Time Period Under “ibc Mandatory or Re commendatory
Time Period Under “ibc
Mandatory
or Re commendatory
Short Summary:
In this flash tabloid, the writer initiates by speak of the
provisions of Insolvency & Bankruptcy Code, 2016 (hereafter referred as
“IBC”) in relation to power of IBC in respect of Time Limits.
The main drive of the broadsheet, on the other hand, is upon
the “Time
Periods Mentioned under I&B Code, 2016 Whether Mandatory or Recommendatory?”
This is article no. 293 of the series of editorials written by the author
on corporate laws
{Including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008
etc.}.
Introduction:
In
this editorial author discuss the provisions under of I&B Code, 2016 in
respect of different – 2 time limits mentioned under the Act i.e.
·
Section 12. (1) Subject to sub-section (2),
the corporate insolvency resolution process shall be completed within a period
of one hundred and eighty days from the date of admission of the application to
initiate such process.
·
Section 7. (4) The Adjudicating Authority
shall, within fourteen days of the receipt of the application under sub-section
(2), ascertain the existence of a default.
·
Section 7. (5) Adjudicating Authority
shall, before rejecting the application under clause (b) of sub-section (5),
give a notice to the applicant to rectify the defect in his application within
seven days of receipt of such notice from the Adjudicating Authority
The question arises whether time limits mentioned above
are Mandatory in Nature or Recommendatory in nature. Answer of this question
has been decided by the Supreme Court, NCLAT and NCLT in different – 2
judgments as mentioned below one by one.
Question 1. Whether the time period of 7 days given
to a Financial Creditor/ Operational Creditor/Corporate Applicant to rectify
defects in an application is mandatory or directory?
Case element:
Case Name
|
M/s Surendra Trading Company Vs. Juggilal Kamalpat Jute Mills Co. Ltd
& Ors.
|
Court
|
Hon’ble Supreme Court
|
Order Date
|
19th
September, 2017
|
Appeal Against
|
NCLAT order of J K Jute
Mills Company Limited vs. M/s Surendra Trading Company dated: 1st May, 2017
|
NCLAT Order: NCLAT, in J K Jute Mills Company Limited vs.
M/s Surendra Trading Company [Company Appeal (AT) No. 09 of 2017], decided on
1st May, 2017, while considering various timelines under the Code, held that,
the period of 7 days given to a Financial Creditor/Operational Creditor/
Corporate Applicant who has filed an application, to cure the defects in such application,
is mandatory and failure to remove such defects entails rejection of
application.
A. Factual Background:
·
Legal Provisions:
Section 7. (5)
Adjudicating Authority shall, before rejecting the application under clause (b)
of sub-section (5), give a notice to the applicant to rectify the defect in his
application within seven days of receipt of such notice from the Adjudicating
Authority.
Section 9. (5) Provided
that Adjudicating Authority, shall before rejecting an application under
sub-clause (a) of clause (ii) give a notice to the applicant to rectify the
defect in his application within seven days of the date of receipt of such
notice from the adjudicating Authority.
·
Appeal filed in Supreme Court for the
question of law whether time period of 7 days Mandatory or Recommendatory is.
B. Finding of Hon’ble Supreme Court:
Hon’ble Supreme Court states that,
§
While considering the time period of 7 days
given to an applicant to cure the defects, held, that the said time period is
not mandatory and is merely directory and the failure to cure the defects in 7 days
time period would not entail dismissal of application
§
The Hon’ble Supreme Court observed that it has
to be seen whether the rejection would be treated as rejection of application
on merits thereby debarring filing of fresh application or the same is merely
an administrative order.
§
In the
former case, it would lead to travesty of justice as even though the case may
have merits, the applicant would be shown the door without adjudication.
§
If it is the latter case, then rejection of
application in the first instance is not going to serve any purpose as
applicant would be entitled to file fresh application which would have to be
entertained. Thus, in either case, no purpose is served by treating the
aforesaid provision as mandatory.
Hon’ble Supreme Court,
while only considering the time period of 7 days given to an applicant to cure the
defects, held, that the said time period is not mandatory and is merely
directory and the failure to cure the defects in 7 days time period would not
entail dismissal of application.
The period of 7 days notice period granted by NCLT to Financial
Creditor, Operational Creditor, Corporate Applicant for curing defects in an
application filed under section 7, 9 or 10 of the Code is Directory, subject to the rider above mentioned.
Question 2.
Whether the time period of 14 days provided under the Code to NCLT to either
admit or reject an application is Mandatory or Directory?
Case element:
Case Name
|
J K Jute Mills Company Limited vs. M/s Surendra Trading Company
|
Operational Creditor
|
Surendra Trading Company
|
Corporate Debtor
|
J K Jute Mills Company
Limited
|
Court
|
National Company Law
Tribunal
|
Order Date
|
1st May, 2017
|
Appeal Against
|
NCLT, Allahabad Bench
|
The
application was not decided by NCLT, Allahabad Bench, within the period of 14
days and hence, J K Jute filed an appeal contending that the NCLT had become functus
officio[1].
A. Factual Background:
§
Legal Provisions:
Section
7. (4) The Adjudicating Authority shall, within fourteen days
of the receipt of the application under sub-section (2), ascertain the
existence of a default from the records of an information utility or on the
basis of other evidence furnished by the financial creditor under sub-section
(3).”
·
Appeal filed in NCLAT after expiry of 14
days in Allahabad NCLT Bench.
C. Finding of Hon’ble Supreme Court:
Hon’ble NCLAT states that,
§
The nature of provisions contained in
Sub-section (4) of Section 7, sub-section (5) of section 9 and sub-section (4)
of section 10 of the Code are merely procedural in nature, the same cannot be
treated to be a mandate of law and the object behind these provisions is only
to prevent delay in hearing and disposal of cases.
§
NCLT Observed That:
§
The time period of 14 days prescribed under
sub-section (4) of the section 7, sub-section (5) of section 9 and sub-section
(4) of section 10 are to be counted from the date of receipt of application.
The word date of receipt of application cannot be treated to be ‘date of filing
of the application Therefore, 14 days’ period granted to the Adjudicating
Authority under the provisions of the Code cannot be counted from the ‘date of
filing of the application’ but from the date when such application is presented
before the Adjudicating Authority i.e., ‘the date on which it is listed for
admission/order
§
In the appeal, NCLAT while considering various
time lines under the Code, held that the time period of 14 days, within which
NCLT is mandated to either admit or reject an application filed by Financial
Creditor/Operational Creditor/Corporate Applicant, is only directory and not
mandatory.
The time period of 14 days within which NCLT is mandated to either
admit or reject application under section 7, 9 or 10 of the Code is DIRECTORY.
Question 3. Whether the time
period of 180 days or 270 days (including 90 days extended period), provided
under the Code for completion of CIRP is mandatory or directory?
Case element:
Case Name
|
J K Jute Mills Company Limited vs. M/s Surendra Trading Company
|
Operational Creditor
|
Surendra Trading Company
|
Corporate Debtor
|
J K Jute Mills Company
Limited
|
Court
|
National Company Law
Tribunal
|
Order Date
|
1st May, 2017
|
Appeal Against
|
NCLT, Allahabad Bench
|
The
application was not decided by NCLT, Allahabad Bench, within the period of 14
days and hence, J K Jute filed an appeal contending that the NCLT had become functus
officio[2].
A. Factual Background:
§
Legal Provisions:
Section
12. (1) Subject to sub-section (2), the corporate insolvency
resolution process shall be completed within a period of one hundred and eighty
days from the date of admission of the application to initiate such process.
§
Appeal
filed in NCLAT after expiry of 14 days in Allahabad NCLT Bench.
B. Finding of Hon’ble Supreme Court:
Hon’ble NCLAT states that,
NCLAT observed that u/s 46: The resultant effect
of non-completion of insolvency resolution process within the time limit of 180
days + extended period of 90 days i.e. total 270 days will result in to
initiation of liquidation proceedings under section 33.
Failure to complete the CIRP within the above
period of 180 days, unless extended by a onetime extendable period of 90 days,
would entail liquidation of the Corporate Debtor under the provisions of the
Code.
Thus, the time period of 180 days or 270 days (including 90 days extended
period) for completion of CIRP is MANDATORY.
CONCLUSION:
On the basis of Judgement of
Hon’ble Supreme Court and Hon’ble NCLAT
it can be conclude like this.
A. The
period of 7 days notice period granted by NCLT to Financial Creditor,
Operational Creditor, Corporate Applicant for curing defects in an application
filed under section 7, 9 or 10 of the Code is Directory, subject to the rider
above mentioned.
B. The time
period of 14 days within which NCLT is mandated to either admit or reject
application under section 7, 9 or 10 of the Code is DIRECTORY.
C. The
time period of 180 days or 270 days (including 90 days extended period) for
completion of CIRP is MANDATORY.
(Author
– CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice
from Delhi and can be contacted at csdiveshgoyal@gmail.com).
Disclaimer: The entire
contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION
WITH THE USE OF THE INFORMATION.
[1]
Meaning ‘an
officer or agency whose mandate has expired either because of the arrival of an
expiry date or because an agency has accomplished the purpose for which it was
created. When used in relation to a court, it may also mean whose duty or
authority has come to an end’
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