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

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.