2017 (6) TMI 254 - AT - Insolvency and Bankruptcy

Initiation of insolvency resolution process - Incomplete application - Held that - As a judicial authority, in case the application is incomplete, it is also empowered to decide whether to grant 7 days time to rectify the defects. In case the applications are admitted and resolution process starts, the Adjudicating Authority is required to pass judicial order under sections 13 and 14 of the Code and may order for public announcement in terms section 15 and then to oversee the resolution process and finally, if so required, to pass order for liquidation. The time period of 14 days prescribed under sub-section (4) of section 7, sub-section (5) of section 9 and sub-section (4) of section 10 are to be counted from the date of receipt of application. The word date of receipt of application cannot be treated to be date of filing of the application . We have noticed that the Registry is required to find out whether the application is in proper form and accompanied with such fees as may be prescribed. So, the Registry will take certain time and during such period, the applications are not brought to the notice of the Adjudicating Authority . Therefore, 14 days period granted to the Adjudicating 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. 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. We hold that the proviso to sub-section (5) of section 7 or proviso to sub-section (5) of section 9 or proviso to sub-section (4) of section 10 to remove the defect within 7 days are mandatory, and on failure applications are fit to be rejected. Further, we find that the application was defective, and for the said reason the application was not admitted within the specified time. Even if it is presumed that 7 days additional days time was to be granted to the operational creditor, the defects having pointed out on 16th February 2017 and having not taken care within time, we hold that the petition under section 9 filed by respondent/operational creditor being incomplete was fit to be rejected. For the reasons aforesaid, we direct the Adjudicating Authority to reject and close the Petition preferred by Respondents. After we reserved the judgment if any order has been passed by the Adjudicating Authority, except order of dismissal, if any, are also declared illegal.

Issues Involved:
1. Whether the time limit prescribed in the Insolvency and Bankruptcy Code, 2016 (Code 2016) for admitting or rejecting a petition or initiation of insolvency resolution process is mandatory.
2. Whether the Adjudicating Authority has the inherent jurisdiction to pass ad interim orders.
3. Whether the petition under Section 9 of the Code was barred by the law of limitation.
4. Whether the defects in the Demand notice dated 6th January 2017 rendered the petition under Section 9 invalid.

Issue-wise Detailed Analysis:

1. Mandatory Nature of Time Limits in Code 2016:
The primary issue was whether the time limits prescribed under the Insolvency and Bankruptcy Code, 2016 for admitting or rejecting a petition are mandatory. The Tribunal analyzed various sections of the Code, including Sections 7, 9, and 10, which prescribe a 14-day period for the Adjudicating Authority to admit or reject an application. The Tribunal noted that the procedural nature of these provisions suggests they are directory rather than mandatory. The Tribunal cited the Supreme Court's judgment in P.T. Rajan v. T.P.M. Sahir, which held that statutory time limits for performing functions should be considered directory if no prejudice is caused. The Tribunal concluded that the 14-day period is directory, allowing the Adjudicating Authority to admit or reject applications beyond this period if necessary.

2. Inherent Jurisdiction to Pass Ad Interim Orders:
The appellant contended that the Adjudicating Authority had no inherent jurisdiction under the Code to pass any ad interim orders, such as granting a stay or maintaining the status quo. The Tribunal observed that under Rule 11 of the NCLT Rules 2016, the Adjudicating Authority is empowered to provide substantial justice to the parties. Therefore, the Tribunal held that the Adjudicating Authority has the inherent jurisdiction to pass ad interim orders to prevent the alienation of assets and ensure justice.

3. Law of Limitation:
The appellant argued that the petition under Section 9 was barred by the law of limitation, as the claim pertained to dues from 2001-2002. The Tribunal noted that the Adjudicating Authority had asked the operational creditor to clarify whether the claim was barred by limitation and whether any recovery proceedings were initiated earlier. The Tribunal emphasized the importance of adhering to the limitation period and held that the petition should have been rejected if it was time-barred.

4. Defects in the Demand Notice:
The appellant highlighted defects in the Demand notice dated 6th January 2017, contending that the petition under Section 9 was invalid due to these defects. The Tribunal observed that the operational creditor had not rectified the defects within the stipulated 7-day period. The Tribunal held that the 7-day period for rectifying defects is mandatory, and failure to comply with this requirement renders the application fit for rejection. Consequently, the Tribunal directed the Adjudicating Authority to reject the petition filed by the operational creditor due to the incomplete application and the failure to rectify defects within the prescribed time.

Conclusion:
The Tribunal concluded that the time limits prescribed under Sections 7, 9, and 10 of the Code are directory, not mandatory. However, the 7-day period for rectifying defects is mandatory. The Tribunal directed the Adjudicating Authority to reject the petition filed by the operational creditor and declared any orders passed after the judgment was reserved, except for orders of dismissal, as illegal. The appeal was allowed without any order as to costs.

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