TaxTMI 
TaxTMI 
2017 (6) TMI 254
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....properties. 3. The question involved in this case is: Whether the time limit prescribed in Insolvency 85 Bankruptcy Code, 2016 (hereinafter referred to as Code 2016) for admitting or rejecting a petition or initiation of insolvency resolution process is mandatory? 4. The brief fact of the case are as follows: - The Respondent/'operational creditor' - Surendra Trading Company issued a Demand notice under section 8 of the 'Code' on 6th January 2017 to the appellant/'Corporate Debtor' raising claim of dues pertaining to the year 2001-2002. 5. The appellant/'Corporate Debtor' by letter dated 25th January 2017 objected the claim as 'time barred'. Thereafter, the respondent/'Operational Creditor' filed a petition under section 9 of the 'Code', before the Adjudicating Authority, Allahabad on 10th February 2017. In the said application the adjudicating authority passed the interim order. 6. According to appellant, the petition under section 9 was filed without following the mandatory provision of sub-rule (2) of Rule 6 of "Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules 2016" (hereinafter refe....
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.... the 'Code' and, therefore, it has no power to grant stay of sale of assets or 'status quo' in regard to any assets. 12. It was further contended that no prayer having been made by the 'operational creditor' to grant stay, it was not open to the Adjudicating Authority to pass interim order of status quo. 13. It was further contended that the Adjudicating Authority has no inherent jurisdiction under the 'Code' to pass any ad interim order. 14. Learned counsel for the appellant highlighted the defects in the Demand notice dated 6th January 2017 as was sent by respondent/'operational creditor'. It was also contended that the petition under Section 9 is barred by law of limitation. 15. On the other hand according to Learned counsel for the respondent/'operational creditor' 14 days' time limit prescribed under section 9 of the 'Code' for passing orders of admission or rejection of application is directory; it is not mandatory. It was also contended that the court should avoid any construction of an enactment which will lead to an unworkable, inconsistent or impracticable results. Reliance was placed on Hon'ble S....
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.... the Insolvency and Bankruptcy Code, 2016. 23. 'Corporate Insolvency Resolution Process' can be initiated under different provisions of the Code, such as under section 7 by 'financial creditor', under section 9 by 'operational creditor' and under section 10 by the 'Corporate applicant'. Though procedures after 'admission' of Insolvency Resolution Process is almost common, the legislature prescribed different time limit for admission or rejection of the petitions. 24. For initiation of Insolvency Resolution Process by 'financial creditors' under section 7, the Adjudicating Authority is allowed 14 days of the receipt of the application to ascertain the existence of a default from the records with information utility or on the basis of other evidence furnished by the financial creditors; under sub-section (5) of Section 7 before or after 14 days, if Adjudicating Authority is satisfied that a default has occurred and the application under sub-section (2) of section 7 is complete and there is no disciplinary proceedings pending against the proposed resolution professional, the Adjudicating Authority is required to admit the applicati....
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....ication under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub- section (5). (7) The Adjudicating Authority shall communicate- (a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor; (b) the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be." 25. On the contrary in the case of 'operational creditors' under sub-section (5) of section 9, within 14 days of the receipt of the application the 'Adjudicating Authority' is required to either admit the application, if complete or reject the application, if not complete or may grant 7 days' time from the date of receipt of notice to the operational creditor to rectify the defect, as evident from section 9 and reads as follows:- "Section 9. Application for initiation of corporate insolvency resoluti....
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....made under sub-section (2) is incomplete; (b) there has been repayment of the unpaid operational debt; (c) the creditor has not delivered the invoice or notice for payment to the corporate debtor; (d) notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility; or (e) any disciplinary proceeding is pending against any proposed resolution professional: Provided that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section." 26. Similarly in the case of initiation of Corporate Insolvency Resolution Process by 'corporate applicant', like sub-section (5) of section 9, the Adjudicating Authority, within a period of 14 days of the receipt of the application, by an order required to admit the application, if ....
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.... National Company Law Appellate Tribunal, as the case may be, shall record the reasons for not doing so within the period so specified; and the President of the National Company Law Tribunal or the Chairperson of the National Company Law Appellate Tribunal, as the case may be, may, after taking into account the reasons so recorded, extend the period specified in the Act but not exceeding ten days." 28. There are other time limit prescribed under the 'Code' such as section 16(1) in terms of which the Adjudicating Authority is required to appoint an interim resolution professional within 14 days from the insolvency commencement date (admission of the case). Under sub-section (5) of section 16, the term of the interim resolution professional cannot exceed 30 days from the date of appointment, as evident from relevant provisions, which reads as follows:- "Section 16. Appointment and tenure of interim resolution professional. (1) The Adjudicating Authority shall appoint an interim resolution professional within fourteen days from the insolvency commencement date. (2) Where the application for corporate insolvency resolution process is made by a financial creditor or ....
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....ess beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of seventy-five per cent, of the voting shares. (3) On receipt of an application under sub-section (2), if the Adjudicating Authority is satisfied that the subject matter of the case is such that corporate insolvency resolution process cannot be completed within one hundred and eighty days, it may by order extend the duration of such process beyond one hundred and eighty days by such further period as it thinks fit, but not exceeding ninety days: Provided that any extension of the period of corporate insolvency resolution process under this section shall not be granted more than once." 30. Before expiry of the insolvency resolution process of the maximum period permitted for completion under section 12 if the Adjudicating Authority does not receive a resolution plan, under section 33 the Adjudicating Authority is required to pass an order requiring the Corporate Debtor to be liquidated in the manner as laid down in the said chapter. For proper appreciation, section 33 of the Code is quoted below: "33. Initiation of liquidation. - (1)....
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....ous occasions interpreted the word 'shall' to mean 'may'. An analogous position can be found in the context of the time period prescribed for filing Written Statements by Defendants to a suit, wherein, the Hon'ble Apex Court was faced with the question of a Court's power to take on record Written Statements that were filed beyond the period of 90 days, as prescribed under Order VIII Rule 1 of the Code of Civil Procedure, 1908. In this regard, the Hon'ble Supreme Court in Kailash v. Nanhku [2005] 4 SCC 480 held as under:- "27. Three things are clear. Firstly, a careful reading of the language in which Order 8 Rule 1 has been drafted, shows that it casts an obligation on the defendant to file the written statement within 30 days from the date of service of summons on him and within the extended time falling within 90 days. The provision does not deal with the power of the court and also does not specifically take away the power of the court to take the written statement on record though filed beyond the time as provided for. Secondly, the nature of the provision contained in Order 8 Rule 1 is procedural. It is not a part of the substantive law. Thirdly,....
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....l ER 524 : 1966 AC 643 : (1966) 2 WLR 634 (HL)]). A procedural law should not ordinarily be construed as mandatory; the procedural law is always sub-servient to and is in aid to justice. Any interpretation which eludes or frustrates the recipient of justice is not to be followed. (See Shreenath v. Rajesh [(1998) 4 SCC 543 : AIR 1998 SC 1827].) 14. Processual law is not to be a tyrant but a servant, not an obstruction but an aid to justice. Procedural prescriptions are the handmaid and not the mistress, a lubricant, not a resistant in the administration of justice." 35. Sub-section (2) of section 7, sub-section (2) of section 9 and sub-section (2) of section 10 deals with the form and manner in which respective applications under sections 7, 9 and 10 ought to be filed along with such process fee as may be prescribed. This is a procedural matter to be verified by the Registry of the NCLT. 36. Sub-section (1) of Section 5 defines "adjudicating authority" for the purpose of that part means "National Company Law Tribunal", (NCLT) constituted under Section 408 of the Companies Act, 2013 (18 of 2013). 37. We have noticed that Code, empowers 'adjudicating authority....
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....ing Authority under the provisions of the Code cannot be counted from the 'date of filing of the application' but from the date when such application is presented before the Adjudicating Authority i.e. 'the date on which it is listed for admission/order. 40. In the present scenario, the Insolvency Bankruptcy Code do not bar or render the Adjudicating Authority powerless to admit an application or rejecting the application. 41. Further, nature of the provisions contained in sub-section (5) of section 7 or sub-section (5) of section 9 and sub-section (4) of section 10 of the 'Code' like Order VIII, rule 1 being procedural in nature cannot be treated to be a mandate of law. 42. The object behind the time period prescribed under sub-section (5) of section 7, sub-section (5) of section 9 and sub-section (4) of section 10, like Order VIII, Rule 1 of CPC is to prevent the delay in hearing the disposal of the cases. The Adjudicating Authority can not ignore the provisions. But in appropriate cases, for the reasons to be recorded in writing, it can admit or reject the petition after the period prescribed under section 7 or section 9 or section 10. 43. Thus, i....
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....to act as an interim resolution professional. It may or may not propose. In such case, the Adjudicating Authority will nominate insolvency resolution professional as recommended by the Board on reference from the Adjudicating Authority. This process also may take some time after admission of the case and therefore, it is clear that the procedural part of section 7 or section 9 or section 10 are directory in nature. 48. We have noticed the decision of Hon'ble Supreme Court in Union of India v. Popular Construction Co. [2002] 37 SCL 622. In the said case, Hon'ble Supreme Court was deciding the question regarding extension of time period beyond the time prescribed in the statutes and held when the legislatures prescribed a special limitation for the purpose of the appeal, the Court cannot entertain an application beyond the extended period, if prescribed therein. 49. The aforesaid decision of the Hon'ble Supreme Court in Popular Construction Co. case (supra) cannot be said to be applicable to procedural part of section 7 or section 9 or section 10, though it is applicable to section 64 which mandates extension of period not beyond 10 days as also to sub-sections (3) ....