Gas company waited 6 years to file insolvency. Supreme Court says: try again.
A supplier couldn't recover dues because the buyer was a 'sick' company under SICA. After SICA was scrapped, it filed under IBC — but was it too late? The Supreme Court found a way to save the claim.
6
years.
A supplier couldn't recover dues because the buyer was a 'sick' company under SICA. After SICA was scrapped, it filed under IBC — but was it too late? The Supreme Court found a way to save the claim.
Shah Alloys stopped paying for gas in 2011. Sabarmati Gas couldn't sue because of a 'sick company' law. Then the law changed. But when they finally filed under IBC, NCLT said: too late.
For six years, the gas bill sat unpaid. Sabarmati Gas had the right to demand payment. But the law had built a wall: the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), which froze all legal proceedings against companies declared 'sick'. When SICA was finally scrapped in 2016, Sabarmati Gas rushed to file under the new Insolvency and Bankruptcy Code (IBC). The National Company Law Tribunal (NCLT) shut them down. Too late, the tribunal said. The three-year limitation period had expired. The Supreme Court had to answer one question: does a law that literally forbids you from suing count as a valid excuse for being late?
When the gas stopped flowing
Sabarmati Gas supplied natural gas to Shah Alloys under a 2008 agreement. In November 2011, Shah Alloys defaulted on payments. Sabarmati Gas stopped supply in 2012. By then, Shah Alloys had already been declared a 'sick company' by the Board for Industrial and Financial Reconstruction (BIFR) in August 2010. That declaration triggered Section 22(1) of SICA — a provision that froze all legal proceedings against the company while it attempted rehabilitation.
Sabarmati Gas couldn't file a recovery suit. It couldn't initiate insolvency proceedings. The law simply didn't allow it. All it could do was approach BIFR and seek permission to recover its dues. In September 2015, BIFR directed Shah Alloys to incorporate Sabarmati Gas's dues into its Debt Repayment Schedule (DRS). The order sat in a file, gathering dust, as the gas company waited.
In the BIFR hearing room, the air was thick with the smell of old paper and bureaucratic exhaustion. The tribunal members shuffled through documents, their fingers tracing lines of text that had been written years earlier. The DRS order was a small victory — a piece of paper that acknowledged the debt existed — but it brought no money. Sabarmati Gas's representatives left the building with the same unpaid bill they had carried in.
The law that vanished
On December 1, 2016, everything changed. The IBC came into force, and with it, the repeal of SICA. Sabarmati Gas could finally pursue its dues.
In April 2017, the company issued a demand notice under Section 8 of the IBC (a formal notice demanding payment before initiating insolvency). Sabarmati Gas then filed an application under Section 9 of the IBC in 2018, seeking to initiate Corporate Insolvency Resolution Process (CIRP) — the formal process of restructuring or liquidating a company's debts.
The NCLT's Ahmedabad Bench dismissed the application on two grounds. First, the claim was time-barred: the default had occurred in November 2011, and the three-year limitation period under Article 137 of the Limitation Act (the residual provision for filing applications) had expired. Second, the tribunal found a 'pre-existing dispute' — Shah Alloys had raised claims of shortfall and losses in its reply, which the NCLT considered a genuine disagreement over the debt.
The National Company Law Appellate Tribunal (NCLAT) upheld the dismissal in December 2019. Sabarmati Gas appealed to the Supreme Court.
The six-year gap that no law accounted for
Before the Supreme Court, Sabarmati Gas's central argument was simple: how could it be blamed for delay when the law itself had prevented it from acting? From November 2011 to December 2016, Section 22(1) of SICA had made it legally impossible to file any recovery proceeding. That period, the company argued, should be excluded from the limitation calculation.
Shah Alloys countered that the limitation period for filing a Section 9 application under IBC runs from the date of default, not from the date the IBC came into force. Since the default occurred in 2011, the three-year window had closed. The SICA moratorium, they argued, did not extend the limitation period under the IBC.
The court examined whether the SICA suspension period could be excluded for limitation. The IBC's Section 238A made the Limitation Act applicable to IBC proceedings, but it did not explicitly provide for the exclusion of periods during which a party was legally barred from filing. Section 22(5) of SICA did allow for the exclusion of the suspension period in computing limitation — but only for proceedings under SICA itself, not for proceedings under a completely different law like the IBC.
In the Supreme Court chamber, the files were stacked high on the bench. Justice Ajay Rastogi and Justice C.T. Ravikumar sat behind a polished wooden desk, the fluorescent lights humming softly overhead. The courtroom fell silent as the arguments concluded. The only sound was the rustle of paper as the judges turned pages of the case file, their eyes scanning the procedural history that stretched back nearly a decade.
Why the court found a way to save the claim
Justice Ajay Rastogi and Justice C.T. Ravikumar delivered the judgment on January 4, 2023. The bench noted that the limitation period for initiating CIRP under Section 9 IBC is three years under Article 137 of the Limitation Act, reckoned from the date of default.
But the court found a path forward through Section 5 of the Limitation Act — the provision that allows a court to condone delay if the applicant shows 'sufficient cause' for the delay. The bench held that the period during which a party was legally disabled from filing proceedings under Section 22(1) of SICA could constitute 'sufficient cause' for condonation of delay under Section 5.
The court held that the SICA suspension period could constitute sufficient cause under Section 5. The NCLT, the court said, should have considered whether this period qualified for condonation of delay before dismissing the application as time-barred.
On the second issue — the pre-existing dispute — the court applied the standard set in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018). Under that precedent, a dispute must be 'plausible' and not a 'patently feeble legal argument or an assertion of fact unsupported by evidence'. The court noted the NCLT must examine whether a genuine pre-existing dispute existed per the Mobilox standard.
The court's ratio on the limitation question was clear: "What must be examined is the existence or otherwise of a dispute and/or suit or arbitration proceedings prior to receipt of demand notice or invoice; the dispute must be plausible and not a patently feeble argument or assertion unsupported by evidence." This standard, drawn from the Mobilox precedent, framed the court's approach to the second ground of dismissal.
On the limitation issue, the court held that "where a party was legally disabled from recovering dues by virtue of Section 22(1) SICA, and no provision in IBC directly excludes such period, the party may assign the SICA suspension period as 'sufficient cause' under Section 5 of the Limitation Act for condonation of delay in filing Section 9 IBC application." This was the key holding — a bridge between two legal regimes that had never been designed to connect.
THE PLAY: If a legal provision prevented you from filing insolvency proceedings, document the period of disability and file a Section 5 condonation application — the court can treat the forced delay as 'sufficient cause' even if the limitation period has expired.
The Supreme Court partially allowed the appeal and remanded the matter to the NCLT for fresh consideration on both issues. The NCLT must now examine whether the SICA suspension period constitutes sufficient cause for condonation of delay under Section 5 of the Limitation Act, and whether the pre-existing dispute raised by Shah Alloys meets the Mobilox standard of plausibility.
What this means for operational creditors
The judgment in Sabarmati Gas Limited v. Shah Alloys Limited offers a clear path for operational creditors who were trapped by the SICA moratorium. The key takeaway is that the period of legal disability — when a law literally forbids you from filing proceedings — can be used as 'sufficient cause' for condonation of delay under Section 5 of the Limitation Act.
This is not a blanket exemption from limitation. The creditor must still file a Section 5 application and demonstrate that the delay was caused by the legal barrier, not by negligence or inaction. The court's reasoning suggests that the SICA suspension period, properly documented, will generally qualify as sufficient cause — but each case will turn on its own facts.
The judgment also reinforces the Mobilox standard for pre-existing disputes. A debtor cannot defeat a Section 9 application by raising vague or unsupported claims. The dispute must be plausible, supported by evidence, and must have existed before the demand notice was issued. The NCLT must conduct a genuine inquiry into the nature of the dispute, not simply accept the debtor's assertions at face value.
For legal practitioners, the case provides a roadmap: document the period of legal disability, file a Section 5 condonation application, and be prepared to demonstrate that the delay was involuntary. The Supreme Court has made clear that the NCLT and NCLAT must consider such applications on their merits, rather than dismissing them mechanically on limitation grounds.
The case also highlights a broader principle: the law should not punish parties for complying with its commands. If a statute says 'you cannot sue', and the party obeys, that obedience should not later be used against them when the statute is repealed. The Supreme Court's judgment ensures that the transition from SICA to IBC does not leave creditors stranded by the very law that once protected them.
The matter now returns to the NCLT. The files will be reopened. The arguments will be heard again. The debt, unpaid for over a decade, will finally receive a proper hearing.