May 04, 2017

Insolvency and Bankruptcy Code (IBC) Case Law Alert

1. Time is the essence of IBC, but it is to be seen whether on failure to do so, the Adjudicating Authority is competent to pass appropriate order.
2. Relying on various Supreme Court judgments, NCLAT has also affirmed that where Adjudicating Authority has to perform a statutory function like admitting or rejecting an application within a time prescribed, the time period would have to be held to be directory and not mandatory.
3. It has also been observed by NCLAT that “the Code empowers adjudicating authority to pass orders under Section7, 9 and 10 of the Code, 2016 and not the NCLT”. As a reason thereof, NCLAT is of the view that section 420 of the Companies Act, 2013 (which deals with the orders of NCLT but do not prescribe any specific time limit for passing orders), cannot be transposed into IBC by reading “orders of tribunal” as “orders of adjudicating authority”.  
4. The time period of 14 days prescribed under Section 7(4), section 9(5) and section 10(4) of IBC are to be counted from the date on which the application is listed for admission/order and not from the date of filing of the application.
5. The mandate upon the adjudicating authority to admit/ reject application under section 7(5), section 9(5) or section 10(4) of IBC is procedural in nature, a tool of aid in expeditious dispensation of justice and is directory.
6. However, 7 days’ period for rectification of defects by the applicant, as stipulated under proviso to section 7(5) or proviso to section 9(5) or proviso to section 10(4) of IBC, are mandatory, and on failure of the same, applications are fit to be rejected.
7. The time limit granted under section 12 of IBC for completion of corporate insolvency resolution process i.e. 180 days from the date of admission of the application with an extension of 90 days, are held to be mandatory.
8. Also, it has been observed by NCLAT that the term allowed to interim resolution professional is 30 days, thereby he cannot exceed 30 days from the date of his appointment as per section 16(5) of IBC. However, as the regular resolution professional starts functioning on completion of period of interim resolution professional, the performance of the duties of interim resolution professional cannot be held to be mandatory though the period is required to be counted for completion of the interim resolution process i.e. 180 days and in appropriate case another 90 days can be granted i.e. maximum 270 days which is mandatory.
9. NCLAT has also referred to the decision of Hon’ble Supreme Court in Union of India Vs. Popular Construction Co. wherein the apex court has held that when the legislature has prescribed a special limitation for the purpose of the appeal, the Court cannot entertain an application beyond the extended period, if prescribed therein. Relying on the aforesaid, NCLAT has held that the ratio of the above judgment cannot be said to be applicable on the procedural part of section 7 or section 9 or section 10. However, NCLAT, by applying the said judgment, has held that section 64 of IBC to be mandatory. Section 64 of IBC mandates NCLT/ NCLAT Bench to record the reasons for not disposing of the application/ passing the order within the time limit prescribed under relevant provision of IBC and also seek assent of the President of NCLT/ Chairperson of NCLAT, whichever applicable, for extending the period specified in the Code for disposing of the application/ passing the order by not exceeding 10 days from the period specified under the Code.
10. NCLAT has also observed that in the facts of the case before them, the Adjudicating Authority, in spite of time frame, has taken the matter very leisurely and lightly. Adjudicating Authority has unnecessarily adjourned the case from time to time which is against the essence of the Code.
11. Appeal by the corporate debtor in the said case was allowed and the application under section 9 of IBC filed by the operational creditor was rejected as the operational creditor (applicant) had not cured the defects in the application within 7 days as stipulated under IBC.