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The case of Surendra Trading Co. v. Juggilal Kamlapant Jute Millsdeals with the concept laid down under Sec. 9 of the Insolvency and Bankruptcy Code 2016. The confusion that aroused in the present case was how much time has to be given for the rectification of the defect in the application filed by the applicant for the initiation of the insolvency proceedings against the corporate debtor. The court clarified that if the applicant failed to rectify the defect in the application then the court has the power to reject the application on the ground that the objections or the defect has not been rectified.
In the present case, the appellant filed the application against the corporate debtor under Sec. 8 of the code for the recovery of the unpaid debt. However, the application filed failed to comply with the provisions of Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Rule 6 states certain conditions that has to be complied when the application is to be filed under the Insolvency and Bankruptcy Code, 2016. Hence, in order to rectify the default in the application, seven-day time period was given to the applicant so that he can make the application in accordance with Sec. 9(5) of the Code.
As per sub-Sec. (1) of Sec. 9, application can be filed after the expiry of period of ten days from the delivery of notice or invoice demanding payment, which is in tune with the provisions contained in Sec. 8 that gives ten days’ time to the corporate debtor to take any of the steps mentioned in sub-Sec. (2) of Sec. 8.
As per sub-Sec. (2) of Sec. 9, the operational creditor is supposed to file an application in the prescribed form and manner which needs to be accompanied by requisite/prescribed fee as well. Sub-Sec. (3) puts an obligation on the part of the operational creditor to furnish the information stipulated therein. Once such an application is filed and received by the adjudicating authority, fourteen days’ time is granted to the adjudicating authority to ascertain from the records of an information utility or on the basis of other evidence furnished by the operational creditor, whether default on the part of corporate debtor exists or not.
This exercise, as per sub-Sec. (5), is to be accomplished by the adjudicating authority within fourteen days. Sub-Sec. (5) provides two alternatives to the adjudicating authority while dealing with such an application. In case it is satisfied that conditions mentioned in clause (i) of Sec. 9(5) are satisfied, the adjudicating authority may pass an order admitting such an application. On the other hand, if the adjudicating authority finds existence of any eventuality stated in sub-Sec. (2), it may order rejection of such an application.
The issue raised in the present case are as follows:
- Whether the time limit given for the admitting or rejecting of the application under the provisions of the Insolvency and Bankruptcy Code 2016 is mandatory in nature or not?
- Whether the time period of fourteen days which is given to the adjudicating authority for ascertaining the existence of the default and then admitting or rejecting the application is mandatory in nature or can be treated as directory in nature?
The following points has been raised in the present case were as follows:
- One of the conditions which is to be fulfilled in order to file the application that the application has to be complete in all aspects. It is the duty of the adjudicating authority to satisfy that the application filed is complete in all aspect. If there is any defect in the application filed, then the same should be given for the rectification within the specified time period. Hence, before rejecting the application, the adjudicating authority must give the time period of seven days for the rectification of same. This condition is laid down under Sec. 9 (2) of the code.
- As per Sec. 9(5) of the Code, two time periods were given. As per the first time period, the adjudicating authority has the duty to take decision within fourteen days of filing of the application whether to admit the application or reject the same. The second timeline states the time period that has to be given to the applicant for the rectification of the defect in the application filed by him. This time period is comprised of seven days. If the applicant failed to rectify the defect in the application then in that case, the application will be get rejected for the same grounds.
- It was further raised that the NCLAT has to record the reason in writing while disposing off or an order is not passed within the specified time period as given under the code. If the President of NCLAT is satisfied with the reason of the delay caused then in such case, extension of the time period can be given.
- After the admission of the application, the adjudicating authority has to appoint an interim resolution professional according to the provisions laid down under the Act. The appointment of the interim resolution professional should be made within the time period of fourteen days as given under Sec. 9 of the Code. Once the appointment of IRP takes place, the meeting of the committee of creditors will take place, this should be taken place within seven days of the appointment of the IRP. The committee of creditors will then have to take decision regarding making of the interim resolution professional as a resolution professional or not. The Resolution Professional then will have to carry on the insolvency proceedings against the corporate debtor.
- The insolvency resolution process will have to be completed within one hundred and eighty days.
It was held by the Hon’ble Court that the appeals would be allowed, and the time period of seven days will be given in order to allow the applicants to rectify the defect within seven days.
The court in this case held the following points:
- The court in this case held that the provision of time period given for seven days for the rectification of the defect in the application is directory in nature and not mandatory. In other words, the court has the power to decide the time period that is to be given to the applicant in order to rectify the defect if there is any, in the application. The maximum period that can be given for such rectification shall not be more than seven days from the filing of the application.
- The court further held that, there are cases in which the applicants does not rectify the defects with the purpose of delaying the proceedings of the court, then to avoid such situation, if the defects or the objections is not raised or rectified within the seven days’ time period then in such cases, the tribunal has the power to reject the application on this ground.
- It was further held that once the adjudicating authority is satisfied that all the rules and conditions as laid down under the code are compiled then in such cases, the adjudicating authority can admit the application and then carry on the remaining proceedings as given under Sec. 9 of the Code.
The appeal filed in the present case clarified the concept of the proceedings that has to be carried out as per the provisions of the Code. The confusion that aroused in the present case was how much time has to be given for the rectification of the defect in the application filed by the applicant for the initiation of the insolvency proceedings against the corporate debtor. The court clarified that if the applicant failed to rectify the defect in the application then the court has the power to reject the application on the ground that the objections or the defect has not been rectified. The timeline given under Sec. 9 of the code further laid down the time period for the National Company Law Tribunal to give the order after the application is filed with them.
This time period is of fourteen days. Within these fourteen days the tribunal after satisfying that the application is filed as per the conditions laid down under the Code, can appoint the interim resolution professional to carry out the insolvency proceedings as per the rules laid down under the code.
The present case also clarified the power of the adjudicating authority established under the code, to reject or dismiss the application of the applicant if the same has not been complied with the provisions of the code. It further laid down the duty on the tribunal to write down the reason if any delay is caused in passing of the order and the time period of fourteen days has been elapsed. The President of the National Company Law Appellate Tribunal (NCLAT) has the power to allow for the extension of the time period if he is satisfied that the delay caused has a genuine reason behind it.