2024 (8) TMI 1152 - AT - Insolvency and Bankruptcy

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 ... Prayer for for extension of period of Pre-Package Insolvency Resolution Process (PPIRP) for 60 days has been rejected - whether maximum time period of 120 days provided for completion of process is mandatory and on completion of the time period, the PPIRP has to be terminated and after 90 days in event, the Resolution Plan was not approved, RP has to file an Application for termination of the proceeding? HELD THAT:- Section 54D and Section 54N which we have noted above clearly indicates that termination of PPIRP happens after an Order is passed by the Adjudicating Authority. The statute makes one thing clear that there is no concept of automatic termination of PPIRP after expiry of 120 days. No exception, can be taken for providing 120 days of completion of PPIRP. Since all IBC process have timelines, which have its own importance. Completion of process in a timeline has its own object and purpose - the Application which was filed by the RP before the Adjudicating Authority was on the strength of resolution passed by the CoC in its 3rd CoC Meeting held on 30.04.2024. The CoC, in its 3rd CoC Meeting has noticed that revised base Resolution Plan submitted by the Corporate Debtor is under consideration of the CoC. The Hon’ble Supreme Court had occasion to consider the said second proviso in `Committee of Creditors of Essar Steel India Ltd.’ [2019 (11) TMI 731 - SUPREME COURT]. The second proviso which provided for mandatory completion of CIRP within 330 days came for consideration before the Hon’ble Supreme Court in the above case and Hon’ble Supreme Court has struck down the word “mandatorily”. It was held by the Hon’ble Supreme Court that in appropriate case even after 330 days, Adjudicating Authority or Appellate Tribunal can extend the period - The above Judgment of the Hon’ble Supreme Court clearly indicates that where legislature provided for mandatorily completion of CIRP within 330 days the word “mandatory” was struck down and it was held that in appropriate cases, Adjudicating Authority shall have jurisdiction to extend the time beyond 330 days. On looking into the provisions of Section 54D, it is clear that the provision does not contemplate any automatic termination of the PPIRP, the provision contemplates for filing of an Application by RP seeking termination of the process. The discretion of the Court is very well contemplated in the Scheme of the Statutory Scheme and Adjudicating Authority is free to exercise its statutory discretion while ordering termination of the proceeding. Thus, even if period of 120 days has been passed and the question of termination of proceeding comes for consideration before the Adjudicating Authority. Adjudicating Authority on sufficient reason can refuse termination and the proceeding and extend the period, which shall be within its jurisdiction. The Adjudicating Authority has taken the view in the Impugned Order that when the Resolution Plan is not approved within 90 days, RP was obliged to pray for termination of the proceeding and after expiry of 120 days, proceedings have to be terminated. The Adjudicating Authority committed an error in rejecting the Application filed by the Appellant for extension of PPIRP for 60 days. The impugned order is set aside - appeal allowed. 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.