial Services that either the former or it nominees “would offer to purchase from IL&FS Financial Services the shares of MCX-SX after a period of one year, but before a period of three years, from the date of investment”. The period of three years expired in August 2012, when IL&FS Financial Services decided to sell its entire stake in MCX-SX and asked La-Fin to purchase the stake as stated by it in the LoU.
Jignesh Shah owned La-Fin, however, said “that it was under no legal or contractual obligation to buy the aforesaid shares”. In 2016, IL&FS Financial Services moved a winding up petition against La-Fin, which was subsequently transferred to the NCLT when the Insolvency and Bankruptcy Code was passed in December 2016.
The Mumbai bench of NCLT admitted the petition in 2018, and said that “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 judgment was upheld by NCLAT in 2019 which held that bar of limitation would not be attracted as the winding up petition against La-Fin was filed within three years of the date on which IBC came into force, i.e December 1, 2016.
In its judgment on Wednesday, the apex court, however, said that since even the winding up petition against La-Fin was filed in 2016, which was nearly four years after the company had refused to honour its LoU in 2012, the law of limitation would apply.