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The Honorable Supreme Court of India on September 19, 2017
affirmed the order passed by the National Company Law Appellate
Tribunal "NCLAT" in the case of Surendra Trading
Company v. Juggilal Kamlapat Jute Mills1 putting an
end to the dilemma of timelines with respect to various actions to
be undertaken under the Insolvency and Bankruptcy Code "IB
Code", at the time of admission of application filed under 7,
9 and 10 of I B Code for the purpose of initiating Corporate
Insolvency Resolution Process "CIRP" .
Background
In the present case, the operational creditor, Surendra Trading
Company "STP" filed an application under Section 8 of the
I B Code against the corporate debtor, J.K Jute Mills Company Ltd
"JK", for a claim amounting to Rs. 17,06,766 "unpaid
debt". The application was filed without complying with Rule 6
of Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016 which provides for certain perquisites which
need to be completed while filing an application under I B Code..
Thereafter, STP was given a seven-day additional period to rectify
the defect in the application in accordance to Section 9(5) of the
Code which they failed to do within the requisite time and claimed
that the time period under Section 9(5) is not mandatory. The NCLAT
thereby held that the 7 day time period to remove the defects in
the application is mandatory in nature and the 14 days time period
to ascertain the existence of default is discretionary.
Analysis
The Supreme Court thereby overruled the order of NCLAT and also
mandated the status of various timelines under the Code:-
The timelines under Section 7(5),
9(5) and 10(4) to remove the defects in the insolvency application
within seven days is discretionary and not mandatory in nature, in
cases where an application in writing shows sufficient case as to
why the applicant could not remove the objections within seven
days, the court may extend the time period instead of directly
rejecting the application under the code. In other words, an
application for condonation of delay needs to be filed whereby
there is delay beyond the time prescribed.
In order to calculate the seven-day
period under section 7, 9 and 10, to remove the defects in the
insolvency application the holidays such as Saturday, Sunday and
other holidays to be excluded.2
The timeline of fourteen days to
ascertain the existence of a default from the records of an
information utility under the code whereby, the adjudicating
authority has to admit or reject the application, are directory in
nature and the same is to be calculated from the date of receipt of
application by the court and not from the acceptance of
application, the same has been quoted in the case of Nikhil
Mehta v. AMR Infrastructure Ltd.3
The term of the interim resolution
professional "IRP", for managing the affairs of the
company until the appointment of resolution professional, will be
thirty days as provided in Section 16(5) of the code.
The Supreme Court further clarified
that the limit of 180 days, which is extendable further in certain
cases up to 90 days, for the completion of insolvency resolution
process starts from the admission of the application for the
resolution process.
Conclusion
The statutory scheme laying down time limits sends a clear
message, as rightly held by NCLAT also, that time is the essence of
the Code. The Code has thereby set strict timelines which makes it
one of the most scrupulous laws in the country and reflects the
purpose of the legislature, making India - a speedier justice
forum.
Footnotes
1. Supreme Court Of India, Civil Appeal No. 8400 of 2017,
September 19, 2017
2. NCLAT, Company Appeal (AT) (Insolvency) No. 30 of
2017, April 12, 2017
3. NCLAT, Company Appeal (AT) (Insolvency) No. 07 of
2017, January 23, 2017
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