2025 (4) TMI 517 - AT - IBC

NCLAT upholds Section 95 application admission against personal guarantor despite delayed resolution professional report

NCLAT Principal Bench dismissed appeal challenging admission of Section 95(1) application by financial creditor against personal guarantor. Appellant ... Admission of Section 95(1) application filed by the financial creditor against the personal guarantor - whether 10 days period provided to the RP for submitting a report under Section 99 is mandatory and whether report which is submitted after period of 10 days cannot be taken on record by adjudicating authority or looked into for passing an order under Section 100? - HELD THAT:- The scheme of Section 99 clearly indicates that although Section 99(1) provides that RP shall examine the application referred to Section 94 or Section 95 within 10 days of his appointment and submit his report. But subsequent provisions, i.e., sub-Section (4) of Section 99 empowers the RP to seek such other information or explanation in connection with the application and by virtue of sub-Section (5) of Section 99, the person who has been asked for information is required to submit information within seven days from receipt of the request. On looking into the scheme as delineated by Section 99(1), (4), (5), (6) & (7) as noticed above, it is clear that submission of report within 10 days from appointment of the RP is only directory and cannot be held to be mandatory. When the RP after examining the application, if come to the conclusion that certain further information or explanation are required, he may ask for the information from the debtor or the creditor or any other person. The person from whom information is asked for is required to give information within seven days of the receipt of the request and under sub- Section (6) the RP has to again examine the information received from under sub-Section (4) and thereafter submit his recommendation and sub-Section (7) of Section 99. The above legislative scheme clearly indicates that legislature never intended that period of 10 days for submitting a report for appointment of RP is mandatory. The use of expression “shall” although generally indicate mandatory nature of provision but use of “shall” is always not conclusive and whether expression “shall” cast a mandatory duty or only directory depends on the scheme of the statute. The present is a case where necessity of submitting amended report arose because of receipt of the information from financial creditor subsequent to the submission of first report on 02.02.2024. Reports were brought on record by a supplementary affidavit, which were taken on the record. There was no such undue delay in submission of the report on 02.02.2024 or submission of the amended report on 14.02.2024, that the said report were required to be ignored and rejected by the adjudicating authority. There are no substance in the submission of the appellant that report 02.02.2024 which was filed beyond 10 days from date of appointment of the RP on 16.01.2024 could not have been taken on the record or relied by the adjudicating authority. Adjudicating Authority has rightly relied on the report dated 02.02.2024 as well as amended report dated 14.02.2024. Reason for submitting amended report was also explained by the RP before the adjudicating authority, which has been noticed by adjudicating authority. Conclusion - There are no merit in the appellant's arguments regarding the mandatory nature of the 10-day timeline and the need for condonation of delay. The adjudicating authority's decision to accept the RP's reports is affirmed and Section 95 application admitted. There is no merit in the appeal. Appeal dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment include:1. Whether the 10-day period provided to the Resolution Professional (RP) for submitting a report under Section 99 of the Insolvency and Bankruptcy Code, 2016 (IBC) is mandatory, and if a report submitted after this period can be taken on record by the adjudicating authority.2. Whether the adjudicating authority erred in accepting the RP's report that was filed beyond the prescribed 10-day period without an application for condonation of delay.3. The applicability of the judgment in 'V. Nagarajan' Vs. 'SKS Ispat & Power Ltd. & Ors.' regarding the limitation period and condonation of delay within the IBC framework.ISSUE-WISE DETAILED ANALYSISIssue 1: Mandatory Nature of the 10-Day Period for RP's ReportRelevant Legal Framework and Precedents:Section 99 of the IBC requires the RP to examine the application within ten days of appointment and submit a report recommending approval or rejection. The provision uses the term 'shall,' which generally indicates a mandatory requirement. However, the subsequent sub-sections provide for seeking additional information, which may extend the timeline.Court's Interpretation and Reasoning:The Court interpreted the 10-day period as directory rather than mandatory. The adjudicating authority and the Tribunal have emphasized that the legislative scheme under Section 99 allows for flexibility, given the potential need for additional information from debtors or creditors.Key Evidence and Findings:The RP submitted the initial report on 02.02.2024, followed by an amended report on 14.02.2024 due to additional information received. Both reports were accepted by the adjudicating authority, indicating that the authority considered the reports valid despite the timing.Application of Law to Facts:The Court applied the interpretation that the 10-day timeline is directory, allowing for the acceptance of reports submitted beyond this period if justified by circumstances such as the need for additional information.Treatment of Competing Arguments:The appellant argued that the timeline is mandatory and that any report submitted beyond this period should be rejected. The financial creditor and the RP contended that the timeline is directory, and the adjudicating authority has the discretion to accept reports filed beyond the 10-day period.Conclusions:The Court concluded that the 10-day period is directory, allowing the adjudicating authority to accept reports submitted beyond this period if justified.Issue 2: Acceptance of RP's Report Filed Beyond the Prescribed PeriodRelevant Legal Framework and Precedents:The appellant relied on the judgment in 'V. Nagarajan' regarding the strict interpretation of limitation periods and condonation of delay. However, this case pertained to appeal filings under Section 61 of the IBC, not the RP's report submission under Section 99.Court's Interpretation and Reasoning:The Court distinguished the present case from 'V. Nagarajan', noting that the 10-day period for RP's report is not a limitation period but a procedural timeline intended to expedite the resolution process.Key Evidence and Findings:The adjudicating authority accepted both the original and amended reports, indicating that it found the RP's actions reasonable under the circumstances.Application of Law to Facts:The Court applied the principle that procedural timelines are directory and not subject to the strict limitations applicable to appeal periods.Treatment of Competing Arguments:The appellant's argument for mandatory adherence to the timeline was countered by the financial creditor's position that the timeline is directory and the adjudicating authority's acceptance of the reports was appropriate.Conclusions:The Court upheld the adjudicating authority's decision to accept the RP's reports, emphasizing the directory nature of the timeline.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning:'The purpose of a section 99 report is to aid this Tribunal in deciding a petition filed u/s 94 and 95 of the Code. The RP while submitting a report works as an officer of this court and not as an interested party itself. The 10 days timeline provided in section 99(1) is to ensure that the RP submits its report in an expeditious manner, but this tribunal does not feel that if a reasonable delay is caused on the part of the RP to file its report, it adversely affects the adjudication process or for that matter unduly benefit any of the contesting parties.'Core Principles Established:The timeline for submitting the RP's report under Section 99 is directory, allowing for flexibility in cases where additional information is required. The adjudicating authority has the discretion to accept reports filed beyond the 10-day period if justified by circumstances.Final Determinations on Each Issue:The appeal was dismissed, affirming the adjudicating authority's decision to accept the RP's reports and admit the Section 95 application. The Court found no merit in the appellant's arguments regarding the mandatory nature of the 10-day timeline and the need for condonation of delay.