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SUPREME COURT OF INDIA
A.K. SIKRI, ASHOK BHUSHAN, JJ.
M/s. Surendra Trading Company - Appellant
Versus
M/s. Juggilal Kamlapat Jute Mills Company Limited & Others - Respondents
Civil Appeal No. 8400 of 2017 & Civil Appeal Nos. 15091-15091 of 2017 (Arising Out of Diary No. 22835 of 2017)
Decided On : 19-10-2017
INSOLVENCY & BANKRUPTCY CODE, 2016 - Section 9(5), Proviso - Corporate insolvency resolution - Requirement of rectification of defect in application within seven days of receipt of notice - Held, Sectiion 12 of Code points out time limit for completion of insolvency resolution process as 180 days, which period can be extended by another 90 days. However, that hardly provide any justification to construe provisions of proviso to Section 9(5) in manner in which it is done. It is to be borne in mind that limit of 180 days mentioned in Section 12 also starts from date of admission of application. Period prior thereto which is consumed, after filing of application under Section 9 (or for that matter under Section 7 or Section 10), whether by Registry of adjudicating authority in scrutinizing application or by applicant in removing defects or by adjudicating authority in admitting application is not to be taken into account. In fact, till objections are removed it is not to be treated as application validly filed in -asmuch as only after application is complete in every respect it is required to be entertained. In this scenario, making period of seven days contained in proviso as mandatory is not justified. No purpose is going to be served by treating this period as mandatory. In given case there may be weighty, valid and justifiable reasons for not able to remove defects within seven days. Notwithstanding same, effect would be to reject application. From another aspect, question is that whether such rejection would be treated as rejecting application on merits thereby debarring application from filing fresh application or it is to be treated as administrative order since rejection was because of reason that defects were not removed and application was not examined on merits. In former case it would be travesty of justice that even if case of applicant on merits is very strong, applicant is shown door without adjudication of his application on merits. If latter alternative is accepted, then rejection of application in first instance is not going to serve any purpose as applicant would be permitted to file fresh application, complete in all aspects, which would have to be entertained. Thus, in either case, no purpose is served by treating aforesaid provision as mandatory. Also, in first stage of filing of application, when application is filed, Registry of adjudicating authority is supposed to scrutinize same to find out as to whether it is complete in all respects or there are certain defects. If it is complete, same shall be posted for preliminary hearing before adjudicating authority. If there are defects, applicant would be notified about those defects so that these are removed. For this purpose, seven days time is given. Once defects are removed then application would be posted before adjudicating authority. First stage has no bearing on insolvency resolution process at all, inasmuch as, unless application is complete in every respect, adjudicating authority is not supposed to deal with same. There is no reason to make it mandatory in respect of first stage, which is pre-adjudication stage. Thus, provision of removing defects within seven days is directory and not mandatory in nature. Interpreting provisions to be directory in nature, at same time, it can be laid down that if objections are not removed within seven days, applicant while refilling application after removing objections, file application in writing showing sufficient cause as to why applicant could not remove objections within seven days. When such application comes up for admission/order before adjudicating authority, it would be for adjudicating authority to decide as to whether sufficient cause is shown in not removing defects beyond period of seven days. Once adjudicating authority is satisfied that such cause is shown, only then it would entertain application on merits, otherwise it will have right to dismiss application.
JUDGMENT :
A.K. Sikri, J.
Permission to file the appeal is granted and delay condoned in Diary No. 22835 of 2017.
2. Though this case has a past history as well, in the instant appeal, we are concerned with the correctness of the order dated May 01, 2017 passed by the National Company Law Appellate Tribunal (hereinafter referred to as, the ‘NCLAT’) whereby it is held that the time of seven days prescribed in proviso to sub-section (5) of Section 9 of the Insolvency and Bankruptcy Code, 2016 (for short, the ‘Code’) is mandatory in nature and if the defects contained in the application filed by the ‘operational creditor’ for initiating corporate insolvency resolution against a corporate debtor are not removed within seven days of the receipt of notice given by the adjudicating authority for removal of such objections, then such an application filed under Section 9 of the Code is liable to be rejected. The precise question of law which was framed by the NCLAT for its decision is to the following effect:
“Whether the time limit prescribed in Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as Code 2016) for admitting or rejecting a petition or initiation of insolvency resolution process is mandatory?”
3. Chapter II of Part II of the Code deals with corporate insolvency resolution process. Under Section 7 of the Code, financial creditor (as per the definition contained in Section 5(7)) can initiate corporate insolvency resolution process. Section 8, on the other hand, deals with insolvency resolution by operational creditor. Operational creditor is defined in Section 5(2) of the Code to mean a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. This Section provides that if ‘default’ has occurred in payment of the said debt within the meaning of Section 2(12), such an operational creditor may send a demand notice to the corporate debtor demanding payment of the amount involved in the default, in the prescribed manner, giving ten days notice in this behalf. The corporate debtor is given ten days time to bring to the notice of the operational creditor about the existence of a dispute, if any, however, send requisite proof for repayment of unpaid operational debt. However, in case the payment is not received or notice of dispute is not received, operational creditor can file an application under Section 9 for initiation of corporate insolvency resolution process. Since we are concerned with this provision, the same is reproduced below in its entirety:
“9. Application for initiation of corporate insolvency resolution process by operational creditor.–
(1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process.
(2) The application under sub-section (1) shall be filed in such form and manner and accompanied with such fee as may be prescribed.
(3) The operational creditor shall, along with the application furnish
“(a) a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor;
(b) an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt;
(c) a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor; and
(d) such other information as may be specified.
(4) An operational creditor initiating a corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional.
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