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TMI Blog2017 (6) TMI 254X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy and Bankruptcy (Application to Adjudicating Authority) Rules 2016 (hereinafter referred to as 'Adjudicating Authority Rules'). 7. The case was listed before Adjudicating Authority on 16th February 2016 but there being defects, learned counsel for the operational creditor sought time to rectify the defects as also to receive instructions about the stage of proceedings pending before BIFR though such proceeding stood abated by virtue of Companies Act 2013. 8. The 'Adjudicating Authority' noticed that the debt due for payment was defaulted in the year 2004. The 'operational creditor' was asked to clarify whether the claim is barred by law of limitation and whether any recovery proceedings were earlier initiated by the operational creditor before any competent court of Law or was deferred or stayed under the provisions of 'Sick Companies Rehabilitation Act 1985'. The matter was ordered to be listed on 28th February 2017 for removal of objection and procedural defects. 9. On 28th February 2017, counsel for the operational creditor sought more time for filing formal memo by providing/furnishing of the latest order passed by BIFR. The appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unworkable, inconsistent or impracticable results. Reliance was placed on Hon'ble Supreme Court's decision in H.S.Vankani v. State of Gujarat, AIR 2010 SC 1714 . 16. Referring to different situation, learned counsel for the respondent/'operational creditor' further submitted that if 14 days' period prescribed under section sub-section (5) of section 9 is considered as mandatory, it will result in numerous anomalous situations which is not the intention of the legislature in drafting the Code. 17. Further, according to learned counsel for respondent/'operational creditor 7 days' period for curing of defects is independent of the 14 days' period for prescribed under sub-section (5) of section 9 before admission or rejection of the application. 18. The case was heard on merit and judgement was reserved on 28th March 2017. The Adjudicating Authority in the meantime was given liberty to decide the question of maintainability of the petition and the contentions as raised in this appeal. 19. In the written submissions, it has been brought to the notice of this court that the Adjudicating Authority fixed 5th April 2017 as the date for hearing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed resolution professional, the Adjudicating Authority is required to admit the application. On the contrary, if the default has not occurred or the application is not complete then the Adjudicating Authority is required to dismiss the petition. However, in case of incomplete application the Adjudicating Authority is required to grant seven days' time to the applicant/financial creditor to rectify the defect. The Section 7 reads as follows:- Section 7. Initiation of corporate insolvency resolution process by financial creditor - (1) A financial creditor either by itself or jointly with other financial creditors may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation. -For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under sub- section (1) in such form and manner and accompanied with such fee as may be prescribed. (3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application if it is incomplete. However, before rejecting the application it is required to give notice and corporate applicant can be allowed 7 days' period to rectify the defects. This is evident from sub-section (4) of section 10, as quoted below: Section 10. Initiation of corporate insolvency resolution process by corporate applicant. (1) Where a corporate debtor has committed a default, a corporate applicant thereof may file an application for initiating corporate insolvency resolution process with the Adjudicating Authority. (2) The application under sub-section (1) shall be filed in such form, containing such particulars and in such manner and accompanied with such fee as may be prescribed. (3) The corporate applicant shall, along with the application furnish the information relating to- (a) its books of account and such other documents relating to such period as may be specified; and (b) the resolution professional proposed to be appointed as an interim resolution professional. (4) The Adjudicating Authority shall, within a period of fourteen days of the receipt of the application, by an order- (a) admit the applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the resolution professional, as proposed respectively in the application under section 7 or section 10, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him. (3) Where the application for corporate insolvency resolution process is made by an operational creditor and- (a) no proposal for an interim resolution professional is made, the Adjudicating Authority shall make a reference to the Board for the recommendation of an insolvency professional who may act as an interim resolution professional; (b) a proposal for an interim resolution professional is made under sub-section (4) of section 9, the resolution professional as proposed, shall be appointed as the interim resolution professional, if no disciplinary proceedings are pending against him. (4) The Board shall, within ten days of the receipt of a reference from the Adjudicating Authority under sub-section (3), recommend the name of an insolvency professional to the Adjudicating Authority against whom no disciplinary proceedings are pending. (5) The term of the interim resolution professional shall not exceed thirty days from date of his appoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity, - (a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not receive a resolution plan under sub-section (6) of section 30; or (b) rejects the resolution plan under section 31 for the non- compliance of the requirements specified therein, it shall- (i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter; (ii) issue a public announcement stating that the corporate debtor is in liquidation; and (iii) require such order to be sent to the authority with which the corporate debtor is registered. 31. From the aforesaid provisions we find that time is the essence of the Insolvency and bankruptcy Code 2016, but it is to be seen whether on failure to do so, the Adjudicating Authority is competent to pass appropriate order. Further in case resolution process is not completed within the time prescribed as per section 33 it will lead to initiation of liquidation proceedings, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pe is to curb the mischief of unscrupulous defendants adopting dilatory tactics, delaying the disposal of cases much to the chagrin of the plaintiffs and petitioners approaching the court for quick relief and also to the serious inconvenience of the court faced with frequent prayers for adjournments. The object is to expedite the hearing and not to scuttle the same. The process of justice may be speeded up and hurried but the fairness which is a basic element of justice cannot be permitted to be buried. 34. Further, Hon tile Supreme Court in the matter of Smt. Rani Kusum v. Smt Kanchan Devi [2005] 6 SCC 705, concurring with the ratio laid down in Kailash (supra) held that: 10. All the rules of procedure are the handmaid of justice. The language employed by the draftsman of processual law may be liberal or stringent, but the fact remains that the object of prescribing procedure is to advance the cause of justice. In an adversarial system, no party should ordinarily be denied the opportunity of participating in the process of justice dispensation. Unless compelled by express and specific language of the statute, the provisions of CPC or any other procedural enactment ought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016 and not the NCLT. It is by virtue of the definition under sub-Section (1) of Section 5 of the Code, the NCLT plays its role as adjudicating authority and not that a Company Law Tribunal. Therefore, in strict sense, mandate under Section 420 of the Companies Act, 2016 cannot be transpose in Code 2016 by reading orders of Tribunal, as Order of Adjudicating Authority . 38. The Adjudicating Authority has different roles to play at different stages. The one of such role is somewhat administrative in nature when under sub- section (4) of section 7 or sub-section (5) of section 9 and sub-section (4) of section 10, the adjudicated authority is required to find out whether (i) the case is complete in terms of the provisions of sub-section (2) of section 7 or sub- section (2) of section 9 or sub-section (2) of section 10, as the case may be or (ii) whether there is a defect i.e. application is nor in order and incomplete. Otherwise role of Adjudicating Authority is judicial in nature particularly when it decides as to whether the 'Insolvency Resolution Process' to be initiated by admitting of the application or to reject the application. As a judicial authority, in case t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d down by the Hon'ble Apex Court and discussion as made above, we hold that the mandate of sub-section (5) of section 7 or sub-section (5) of section 9 or sub-section (4) of section 10 procedural in nature, a tool of aid in expeditious dispensation of justice and is directory. 44. However, the 7 days' period for the rectification of defects as stipulated under proviso to the relevant provisions as noticed above is required to be complied with by the corporate debtor whose application, otherwise, being incomplete is fit to be rejected. In this background 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. 45. Section 12 is a time limit for completion of insolvency resolution process which is to be completed within 180 days from the date of admission of the application. An extension of the period of corporate insolvency resolution process can be granted by the Adjudicating Authority but it cannot exceed 90 days and cannot be granted more than once. 46. The resultant effect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for completion of insolvency resolution process. 50. In these cases, we are not happy with the manner by the Adjudicating Authority has passed one or other order. The Adjudicating Authority, in spite of time frame scheme has taken the matter very leisurely and lightly. The time is the essence of the Code and all the stakeholders, including the Adjudicating Authority are required to perform its job within time prescribed under the Code except in exceptional circumstances if the adjudicating authority for one or other good reason fail to do so. In the case in hand we find that the Adjudicating Authority has unnecessarily adjourned the case from time to time which is against the essence of the Code. 51. 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. 52. For the reasons afor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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