Ishrat Ali v. Cosmos Cooperative Bank: A Missed Opportunity by NCLAT to Advance the Jurisprudence of IBC, SARFAESI and Limitation Act

[By Ankit Tripathi]

The author is an associate at Law Chambers of J. Sai Deepak.

Recently, in the case of Ishrat Ali v. Cosmos Cooperative Bank Ltd. &Anr[i], the five judge bench of National Company Law Appellate Tribunal (“NCLAT”), departed from an earlier view taken by the three judge bench and held that action taken by a financial institution under Section 13(4) of the SARFAESI Act is not a proceeding before a court of law or a tribunal. Therefore, such proceeding shall not be taken into consideration for excluding the time period under Section 14(2) of the Limitation Act. The reasons for the decision or departure were not detailed by NCLAT.

Through the blog post, the author will look into the background and history of the concomitant cases for an effective criticism of this judgment at hand.


The three member bench of NCLAT in Sesh Nath Singh v. Baidyabati Sheoraphuli Cooperative Bank Ltd and Ors.[ii], held that if the financial creditor has instituted a bona fide application under the SARFAESI Act, 2002, then in such case, while computing the limitation period for filing Section 7 application under Insolvency and Bankruptcy Code, 2016 (“IBC”); as per Section 14(2) of the Limitation Act, 1963 the time which has been exhausted in the above proceedings shall be excluded since it would be held as if the financial creditor has been carrying another civil proceedings with due diligence.

The three member bench of the NCLAT headed by then Chairperson during the proceedings of Ishrat Ali v. Cosmos Cooperative Bank Ltd. & Another doubted the correctness of the above judgment and thus referred the said judgment to a larger Bench of five judges to decide and settle the issue.


As a matter of fact, the NCLAT was called upon to adjudicate upon the following three questions of law:

  1. Whether the action taken by a financial institution under Section 13(4) of the SARFAESI Act is a proceeding before a court of law or before a Tribunal?
  2. If any application is filed before the Debt Recovery Tribunal (“DRT”) against such action in terms of the SARFAESI Act, 2002, whether it can be held to be a proceeding moved before a wrong forum for computing the period of limitation under Section 14(2) of the Limitation Act?
  3. Whether the SARFAESI and DRT proceedings extend the period of limitation for filing the Section 7 and 9 applications under IBC?

In the course of the present adjudication where the case involved certain interesting and contentious points pertaining to interplay of the SARFAESI Act, Limitation Act, and IBC, the tribunal had the opportunity to settle the law on the above legal issues. Considering the fact that it was reference bench of five judges, NCLAT had an added duty towards a more careful disposal of the reference with a proper reasoned order.

A careful reading of the judgment provides that though NCLAT has conclusively and authoritatively answered the issues, it failed to provide reasoning for the same. Though the judgment cites and relies upon various other judgments of the Supreme Court, it has failed to inherently provide the application of those cases to the facts of the case at hand and answer the questions accordingly.

In a way, the judgment does not create any new jurisprudence which it could have. Given that this was one of the most-awaited judgments of the NCLAT on the possible ambiguities arising due to overlap between the three statutes, it should have considered that reason is the heartbeat of every conclusion for producing clarity in an order and without the same, it becomes lifeless.[iii] The apex court has held in plethora of cases that absence of reasons renders the order indefensible/unsustainable particularly when the order is subject to further challenge before a higher forum.[iv]

NCLAT relied upon the case of Jignesh Shah and Anr, v. Union of India and Anr[v] to 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.

A close-up as well as aerial view of the findings of the NCLAT will highlight the fact that it has nothing new to support the above reference questions or add to existing jurisprudence. While nothing stops the court from relying upon any cases lest it should help in finding the conflict in the reference itself.

In the latter part of the judgment, the tribunal laid down the bare provisions of Section 14 of the Limitation Act and Section 13(2) of the SARFAESI Act. Soon after reproducing the abovestated relevant sections, the tribunal blatantly held that the action taken by a financial institution under Section 13(4) of the SARFAESI Act is not a proceeding before a Court of Law and did not bother to substantiate this finding with a reason. To the contrary, it is clear that that there is no provision in IBC which excludes the applicability of Section 14 of the Limitation Act to an application submitted under Section 7 or 9 of IBC.

It is understood that the tribunal has relied upon cases like Jignesh Shah and Gaurav Hargovindbhai Dave, but the tribunal should have been careful to the facts of the specific cases and should not apply the ratio blatantly to record a judgment. The facts in the above cited cases were different from the case in question, thus requiring a different contextual interpretation which the tribunal clearly failed to do.

Whether SARFAESI proceedings constitute ‘Civil Proceeding’?

The Hon’ble Supreme Court via its judgment in Commissioner of Income-Tax, Bombay & Anr. v. Ishwarlal Bhagwandas,[vi] held that a ‘civil proceeding’ is one in which a person seeks to enforce by appropriate relief the alleged infringement of his civil rights against another person, and if the claim is proved would result in the declaration express or implied of the right claimed and relief sought. The term “civil proceedings” as defined by the Apex Court includes all those proceedings in which a party contends a civil right that are bestowed upon him by the concerned law and there exists adequate remedy at law for such breach. To determine the nature of the proceedings, the court looks into the right violated and not the tribunal which is vested with the power to grant relief.

It is important to contemplate the preamble of the SARFAESI Act which guarantees and protects the rights of the secured creditors. The SARFAESI Act provides provisions through which the secured creditors can invoke proceedings and rights of the secured creditor as specified in Section 13 of the SARFAESI Act with demand notice under Section 13(2).  Further, if this demand notice is not complied with, within the statutory period of 60 (sixty) days, then it determines the right under the mortgage (security interest) which climactically enables the secured creditor to take measures in addition to above under Sections 13(4) of the SARFAESI Act as against the secured asset.

By the application of ratio laid down by the apex court here, it can be inferred that the SARFAESI Act provides measures through the secured creditor who can enforce his civil rights i.e. right to recover or realize secured debts conferred by the concerned statute which will determine the rights of the parties i.e. secured creditor upon claim being proved.

Therefore, the author contends that with regards to the above, the SARFAESI proceedings do constitute ‘civil proceeding’. Taking into consideration the above points, time spent by the financial creditor on bona fide litigation under SARFAESI Act before a forum lacking jurisdiction should have been considered for excluding the limitation period under Section 14 of the Limitation Act.


In nutshell, it can be said that NCLAT by passing this judgment missed the opportunity to settle the dispute about the prevailing conflict with respect to the reference question. The tribunal should have supported the conclusions with some reasons so that the issue could have been solved and subsequently could have helped the stakeholders in the future. Such non recording of reasons in the final judgment renders it unsustainable. Further, the decision of the tribunal is ahead of the curve, which is not necessarily in step. The lukewarm response of the tribunal to the reference questions seems untenable. It is expected that this judgment does not become final and the Supreme Court takes into consideration the concurrent issues and explore more terrain of this with conclusive findings and reasons.

End Notes

[i]Company Appeal (AT) (Insolvency) No. 1121 of 2019.

[ii]Company Appeal(AT) (Insolvency) No. 672 of 2019.

[iii]Raj Kishore Jha v. State of Bihar &Ors. AIR 2003 SC 4664.

[iv]Steel Authority of India Ltd. v. Sales Tax Officer, Rourkela I Circle &Ors. (2008) 9 SCC 407; State of Uttaranchal & Anr. v. Sunil Kumar Singh Negi AIR 2008 SC 2026.

[v](2019) 10 SCC 750.

[vi] 1966 SCR (1) 190.


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