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2024 (8) TMI 1152
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.... Honey Satpal, Mr. Nipun Singhvi, Ms. Rajshree Chaudhary, Ms. Diksha Dadu, Mr. Vishal J. Dave, Ms. Nandini Choudha and Mr. Yash Dhyani, Advocates JUDGMENT ASHOK BHUSHAN, J. These two Appeals have been filed against the same Order dated 06.06.2024 passed by the Learned Adjudicating Authority (National Company Law Tribunal, Ahmedabad, Division Bench, Court - I) by which Order, I.A. No. 769/(AHM)/2024 filed by the Resolution Professional (`RP') praying for extension of period of Pre-Package Insolvency Resolution Process (`PPIRP') for 60 days has been rejected. 2. Comp. App. (AT) Ins. No. 1173/2024 has been filed by the RP of Kethos Tiles Pvt. Ltd. and Comp. App. (AT) Ins. No. 1323/2024 has been filed by the Promotor of Kethos Tiles Pvt. Limited. 3. Brief facts necessary for deciding these Appeals are: i. M/s. Kethos Tiles Pvt. Ltd., a Micro Small & Medium Enterprises (`MSME') had filed an Application under Section 54C of Insolvency and Bankruptcy Code, 2016, (for short `The IBC') to initiate PPIRP of the Corporate Debtor. ii. The Adjudicating Authority vide Order dated 04.01.2024, initiated PPIRP of the Corporate Debtor. Vikas Gautam Chand Jain was app....
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.... for extension was filed by the RP pursuant to resolution passed by the CoC. It is submitted that provisions of Section 54D providing for completion of PPIRP cannot be read as mandatory, automatically terminating the PPIRP. It is submitted that the Scheme of the Code itself indicate that Court has to pass Order for termination of proceeding on an Application filed by the RP. When the Court has been given power to pass an Order for terminating the process, there is no concept of automatic termination of PPIRP and Court cannot be held to lack jurisdiction to extend the period of PPIRP for reasonable period on valid grounds. It is submitted that IBC contains various provisions which uses the expression "shall" but the Hon'ble Supreme Court and this Tribunal while interpreting the said provisions have held the provisions as directory. Learned Counsel for the Appellant has referred to provisions of Section 7(5) proviso, Section 9(5) proviso and Section 10(4) proviso, which uses expression "shall". It is submitted that Hon'ble Supreme Court held the said provisions directory. Learned Counsel for the Appellant referred to various other provisions of IBC and the Regulations which although ....
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....s, job preservation. 3. In the aforesaid circumstances, it has become necessary to amend the Code to provide for pre-packaged insolvency resolution process. However, as the Parliament was not is session and immediate action was required to be taken, the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021, was promulgated by the President on the 4th day of April, 2021. 4. The Insolvency and Bankruptcy Code (Amendment) Bill, 2021, that seeks to replace the Ordinance, inter alia, provides for - (a) specifying a minimum threshold of not more than one crore rupees for initiating pre-packaged insolvency resolution process; (b) disposal of simultaneous applications for initiation of corporate insolvency resolution process and pre-packaged insolvency resolution process, pending against the same corporate debtor; (c) inserting a new Chapter III-A containing sections 54-A to 54-P to facilitate pre-packaged insolvency resolution process for corporate persons that are Micro, Small and Medium Enterprises; (d) penalty for fraudulent or malicious initiation of pre-packaged insolvency resolution process or with intent to defraud persons;....
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....ority,- (a) under the proviso to sub-section (12) of section 54K; or (b) under sub-section (3) of section 54D, the Adjudicating Authority shall, within thirty days of the date of such application, by an order,- (i) terminate the pre-packaged insolvency resolution process; and (ii) provide for the manner of continuation of proceedings initiated for avoidance of transactions under Chapter III or proceedings initiated under section 66 and section 67A, if any. (2) Where the resolution professional, at any time after the pre-packaged insolvency commencement date, but before the approval of resolution plan under sub-section (4) or sub-section (12), as the case may be of section 54K, intimates the Adjudicating Authority of the decision of the committee of creditors, approved by a vote of not less than sixty-six per cent. of the voting shares, to terminate the pre-packaged insolvency resolution process, the Adjudicating Authority shall pass an order under sub-section (1). (3) Where the Adjudicating Authority passes an order under sub-section (1), the corporate debtor shall bear the pre-packaged insolvency resolution process costs, if an....
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....present case. 16. It is relevant to notice that in the present case, base Resolution Plan was submitted by the Corporate Debtor which was up for consideration and the revised base Resolution Plan was also submitted before the Adjudicating Authority. Adjudicating Authority itself noted in Paragraph 4 of the Order various works which have been carried out in the PPIRP. In Paragraph 5, it was noted by the Adjudicating Authority that CoC in its 3rd Meeting held on 30.04.2024 resolved with 91.75% both to file an Application for extension of time for 60 days. In Paragraphs 5 & 6 of the Impugned Order following has been noticed: "5. It is stated that the RP called 3rd meeting of CoC on 30.04.2024. The members of CoC stated that revised base resolution plan submitted by the Corporate Debtor is under consideration. In the said meeting, the CoC noted that the period of PPIRP comes to an end on expiry of 120 days from the date of admission of PPIRP. The CoC further noted that period of PPIRP was expired on 03.05.2024 and the CoC requested the RP to file an application seeking extension of PPRIP period of 60 days. The resolution for seeking extension of PPIRP period was passed with....
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....upreme Court laid down as follows: "24. Further, we are of the view that the judgments cited by Nclat and the principle contained therein applied while deciding that period of fourteen days within which the adjudicating authority has to pass the order is not mandatory but directory in nature would equally apply while interpreting the proviso to sub-section (5) of Section 7, Section 9 or sub-section (4) of Section 10 as well. After all, the applicant does not gain anything by not removing the objections inasmuch as till the objections are removed, such an application would not be entertained. Therefore, it is in the interest of the applicant to remove the defects as early as possible. 25. Thus, we hold that the aforesaid provision of removing the defects within seven days is directory and not mandatory in nature. However, we would like to enter a caveat." 19. We may also notice the Judgment of the Hon'ble Supreme Court in the matter of `Committee of Creditors of Essar Steel India Ltd.' Vs. `Satish Kumar Gupta & Ors.' in (2020) 8 SCC 531, in which case Hon'ble Supreme Court had occasion to consider the provisions of Section 12 of the IBC. Section 12 of the IBC ca....
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....ot be ascribed to the litigants before the Adjudicating Authority and/or Appellate Tribunal, the delay or a large part thereof being attributable to the tardy process of the Adjudicating Authority and/or the Appellate Tribunal itself, it may be open in such cases for the Adjudicating Authority and/or Appellate Tribunal to extend time beyond 330 days. Likewise, even under the newly added proviso to Section 12, if by reason of all the aforesaid factors the grace period of 90 days from the date of commencement of the Amending Act of 2019 is exceeded, there again a discretion can be exercised by the Adjudicating Authority and/or Appellate Tribunal to further extend time keeping the aforesaid parameters in mind. It is only in such exceptional cases that time can be extended, the general rule being that 330 days is the outer limit within which resolution of the stressed assets of the corporate debtor must take place beyond which the corporate debtor is to be driven into liquidation." 21. 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 hel....
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....in the matter of `State of Uttar Pradesh' Vs. `Manbodhan Lal Shrivastava' reported in AIR 1957 SC 912 laid down following: "...Hence, the use of the word 'shall' in a statute, though generally taken in a mandatory sense, does not necessarily mean that in every case it shall have that effect, that is to say, that unless the words of the statute are punctiliously followed, the proceeding, or the outcome of the proceeding, would be invalid. On the other hand, it is not always correct to say that where the word "may" has been used, the statute is only permissive or directory in the sense that noncompliance with those provision will not render the proceeding invalid. In that connection, the following quotation from Crawford on 'Statutory Construction'.art.261 at p. 516, is pertinent: "The question as to whether a statute is mandatory or directory depends upon the intent of the legislature and not upon the language in which intent is clothed. The meaning and intention of the legislature must govern, and these are to be ascertained, not only from the phraseology of the provisions but also by considering its nature, its design, and the consequences which would follow from....
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....are question relating to each case and has to be examined on case to case basis and if there are reasons due to which Resolution Professional could not file the Application within time the same has to be examined on merit." 26. Learned Counsel for the Appellant has relied on various other Judgments interpreting the provisions of Regulations held as directory whereas the Regulation uses the expression "shall". The Hon'ble Supreme Court has laid down that the use of expression "shall" or "may" is not conclusive and by use of expression "shall" it cannot be concluded that provision is mandatory. 27. We may refer to the Judgment of the Hon'ble Supreme Court in the matter of `Bachanan Devi & Anr.' Vs. `Nagar Nigam, Gorakhpur & Anr.' in (2008) 12 SCC 372. In Paragraphs 21 & 22, following was laid down: "21. The ultimate rule in construing auxiliary verbs like "may" and "shall" is to discover the legislative intent; and the use of the words "may" and "shall" is not decisive of its discretion or mandates. The use of the words "may" and "shall" may help the courts in ascertaining the legislative intent without giving to either a controlling or a determinating effect. The cour....
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.... Prasad Sinha v. District Magistrate of Monghyr [AIR 1966 Pat 144 : ILR 45 Pat 436 (FB)] , Nomita Chowdhury v. State of W.B. [(1999) 2 Cal LJ 21] and Garbari Union Coop. Agricultural Credit Society Ltd. v. Swapan Kumar Jana [(1997) 1 CHN 189] .) 49. Furthermore, a provision in a statute which is procedural in nature although employs the word "shall" may not be held to be mandatory if thereby no prejudice is caused. (See Raza Buland Sugar Co. Ltd. v. Municipal Board, Rampur [AIR 1965 SC 895 : (1965) 1 SCR 970] , State Bank of Patiala v. S.K. Sharma [(1996) 3 SCC 364 : 1996 SCC (L&S) 717] , Venkataswamappa v. Special Dy. Commr. (Revenue) [(1997) 9 SCC 128] and Rai Vimal Krishna v. State of Bihar [(2003) 6 SCC 401] .)" 29. When we look 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, eve....