NCLAT allows extension of Pre-Package Insolvency Resolution Process beyond 120-day limit under Section 54D

The NCLAT Principal Bench allowed an appeal challenging rejection of a 60-day extension for Pre-Package Insolvency Resolution Process (PPIRP). The tribunal held that the 120-day completion period under Section 54D is not mandatory and does not result in automatic termination of PPIRP. Relying on the SC decision in Essar Steel where the word "mandatorily" was struck down for CIRP timelines, the NCLAT ruled that the Adjudicating Authority has discretion to extend PPIRP beyond 120 days in appropriate cases. The tribunal found no automatic termination provision exists and the lower court erred in rejecting the extension application. The impugned order was set aside.

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Issues Involved:
1. Extension of Pre-Package Insolvency Resolution Process (PPIRP) period.
2. Interpretation of statutory timelines under the Insolvency and Bankruptcy Code (IBC).
3. Discretion of Adjudicating Authority in extending PPIRP beyond statutory period.

Issue-Wise Detailed Analysis:

1. Extension of Pre-Package Insolvency Resolution Process (PPIRP) period:

The appeals were filed against the order dated 06.06.2024, by the National Company Law Tribunal (NCLT), Ahmedabad, which rejected the Resolution Professional's (RP) application for a 60-day extension of the PPIRP period for Kethos Tiles Pvt. Ltd. The RP and the promoter of Kethos Tiles Pvt. Ltd. contested the order, arguing that the application for extension was filed pursuant to a resolution passed by the Committee of Creditors (CoC) with a 91.75% vote. The RP contended that the provisions of Section 54D of the IBC should not be interpreted as mandatorily terminating the PPIRP after 120 days and that the court has the jurisdiction to extend the period for valid reasons.

2. Interpretation of statutory timelines under the Insolvency and Bankruptcy Code (IBC):

The core issue was whether the 120-day period for completing the PPIRP under Section 54D is mandatory. The tribunal examined various sections of the IBC and related judgments to determine if statutory timelines should be interpreted as mandatory or directory. The tribunal referred to the Supreme Court's judgment in `Surendra Trading Company` vs. `Juggilal Kamlapat Jute Mills Company Ltd. & Ors.` where it was held that the period for curing defects in an application is directory. Similarly, in `Committee of Creditors of Essar Steel India Ltd.` vs. `Satish Kumar Gupta & Ors.`, the Supreme Court struck down the word "mandatorily" from the second proviso of Section 12 of the IBC, allowing for discretion in extending the CIRP period beyond 330 days in appropriate cases.

3. Discretion of Adjudicating Authority in extending PPIRP beyond statutory period:

The tribunal noted that Section 54D does not contemplate automatic termination of PPIRP after 120 days but requires an application by the RP for termination. The discretion of the Adjudicating Authority is inherent in the statutory scheme, allowing it to extend the period if sufficient cause is shown. The tribunal also referred to its own judgment in `Aditya Kumar Tibrewal` vs. `Om Prakash Pandey & Ors.`, where it was held that the timelines prescribed in the CIRP regulations are directory, not mandatory.

The tribunal concluded that the Adjudicating Authority erred in rejecting the RP's application for an extension. It emphasized that the PPIRP provisions are beneficial for resolving MSMEs in distress and should not be interpreted to deny jurisdiction to extend the period beyond 120 days when justified.

Conclusion:

The tribunal allowed the appeal, set aside the NCLT's order dated 06.06.2024, and extended the PPIRP period for 60 days from the date of the judgment. The decision underscores the tribunal's discretion in interpreting statutory timelines and emphasizes the beneficial nature of PPIRP provisions for MSMEs.

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