CS Divesh Goyal

J.K. Jute MILLS VS. M/s Surendra Trading Company

The Time is essence of the IB Code.

SHORT SUMMARY

In this Flash editorial column, the author begins by referring the provisions of Insolvency and Bankruptcy Code, 2016 in relation to Times Lines given under IBC Code, 2016.

As IBC code has prescribed many Time Limits under the Code. The main shove of the article, is upon the question Time Limits under the IBC are directory or mandatory”

In this editorial author discuss the provisions relating to different – 2 time limits under the IBC and landmark judgement delivered by NCLAT, in case of JK Jute Mills Company Limited Vs. M/s Surendra Trading Company.

CASE ELEMENT:

Case Name JK Jute Mills Company Limited Vs. M/s Surendra Trading Company.
Bench Name The National Company Law Appellate Tribunal (NCLAT)
Link: http://nclat.nic.in/final_orders/Principal_Bench/2017/insolvency/01052017AT092017.pdf
NCLT Order No. Order Dated 9th March, 2017 passed by NCLT, Allahabad Bench in C. P. No. 19/Ald/2017
Heard & Pronounced on Order 1st May, 2017
Order Passed by Justice S.J. Mukhopadhaya, Chairperson

A. FACTUAL BACKGROUND

06.01.2017 The Operation Creditor/ Respondent – issue a Demand Notice u/s 8 to appellate / Corporate Debtor.
25.01.2017 The CD replies and objected the claims as ‘time barred’.
10.02.2017 OC file the application u/s 9 with NCLT.
16.02.2017 Hearing listed before NCLT.
There was defects in the application, OC sought time to rectify the defects.
28.02.2017 The matter was ordered to be listed again for removal of objection and procedural defects.
28.02.2017 Counsel for the OC sought more time for filing formal memo by providing of latest passed order of BIFR.
03.03.2017 The case was ordered to be listed for further hearing.
09.03.2017 A third party, J. K. Jute Mill Majdur Sabha filed a Misc. Application for intervention.
Learned counsel for the CD highlighted the defects in the demand notice as was sent by the OC.
According to the LD of OC 14 days time limit prescribed under section 9 of the ‘Code’ for passing orders of admission or rejection of application is directory; it is not mandatory.
Ld of OC said if 14 days period considered as mandatory, it will result in numerous anomalous situations which is not the intention of the legislature in drafting the code.
LD of OC said 7 days period for curing of defects is independent of the 14 days period period prescribed under Section 9(5) before admission or rejection of the application.
28.03.2017 The case was heard on merit and Judgement
05.04.2017 AA fixed the date for hearing the petition on the question of maintainability as raised in this appeal.
10.04.2017 Tribunal take up the matter but on certain ground adjourned the case.
To decide the question whether the time limit prescribed for intimation and completion of Insolvency Resolution process is mandatory, it is desirable to notice different time limit prescribed under the IB Code, 2016.

TIME LIMITS PRESCRIBED UNDER THE CODE:

Section 16(1) The Adjudicating authority is required to appoint an interim resolution professional within 14 days from the Insolvency Commencement date.
Section 16(5) The term of IRP can’t exceed 30 days from the date of appointment.
Section 12 CIRP required to be complete43d within period of 180 days from the date of admission of the application. The AA may extend the period, but not exceeding 90 days.

B. PROVISIONS UNDER THE ACT:

Expeditious disposal of applications Section 64: (1) Where an application is not disposed of or an order is not passed within the period specified in this Code, the National Company Law Tribunal or the National Company Law Appellate Tribunal, as the case may be, shall record the reasons for not doing so within the period so specified; and the President of the National Company Law Tribunal or the Chairperson of the National Company Law Appellate Tribunal, as the case may be, may, after taking into account the reasons so recorded, extend the period specified in the Act but not exceeding ten days.

(2) No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on the National Company Law Tribunal or the National Company Law Appellate Tribunal under this Code. (para 27)

FINDINGS OF THE NCLAT BENCH: 

The key issue for consideration before NCLAT was whether time periods given under IBC code are mandatory or directory in nature.

NCLAT has ruled on certain important requirements to be complied with while admitting an application filed under Section 7 of the Insolvency & Bankruptcy Code, 2016 (the Code).

1. Whether the time limit prescribed in Insolvency & Bankruptcy Code, 2016 for admitting or rejecting a petition or initiation of insolvency resolution process is mandatory?

The Judgment makes it clear that:

The object behind the time period in above mentioned sections is to prevent the delay in hearing the disposal of the cases. The Adjudicating Authority can not ignore the provisiosn. But in appropriate cases, for the reason to be recorded in writing , it can admit or reject the petition after the period prescribed under section 7, 9 or 10. (Para 42)

Therefore, we hold that mandate of above mentioned sections procedural in nature, a tool of aid in expeditious dispension of justice and is directory. (Para 43)

Therefore, being procedural in nature can not be treated to be a mandate of law.

In P.T. Rajan Vs. T.P.M. Sahir and Ors. (2003) 8 SCC 498, the Hon’ble Supreme Court observed that where Adjudicating Authority has to perform a statutory function like admitting or rejecting an application within a period prescribed, the time period would have to held to be directory and not mandatory. (para 32)

2. The time period of 14 days for acceptance or rejection of application counted from “date of receipt of the application” or “date of filing of the Application”.

Date of filing of application means, date on which application is filed with NCLT by the applicant.

Date of receipt of application means, the date when such application is presented before the adjudicating authority i.e. ‘the date on which it is listed for admission/rejected.

The Judgment makes it clear that:

The time period of 14 days shall be counted from date of receipt of application.
As after the submission of application, the registry required to find out whether the application is in proper form and accompanied with such fees as may be prescribed. Therefore, the Registry will take certain time and during such period, the application is not brought to the notice of the ‘Adjudicating Authority’. (Para 39)

3. Whether it is mandatory to remove the defects within 7 day in case of proviso to Section 7(5) or proviso to Section 9(5) or proviso to Section 10(4). (Para 44)

As per Hon’ble NCLAT the provision of above mentioned sections to remove the defects within 7 days are mandatory, and on failure applications are fit to be rejected.

KEY ASPECTS OF THE JUDGEMENT:

  • Time is the essence of IBC, but it is to be seen whether on failure to do so, the Adjudicating Authority is competent to pass appropriate order.
  • NCLAT has affirmed that where Adjudicating Authority has to perform a statutory function like admitting or rejecting an application within a time prescribed, the time period would have to be held to be directory and not mandatory
  • It has also been observed by NCLAT that “the Code empowers adjudicating authority to pass orders under Section 7, 9 and 10 of the Code, 2016 and not the NCLT”. As a reason thereof, NCLAT is of the view that section 420 of the Companies Act, 2013 (which deals with the orders of NCLT but do not prescribe any specific time limit for passing orders), cannot be transposed into IBC by reading “orders of tribunal” as “orders of adjudicating authority”.

CONCLUSION: NCLAT in the above referred judgment has made clear that time is the essence of the Code and all the stakeholders, including the Adjudicating Authority are required to perform its job within time prescribed under the Code except in exceptional circumstances, if the adjudicating authority for one or other good reason fails to do so.

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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