Gas supplier's 7-year-old dues: Can a sick company shield delay?

Sabarmati Gas stopped supplying in 2012. It filed for insolvency in 2018. The debtor argued: too late. The Supreme Court had to decide—

Seven years of unpaid gas bills. A company declared "sick" by a now-defunct tribunal. And a clock that kept ticking while the law changed around it. When Sabarmati Gas Limited walked into the Supreme Court in early 2023, it was carrying a question that had split tribunals and left operational creditors (suppliers of goods or services) across India unsure whether they could ever recover old dues from financially troubled companies.

The answer the court gave was neither a clean win nor a clean loss. It was something more useful: a roadmap.

When the gas stopped flowing

The story begins in 2008, when Sabarmati Gas entered into an agreement to supply natural gas to Shah Alloys Limited. For three years, the arrangement worked. Then, in November 2011, Shah Alloys stopped paying. The pipeline that had carried gas to the steel plant fell silent—the hiss of fuel through metal replaced by a stillness that would last years.

Sabarmati Gas kept supplying for another year. By 2012, it had had enough. It shut off the valve, cutting the gas supply entirely, and turned to the only forum that could help: the Board for Industrial and Financial Reconstruction (BIFR), a government body that dealt with "sick" industrial companies.

Shah Alloys had been declared a sick company by BIFR in 2010. Under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), this triggered a moratorium (a legal freeze on all recovery proceedings against the company). Section 22(1) of SICA meant that no court or tribunal could entertain any suit or legal proceeding against Shah Alloys without BIFR's permission.

Sabarmati Gas did what the law required. It sought BIFR's permission to recover its dues. In 2015, BIFR directed that the dues be incorporated into a rehabilitation scheme. The order was typed on official letterhead, signed, and placed in a file that would gather dust on a government shelf. The scheme never materialised. The money stayed unpaid. The BIFR file sat in silence, its pages untouched, as the years slipped by.

The law that disappeared

In 2016, Parliament repealed SICA and replaced it with the Insolvency and Bankruptcy Code (IBC), a modern, time-bound framework for resolving corporate distress. The old BIFR regime was dismantled. The new law gave operational creditors like Sabarmati Gas a powerful tool: Section 9 of the IBC, which allows a supplier to file an application to initiate Corporate Insolvency Resolution Process (CIRP — the formal process of restructuring or liquidating a company) against a defaulting debtor.

But there was a catch. The IBC came with a limitation period (a legal deadline for filing claims). Under Article 137 of the Limitation Act, 1963, an application under Section 9 had to be filed within three years from the date of default. The default here had occurred in November 2011. By the time Sabarmati Gas issued a demand notice under Section 8 of the IBC in 2017 and filed its Section 9 application in 2018, nearly seven years had passed.

The National Company Law Tribunal (NCLT — the specialised court that hears IBC cases) dismissed the application. It was time-barred, the tribunal said. Worse, there was a "pre-existing dispute" between the parties — a letter from Shah Alloys dated January 4, 2013, disputing the quality of gas supplied. The National Company Law Appellate Tribunal (NCLAT) agreed. Sabarmati Gas appealed to the Supreme Court.

Two questions, one answer

The Supreme Court bench of Justice Ajay Rastogi and Justice C.T. Ravikumar framed two questions. First: could the period during which SICA's moratorium prevented Sabarmati Gas from suing Shah Alloys be used to extend the limitation period under the IBC? Second: was the letter from January 2013 a genuine pre-existing dispute that barred the Section 9 application altogether?

The first question turned on a technical point. Section 22(5) of SICA said that the period during which proceedings were suspended under the moratorium "shall be excluded" when computing limitation. But SICA had been repealed. The IBC had its own limitation provision — Section 238A, which made the Limitation Act, 1963 applicable to IBC proceedings. The question was whether the SICA exclusion could travel across to the IBC.

The court said no — not directly. Section 22(5) of SICA could not be mechanically imported into the IBC's limitation framework. But that was not the end of the road.

Why the clock could still be reset

The court turned to Section 5 of the Limitation Act, which allows a court to condone a delay (accept a late filing) if the applicant can show "sufficient cause" for the delay. The period during which SICA's moratorium prevented Sabarmati Gas from filing a case, the court held, could constitute sufficient cause under Section 5. The court observed that "the period of suspension under Section 22(1) of SICA, during which the appellant was legally disabled from initiating proceedings, may be assigned as sufficient cause for condonation of delay under Section 5 of the Limitation Act."

This was the key insight. The SICA moratorium was not a period of laziness or neglect. It was a period of legal disability — the law itself had barred Sabarmati Gas from approaching any court or tribunal without BIFR's permission. That period, the court said, could be taken into account when deciding whether to condone the delay under Section 5.

The court relied on its earlier judgment in B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates, which had established that the limitation period for IBC applications runs from the date of default, not from the commencement of the IBC. It also cited KSL & Industries Ltd. v. Arihant Threads Ltd., which had dealt with the interplay between SICA and limitation.

The court made it clear: the adjudicating authority (the NCLT) is duty-bound to consider a plea for condonation of delay under Section 5 when a Section 9 application is found to be filed beyond limitation. It cannot simply dismiss the application as time-barred without examining whether the delay can be excused.

The letter that changed everything

But the second question proved fatal to Sabarmati Gas's case. The court examined the letter dated January 4, 2013 — a document typed on Shah Alloys' letterhead, signed, and dated years before the IBC application was ever filed. In it, Shah Alloys had raised concerns about the quality of gas supplied. The paper itself felt thin, almost insignificant, but its legal weight was immense. Was this a genuine pre-existing dispute?

The law on this point was settled by Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., which held that the dispute must be a "plausible contention requiring investigation" — not a patently feeble or spurious objection. The court found that the January 2013 letter met this threshold. It was not a last-minute invention. It had been raised years before the IBC application was filed.

Because a genuine pre-existing dispute existed, the Section 9 application could not succeed regardless of the limitation question. The court dismissed the appeal.

What this means for operational creditors

The judgment leaves operational creditors with a clear playbook. If you supplied goods or services to a company that was under SICA moratorium, and you are now filing under the IBC beyond the three-year limitation period, you can argue that the SICA suspension period constitutes sufficient cause for condonation of delay under Section 5 of the Limitation Act. The NCLT must consider this argument — it cannot dismiss your application as time-barred without examining whether the delay can be excused.

But the judgment also carries a warning. Even if you cross the limitation hurdle, you must still show that there was no genuine pre-existing dispute about the debt. A single letter from the debtor, written years before the IBC application, disputing the quality of goods or services, can be enough to block your application.

THE PLAY: If you are an operational creditor filing under Section 9 IBC beyond three years from default, file a separate application under Section 5 of the Limitation Act explaining the period of legal disability — and ensure no pre-existing dispute letter exists in the debtor's files.

The gas stopped flowing in 2012. The money never came. But the court ended where it began: with a supplier who waited too long, and a debtor who had written the right letter.