2025 (6) TMI 430 - AT - IBC

NCLAT Chennai rejects 210-day delay condonation citing manufactured excuses and paramount importance of timely disposal

Mr. Gajjala Yoganand Member of suspended Board of directors of Manjeera Retail Holdings Private Limited Versus Mr. Birendra Kumar Agarwal, Resolution Professional M/s. Manjeera Retail Holdings Private Limited, The Committee of Creditors

NCLAT Chennai dismissed applications for condonation of delay in refiling company appeals involving delays of 210 and 213 days respectively. The appellant ... Condonation of delay of 210 days and 213 days respectively in refiling the Company Appeals u/r 26 of the National Company Law Appellate Tribunal (NCLAT) Rules, 2016 - reasons advanced by the Appellant for the delay in refiling is sufficient or not - misplacement of physical appeal documents during transit and delay in obtaining legible copies of essential documents - HELD THAT:- The very basis of the plea of seeking condonation of 210 days and 213 days of delay in refiling the Company Appeals, has no legs to stand. Apparently, it seems to have been manufactured by the Appellant so as to create a ground for the purposes of seeking condonation of delay in refiling. On the issue of condonation of delay in refiling the appeals, there are various contradictory views taken by the different courts of the country, the majority tending to take a liberal view. However, the aspect of Condonation of Delay in other types of cases, cannot be put at a common parlance to the condonation of delay in refiling in the appeals contemplated under the I & B Code, where timely disposal of cases is given paramount important. In the instant case, when the knowledge of the defect itself was imparted to the Appellant, more than 200 days prior to the refiling of the Company Appeal, there has been an apparent dereliction on part of the Appellant and that too without there being any sufficient cause given in the application for Condonation of Delay in refiling. The word ‘sufficient cause’ itself will mean that it would be necessary for the parties availing the benefit of condonation of delay to explain the reasons, which will then provide a latitude to condone delay of an act and to permit to perform an act which has otherwise stands debarred by time. The inference drawn to phrase ‘sufficient cause’ in the matters of Parimal v. Veena @ Bharti [2011 (2) TMI 1562 - SUPREME COURT], was that, even while considering the aspect of delay in refiling too, the courts are supposed to do substantial justice not only to the appellant, but also to all the parties and therefore taking a liberal approach for condoning the delay, should not be considered at the cost of the other party to the proceedings so as to give an unnecessary benefit of condonation of delay for a cause which otherwise dies with time. The basic element which needs to be kept in mind for considering the aspect of condonation of delay in refiling, and which has to be diligently considered by the Tribunals, will be that, time period in proceedings under I & B Code, 2016, always plays a very pivotal role in deciding the proceedings, which are to be decided within a time limit which have been carved out under the provisions of the I & B Code. Therefore, explanation of the delay has had to be in such a manner that, it would stand the test of genuineness by virtue of application of a common human prudence - in the instant case, since the delay is of 209 days and 212 days respectively, which is too long a period to be condoned without there being any acceptable plausible explanation, this Appellate Tribunal is not inclined to condone the delay of 209 and 212 days respectively, as it has been shown to have chanced in preferring the Company Appeal. Conclusion - The applications for condonation of delay in refiling the respective Company Appeals, involving delays of 210 and 213 days, were dismissed for lack of sufficient cause. Appeal dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in these Company Appeals are:Whether the delay of 210 days and 213 days respectively in refiling the Company Appeals can be condoned under Rule 26 of the National Company Law Appellate Tribunal (NCLAT) Rules, 2016.Whether the reasons advanced by the Appellant for the delay in refiling-primarily, misplacement of physical appeal documents during transit and delay in obtaining legible copies of essential documents-constitute 'sufficient cause' to justify condonation of such an inordinate delay.Whether the procedural requirements and timelines prescribed for filing and refiling appeals under the Insolvency and Bankruptcy Code (IBC), 2016, particularly under Section 61(2) and Rule 26 of the NCLAT Rules, should be strictly or liberally construed in the context of delay condonation applications.Whether the presence of multiple counsels on record affects the responsibility for timely filing and refiling of appeals and the assessment of diligence exercised by the Appellant.What is the appropriate legal standard and approach to be adopted in assessing condonation of delay in refiling appeals under the IBC regime, considering the balance between procedural flexibility and the need for timely disposal of insolvency matters.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Whether the delay of over 200 days in refiling the Appeals can be condoned under Rule 26 of NCLAT Rules, 2016.Relevant Legal Framework and Precedents: Rule 26 of the NCLAT Rules, 2016 governs condonation of delay in refiling appeals. The provision is procedural and has been interpreted to allow some degree of flexibility, unlike the strict timelines under Section 61(2) of the IBC for initial filing of appeals. The Supreme Court and various benches of NCLAT have held that while the timelines for filing appeals under IBC are important, the period allowed for removal of defects and refiling is directory, not mandatory, and condonation may be granted on sufficient cause. However, the cause must be genuine and reasonable, not artificial or frivolous (as per the judgments in Surendra Trading Co., Innovators Cleantech Pvt. Ltd., and others).Court's Interpretation and Reasoning: The Tribunal acknowledged that Rule 26 is not to be rigidly construed and some flexibility can be granted for procedural delays. However, it emphasized that such latitude cannot be extended when the delay is inordinate (over 200 days) and the explanation is not satisfactory. The Tribunal referred to the principle that 'sufficient cause' means a cause that is adequate, reasonable, and not due to negligence or lack of bona fide effort. It relied on authoritative precedents including the Supreme Court's interpretation of 'sufficient cause' and the five-judge bench of NCLAT in V.R. Ashok Rao, which distinguished condonation of delay in initial filing and refiling, emphasizing case-by-case scrutiny.Key Evidence and Findings: The Appellant's explanation for delay was that physical appeal documents were misplaced during transit from Hyderabad to Chennai, and legible copies of essential documents were only obtained after a long delay. The defects in the e-filing were communicated in July 2024, but the appeals were only refiled in February 2025, after 210 and 213 days respectively. The Tribunal noted glaring omissions in the explanation: no specific date or person responsible for misplacement was identified, nor was there a credible account of how the documents were retrieved.Application of Law to Facts: The Tribunal found the explanation to be vague and unsubstantiated, concluding that the delay was neither bona fide nor due to circumstances beyond control. The presence of multiple counsels on record further undermined the Appellant's claim, as other counsels could have acted diligently to rectify defects within the prescribed time. The Tribunal held that the delay was caused by lack of diligence and was artificially manufactured to seek condonation.Treatment of Competing Arguments: The Appellant urged a liberal approach to condonation, emphasizing procedural nature of delay and the interest of hearing the appeal on merits. The Respondent strongly opposed, pointing to the inadequacy and vagueness of reasons, and the availability of multiple counsels who could have ensured timely compliance. The Tribunal sided with the Respondent, underscoring the importance of strict adherence to timelines in insolvency proceedings and the need to prevent abuse of process.Conclusion: The Tribunal declined to condone the delay of over 200 days in refiling the appeals, holding that the reasons given were insufficient and did not meet the test of 'sufficient cause' under Rule 26. The delay applications were dismissed.Issue 2: Whether the reasons given for delay-misplacement of appeal documents and delay in obtaining legible copies-are sufficient to justify condonation.Relevant Legal Framework and Precedents: The Supreme Court's elucidation of 'sufficient cause' requires that the party seeking condonation must demonstrate that the delay was not due to negligence or lack of bona fide effort and that the explanation is reasonable and credible. The NCLAT Principal Bench in Innovators Cleantech and Adisri Commercial Pvt. Ltd. emphasized that condonation cannot be granted on frivolous or perfunctory grounds, especially in insolvency matters where timelines are critical.Court's Interpretation and Reasoning: The Tribunal found the Appellant's explanation to be deficient on multiple counts: absence of specific dates or persons responsible for misplacement, unexplained delay in retrieval, and failure to act despite knowledge of defects. The Tribunal noted that the explanation appeared to be 'manufactured' and lacked credibility. It further reasoned that the presence of multiple counsels on record meant that the Appellant had sufficient resources to comply with timelines, and failure to do so indicated lack of diligence.Key Evidence and Findings: The only evidence was the Appellant's pleadings stating misplacement and delay in obtaining legible documents. The Tribunal highlighted the absence of documentary proof or credible explanation for the long delay. The defect notices were issued in July 2024, but the appeals were refiled only in February 2025, indicating a prolonged period of inaction.Application of Law to Facts: Applying the 'sufficient cause' test, the Tribunal concluded that the reasons did not satisfy the standard of adequacy or bona fide effort. The delay was not excusable and was a result of negligence or lack of diligence.Treatment of Competing Arguments: The Appellant's counsel argued for a liberal approach to avoid denial of justice on technical grounds. The Respondent's counsel argued that the explanation was vague and the delay was avoidable. The Tribunal accepted the Respondent's position, emphasizing the need to uphold the integrity and timeliness of insolvency proceedings.Conclusion: The reasons given for delay were insufficient and did not constitute 'sufficient cause' for condonation.Issue 3: The role of multiple counsels on record in assessing diligence and responsibility for timely filing/refiling.Relevant Legal Framework and Precedents: The general principle in litigation is that where multiple counsels represent a party, the responsibility to act diligently is collective. Negligence or inaction by one counsel does not absolve the party or other counsels of responsibility.Court's Interpretation and Reasoning: The Tribunal observed that the Appellant was represented by three counsels, and even if one counsel was negligent or mishandled documents, the others could have acted to rectify defects within time. This established lack of overall diligence on the part of the Appellant.Application of Law to Facts: The Tribunal found that the Appellant's failure to ensure timely refiling despite multiple counsels was a serious dereliction, undermining the plea for condonation.Conclusion: Presence of multiple counsels heightened the expectation of diligence and militated against condonation of delay based on negligence or carelessness.Issue 4: The appropriate standard for condonation of delay in refiling appeals under the IBC regime balancing procedural flexibility and the Code's emphasis on timely disposal.Relevant Legal Framework and Precedents: The IBC regime mandates strict timelines for resolution of insolvency matters to ensure efficacy and prevent abuse. The Supreme Court and NCLAT have held that while procedural delays may be condoned if justified, the courts must be cautious not to allow inordinate delays that undermine the Code's objectives. The concept of 'sufficient cause' must be applied judiciously, balancing the interests of justice and the need for timely adjudication.Court's Interpretation and Reasoning: The Tribunal reiterated that condonation of delay in refiling is discretionary but must be exercised judiciously, with a rigorous scrutiny of the reasons. The Tribunal emphasized that the test of reasonableness and genuineness of the cause is paramount and that condonation cannot be granted on flimsy or artificial grounds. The Tribunal referenced the principle that the timelines under IBC are not mere procedural technicalities but integral to the Code's framework.Application of Law to Facts: Given the inordinate delay and inadequate explanation, the Tribunal held that condonation would be contrary to the spirit and purpose of the IBC and its prescribed timelines.Conclusion: The Tribunal adopted a stringent standard for condonation of delay in refiling under IBC, requiring credible and reasonable explanation, which was absent in this case.3. SIGNIFICANT HOLDINGS'The word 'sufficient cause' itself will mean that it would be necessary for the parties availing the benefit of condonation of delay to explain the reasons, which will then provide a latitude to condone delay of an act and to permit to perform an act which has otherwise stands debarred by time.''The explanation of the delay has had to be in such a manner that, it would stand the test of genuineness by virtue of application of a common human prudence.''The delay in refiling cannot be condoned on frivolous grounds.''Where there is more than one counsel on record for a party and their authority is still surviving under the eyes of law, the dereliction on the part of one will not restrict the other counsels on record to take appropriate diligent action to ensure that the appeal is filed in time.''The period allowed for removal of defects is only directory. However, the question to be considered is as to whether there was justifiable cause for delay or not.''An inordinate delay in refiling the Appeal which reflects lack of diligence or common prudence cannot be condoned.''The timelines in proceedings under the IBC, 2016, always play a very pivotal role in deciding the proceedings, which are to be decided within a time limit carved out under the provisions of the Code.'Final determinations:The applications for condonation of delay in refiling the respective Company Appeals, involving delays of 210 and 213 days, were dismissed for lack of sufficient cause.The Appeals themselves were dismissed on account of failure to satisfactorily explain the inordinate delay in refiling.All pending interlocutory applications were treated as closed consequent to dismissal of the appeals.