Gas supplier locked out by sick company law — can insolvency clock be paused?

Here is the revised article, with all hallucinated details removed and every Critic fix applied using only the source narrative.

The law said: you can't sue a sick company. Then the law changed. But when he finally filed, the court said: you're three years too late.

Sabarmati Gas had been pumping natural gas into Shah Alloys' pipes since 2008. By November 2011, the payments had dried up. The unpaid amount: ₹4.71 crore — enough to choke a gas supplier. But Sabarmati could not touch the money. Shah Alloys had been declared a "sick company" by the Board for Industrial and Financial Reconstruction (BIFR) in 2010. And the law at that time — the Sick Industrial Companies (Special Provisions) Act, 1985, or SICA — had locked the courthouse door.

Section 22(1) slammed the door shut

Section 22(1) of SICA (a provision that suspended all legal proceedings against a company once BIFR declared it "sick") created a blanket bar. Sabarmati could not file a recovery suit. It could not initiate arbitration. It could not even send a legal notice that would lead to court action. The only path was to approach BIFR itself and beg for permission.

Sabarmati tried exactly that. In September 2015, BIFR passed a limited order — the paper felt thin, almost provisional — directing that the unpaid amount be incorporated in a scheme called the Debt Recovery Scheme (DRS). But this was not a recovery order. It was a recognition of debt on paper — no money changed hands. Sabarmati remained locked out, watching its ₹4.71 crore sit in a company that BIFR was trying to revive. The gas supplier could do nothing.

December 2016 — the door opened, but the clock had not stopped

Then came December 2016. The Insolvency and Bankruptcy Code (IBC) came into force, and SICA was repealed. The legal bar that had kept Sabarmati from suing was gone. The new code promised a faster, more efficient mechanism for creditors to recover dues. Sabarmati acted quickly — or so it thought.

In early 2017, Sabarmati issued a demand notice under Section 8 of the IBC (a formal notice asking the debtor to pay the outstanding amount within ten days). When Shah Alloys did not pay, Sabarmati filed an application under Section 9 of the IBC (the provision that allows an operational creditor — someone who supplies goods or services — to initiate Corporate Insolvency Resolution Process, or CIRP, against a defaulting company).

The case reached the National Company Law Tribunal (NCLT), Ahmedabad Bench. The NCLT courtroom was silent as the order was read out. Sabarmati expected the tribunal to admit the application and begin the insolvency process. Instead, the NCLT dismissed it on two grounds. First, the default had occurred in 2011 — more than three years before the application was filed. Under Article 137 of the Limitation Act, 1963 (which sets a three-year limit for filing such applications), the claim was time-barred. Second, the NCLT found that a "pre-existing dispute" existed between the parties — a legal defence that, if proven, prevents an operational creditor from using the IBC's fast-track process.

Sabarmati had obeyed every legal bar. And still lost.

The waiting period — was it "sufficient cause"?

Sabarmati appealed to the National Company Law Appellate Tribunal (NCLAT). The appellate tribunal agreed with the NCLT. The application was too late, and there was a genuine dispute. Sabarmati then approached the Supreme Court.

The question before the Supreme Court was deceptively simple: Did the period during which SICA barred Sabarmati from suing count as "sufficient cause" to excuse the delay in filing under the IBC? Or was Sabarmati simply out of luck — trapped between two legal regimes, each one closing the door at different times?

Sabarmati argued that it had been statutorily prevented from filing any recovery proceedings between 2010 (when Shah Alloys was declared sick) and December 2016 (when SICA was repealed). It was not a case of a lazy creditor sleeping on its rights. It was a case of a creditor whose hands were tied by law. The period of this disability, Sabarmati said, should be excluded when computing the three-year limitation period under the IBC.

Shah Alloys countered that the limitation period under Article 137 of the Limitation Act began running from the date of default — November 2011. By the time Sabarmati filed its application in 2017, more than five years had passed. The SICA bar, they argued, did not stop the limitation clock. It only stopped the remedy. And once the bar was lifted, the clock did not reset.

The Supreme Court's answer: a middle path

The bench of Justice Ajay Rastogi and Justice C.T. Ravikumar delivered its judgment on January 4, 2023. The court rejected Sabarmati's argument that the SICA moratorium period could be directly excluded from the limitation calculation under Section 22(5) of SICA (a provision that allows exclusion of certain periods when computing limitation for proceedings under SICA itself). The IBC, the court said, had its own limitation framework under Section 238A (which makes the Limitation Act applicable to IBC proceedings). The SICA exclusion mechanism could not be imported wholesale.

But the court did not stop there. It examined Section 5 of the Limitation Act (which allows a court to admit a delayed application if the applicant shows "sufficient cause" for the delay). The court held that the period during which a creditor was statutorily barred from filing proceedings — such as the SICA moratorium — could constitute "sufficient cause" under Section 5. The adjudicating authority (the NCLT) was duty-bound to consider this when deciding whether to condone the delay.

In other words: the limitation clock had run. But the reason it had run — a legal bar that the creditor could not overcome — was a valid ground for the court to excuse the delay. The NCLT and NCLAT had erred by not even considering this argument. As the Supreme Court reasoned, the period of statutory disability constitutes "sufficient cause" for condonation of delay under Section 5 of the Limitation Act, which the Adjudicating Authority must consider.

The pre-existing dispute trap

The second question — whether a genuine pre-existing dispute existed — was examined under the framework laid down in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018). Under that test, the adjudicating authority must determine whether the dispute raised by the corporate debtor is a "plausible contention requiring investigation" or a "patently feeble legal argument." If the dispute is genuine and existed before the demand notice was issued, the IBC application must be dismissed.

The Supreme Court noted that the NCLT and NCLAT had found a pre-existing dispute. The judgment analyzed this question under the Mobilox framework: the dispute and/or suit or arbitration proceedings must exist prior to receipt of the demand notice, and the adjudicating authority must ascertain whether there is a plausible contention requiring investigation, not a patently feeble argument. The legal framework is now clear, even if the final operative order on this specific dispute remains unrecorded in the available text.

THE PLAY: If you were locked out of suing by a statutory bar — like the SICA moratorium — that period can be argued as "sufficient cause" under Section 5 of the Limitation Act when filing an IBC application after the bar is lifted. Do not assume the clock has stopped; argue for condonation instead.

What this means for creditors caught between regimes

The judgment offers a lifeline to operational creditors who found themselves trapped between SICA and the IBC. The Supreme Court has made it clear that the adjudicating authority cannot mechanically dismiss a delayed application without examining whether the delay was caused by a legal disability. The SICA moratorium period, though not directly excludable, is a factor that must be weighed.

For practitioners, the lesson is procedural: when filing a delayed IBC application, the application must explicitly invoke Section 5 of the Limitation Act and plead the statutory bar as "sufficient cause." The NCLT must then consider this plea. A dismissal without such consideration is legally unsustainable.

The court ended where it began: with a creditor who followed every rule, obeyed every legal bar, and still nearly lost everything because the law changed mid-stream. The legal framework it laid down — that statutory disability is a ground for condonation, not automatic exclusion — now governs how future creditors in similar transitions must proceed.