2025 (11) TMI 1885 - HC - Companies Law

Strict enforcement of NCLT Rules 28 and 63 ordered after 612-day delay in rectifying filing defects

Metalrod Private Limited Versus Registrar National Company Law Tribunal, New Delhi & Anr.

HC dealt with a writ challenging respondent no. 2's non-compliance with Rule 28 of the National Company Law Tribunal Rules, 2016, regarding removal of ... Seeking directions against respondent no. 2 for their failure to comply with Rule 28 of the National Company Law Tribunal Rules, 2016 - requirement of removal of defect within a period of seven days - re-filing process undergone within nine months - HELD THAT:- The respondent no. 1 has admitted that re-filing of the petition, which is the subject matter of the present writ petition, was allowed beyond the statutory period of seven days. This Court records the statement made by learned Senior Counsel appearing for the petitioner that the delay in re-filing in the petition, which is the subject matter of the present petition, is 612 days - This Court further takes note of the submission made by learned counsel appearing for respondent no. 1 that the action of the Registry in allowing re-filing beyond the seven-day period, was on account of procedural defect, on account of system-generated permissions that allowed the petition to re-enter the scrutiny workflow. The respondent no. 1 is directed to ensure that the SOP, in line with Rules 28 and 63 of the Rules, 2016, shall be scrupulously followed by the respondent no. 1 - the Adjudicating Authority shall decide the issue as to whether sufficient cause has been shown in not removing the defects beyond the statutory period of seven days, in the present case. Petition disposed off. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether repeated re-filing of a petition beyond the seven-day period stipulated in Rule 28(2) of the National Company Law Tribunal Rules, 2016, without a specific order of condonation, is permissible and valid. 1.2 What procedural obligations rest on the Registry and the National Company Law Tribunal under Rules 28 and 63 of the National Company Law Tribunal Rules, 2016, in relation to scrutiny, re-filing, and rejection of defective petitions, and the necessity of adherence to the newly issued Standard Operating Procedure. 1.3 Whether the question of existence of 'sufficient cause' for delay in curing defects beyond the statutory seven-day period in a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, is to be determined by the Adjudicating Authority, and at what stage of the proceedings this determination must occur. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of repeated re-filing beyond seven days under Rule 28(2) of the National Company Law Tribunal Rules, 2016 Legal framework 2.1 The Court referred to Rule 28 of the National Company Law Tribunal Rules, 2016, which: (i) requires scrutiny of petitions by the Registry; (ii) provides that defective petitions are to be returned for compliance; (iii) mandates that defects be cured within seven days, failing which the matter is to be placed before the Registrar for appropriate orders; and (iv) empowers the Registrar, for sufficient cause, to allow reasonable time or decline registration where defects are not removed within the time fixed. 2.2 The Court relied on the Supreme Court's interpretation in Surendra Trading Company v. Juggilal Kamlapat Jute Mills Company Limited, wherein the time limit for removal of defects was held directory, but coupled with the requirement that if objections are not removed within seven days, the applicant, while re-filing, must file a written application showing sufficient cause for delay, and the adjudicating authority must then decide sufficiency of cause before entertaining the petition on merits, with a corresponding right to dismiss the application if cause is not shown. Interpretation and reasoning 2.3 The petitioner contended that, under Rule 28 read with the law declared in Surendra Trading Company, a petition filed with defects must either have defects cured within seven days, or, where delayed, must be accompanied by an application showing sufficient cause, to be evaluated by the competent authority; in absence of such exercise, the petition ought not to have been registered. 2.4 The affidavit of the Registry (respondent no. 1) acknowledged that the petition in question underwent the re-filing process nine times, with defects repeatedly not cured, and that re-filing had been allowed beyond the statutory seven-day period. It was further stated that the Registry could not, in terms of Rule 28, proceed with registration of a defective petition, but, due to technical limitations in the e-filing module then in operation, the system allowed re-filing beyond seven days and permitted the petition to re-enter the scrutiny workflow. 2.5 The Court recorded the statement that the delay in re-filing in the concerned petition was 612 days and noted the explicit admission that re-filing beyond seven days had been permitted. Conclusions 2.6 The Court did not invalidate the registration of the petition but held that, in view of Rule 28 and the binding law in Surendra Trading Company, re-filing beyond seven days cannot be mechanically permitted; sufficiency of cause for such delay must be judicially examined by the Adjudicating Authority before the petition can be considered on merits. Issue 2 - Procedural obligations of the Registry and Tribunal under Rules 28 and 63 and adherence to the Standard Operating Procedure Legal framework 2.7 The Court considered Rule 28 of the National Company Law Tribunal Rules, 2016 (endorsement, scrutiny, return, rectification, and possible refusal to register defective pleadings) and Rule 63 (providing for appeal against orders of the Registrar), as these rules were expressly adverted to both in the affidavit and in the newly issued Standard Operating Procedure. Interpretation and reasoning 2.8 The Registry explained that the repeated re-filings beyond the seven-day period were not deliberate violations of Rule 28, but a consequence of system-generated permissions in the e-filing module, which allowed re-entry of the matter into the scrutiny workflow despite the expiry of time. 2.9 It was further stated that the National Company Law Tribunal, being a nascent institution, had been addressing procedural and technical challenges, and that in 2023 an improved re-filing module was introduced, restricting re-filing beyond seven days unless condonation was first obtained. 2.10 The Court noted that, to streamline the process, a Standard Operating Procedure dated 19 March 2025 had been issued, which provides, inter alia, that: (a) upon first defect notice, defects must be cured and refiled within seven days; (b) where defects persist or re-filing is not done within seven days, the matter is to be placed before the Registrar under Rule 28(2); (c) the Registrar may, under Rule 28(3), grant a further seven days' time to cure defects; (d) if defects are not cured within such extended period, the Registrar shall decline to register the petition under Rule 28(4); and (e) any party aggrieved by the Registrar's order may prefer an appeal under Rule 63 within 15 days. 2.11 The Court acknowledged that the said SOP was formulated with reference to Rules 28 and 63 to ensure compliance and procedural discipline in filing, scrutiny, and re-filing. Conclusions 2.12 The Court directed that the respondent authority must ensure that the SOP, framed in line with Rules 28 and 63, is scrupulously followed by the Registry and the Tribunal henceforth, thereby regularising and disciplining the filing and re-filing process and preventing uncontrolled re-filings beyond the statutory scheme. Issue 3 - Determination of 'sufficient cause' for delayed removal of defects and sequence of adjudication by the Adjudicating Authority Legal framework 2.13 Relying on the Supreme Court's pronouncement in Surendra Trading Company, the Court reiterated that though the seven-day period for curing defects is directory, the continued maintainability of a petition re-filed beyond seven days is contingent upon the applicant showing 'sufficient cause' in writing for such delay, and upon the adjudicating authority's satisfaction as to that cause before proceeding on merits. Interpretation and reasoning 2.14 The Court observed that the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, which is the subject of the writ petition, already stands registered as a company petition and is pending before the National Company Law Tribunal, New Delhi Bench, with directions already issued by that Bench for filing of written submissions. 2.15 In light of the Supreme Court's guidance, the Court accepted the petitioner's contention that the Adjudicating Authority could consider the petition on merits only after satisfying itself that sufficient cause exists for the delay in removing defects beyond the stipulated seven days. 2.16 The Court held that the question whether sufficient cause has been shown for the 612-day delay in re-filing, in the particular petition, is to be adjudicated by the Adjudicating Authority itself, and that such question must precede consideration of the substantive merits of the Section 7 petition. Conclusions 2.17 The Court directed that the Adjudicating Authority shall first decide the issue whether sufficient cause has been shown in not removing the defects beyond the statutory period of seven days in the concerned petition. Only upon being satisfied that such sufficient cause exists may the Adjudicating Authority proceed to consider the petition on merits; otherwise, it shall have the right to dismiss the petition in terms of the principles laid down in Surendra Trading Company. 2.18 With these directions, including the mandate for strict adherence to the SOP and the requirement that the sufficiency-of-cause issue be decided as a threshold matter by the Adjudicating Authority, the writ petition was disposed of.