2024 (5) TMI 1001 - HC - Insolvency and Bankruptcy

CIRP - Compliance with provisions of Rule 28 of the National Company Law Tribunal Rules, 2016 - timely registration, numbering and disposal of applications filed under Section 94 and Section 95 of Insolvency and Bankruptcy Code, 2016 - extreme delay in compliance with objections and further delay in declining of matters for non-compliance - continuance of interim moratorium against the personal guarantors for an extremely unreasonable period of time - HELD THAT - Rule 28 provides that once a document has been filed by a party, and the registry has scrutinized the documents and objections notified for compliance, the party ought to comply within seven days from the date of return (notification of the objections). In the event there is a failure to comply within seven days, then the document shall be placed before the Registrar who may pass appropriate orders. The pendency of the applications under Section 94 and Section 95 indicate that the Rules are not being complied with in a timely manner - The Section 94 Applications were declined to be registered after being pending on e-filing number for a period of 339 days. The Section 95 Applications was declined to be registered after being pending on e-filing number for a period of 181 days. This indicates that the interim moratorium in these mentioned matters itself was lasting for the said period of time. Considering that interim moratorium commences on e-filing of the applications, i.e., uploading of the document prior to any scrutiny, there is a possibility that parties who have had their applications declined due to failure to comply with the notices and timelines issued by Respondent No. 2, proceed to e-file their applications again. In such cases, the aggrieved persons have a remedy under Rule 63 of the NCLT Rules to prefer an appeal within the period stipulated. Any application which had earlier been dismissed and is refiled without resorting to the due process under law, ought not to be considered valid and shall not be considered as filed for the purposes of Section 96 of the IBC. The same shall be ignored and no cognizance shall be taken of the same. The present petition is disposed of.

Issues Involved:
1. Compliance with Rule 28 of the National Company Law Tribunal (NCLT) Rules, 2016.
2. Delay in registration, numbering, and disposal of applications filed under Section 94 and Section 95 of the Insolvency and Bankruptcy Code (IBC), 2016.
3. Impact of interim moratorium under Section 96 of the IBC on enforcement actions by financial institutions.
4. Alleged misuse of Section 94 and Section 95 provisions by borrowers and personal guarantors.
5. Steps taken by Respondent No. 2 to address compliance issues.

Detailed Analysis:

Compliance with Rule 28 of the NCLT Rules, 2016:
The Petitioner sought orders to compel Respondent No. 2 to comply with Rule 28 of the NCLT Rules, which mandates the timely registration, numbering, and disposal of applications filed under Section 94 and Section 95 of the IBC. Rule 28 stipulates that objections to filings must be addressed within seven days, and failure to comply should result in the Registrar declining to register the document. The court noted that the Respondent No. 2 had not been adhering to these timelines, causing significant delays.

Delay in Registration, Numbering, and Disposal of Applications:
The Petitioner highlighted several instances where applications under Section 94 and Section 95 were pending at the lodging number stage for an unreasonable amount of time, resulting in an extended interim moratorium. This delay hindered the Petitioner from enforcing its rights under the SARFAESI Act. The court acknowledged this issue and laid down specific timelines for Respondent No. 2 to follow, ensuring that objections are notified within seven days and compliance is monitored and enforced promptly.

Impact of Interim Moratorium under Section 96 of the IBC:
The Petitioner argued that the interim moratorium, which commences upon filing an application under Section 94 or Section 95, was being extended indefinitely due to delays in the registration process. This moratorium prevented creditors from initiating or continuing any legal action against the debtor, thereby hampering recovery proceedings. The court recognized this issue and emphasized that the interim moratorium should be for a limited duration, aligning with the legislative intent.

Alleged Misuse of Section 94 and Section 95 Provisions:
The Petitioner contended that borrowers and personal guarantors were misusing the provisions of Section 94 and Section 95 by filing applications and then not complying with objections, thereby enjoying an indefinite interim moratorium. The court acknowledged this concern and noted that such misuse defeats the purpose of the IBC provisions. The court's order aimed to prevent such misuse by ensuring strict compliance with Rule 28 and timely registration and disposal of applications.

Steps Taken by Respondent No. 2 to Address Compliance Issues:
During the pendency of the petition, Respondent No. 2 took several steps to address the compliance issues under Rule 28. Notices were issued to notify parties of objections and deadlines for compliance. The court noted these efforts and provided a detailed timeline for future compliance to ensure that the scheme of the IBC provisions is not defeated by extended interim moratoriums.

Conclusion:
The court laid down a comprehensive process and timeline for Respondent No. 2 to follow to ensure timely registration, numbering, and disposal of applications filed under Section 94 and Section 95 of the IBC. This includes notifying objections within seven days, issuing monthly notices for pending objections, and declining to register non-compliant applications within specified timeframes. The court also emphasized that any refiled applications without following due process should not be considered valid for the purposes of Section 96 of the IBC. The petition was disposed of with these directions, ensuring no order as to costs.

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