The Government of India proposed the Insolvency and Bankruptcy Code, 2016 to speed up the resolution of insolvency in India, which had previously taken an average of 4.3 years. This law was also put into effect to address the enormous number of bank loan default instances.
The Supreme Court ruled in the current instance that the time restriction requirement set forth in IBC, 2016 under section 9(5) and its provisions are directly applicable and not mandatory. In the current case, the operational creditor Surendra Trading Company filed a petition under Section 8 of the Insolvency and Bankruptcy Code against the corporate debtor J.K Jute Mills Company Ltd for a "unpaid debt" claim totalling Rs. 17,06,766. The application was submitted in violation of Rule 6 of the 2016 Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, which lists the requirements that must be met in order to submit an application under the Insolvency and Bankruptcy Code.
Following this, Surendra Trading Company was given a further seven days to correct the application's flaw in accordance with Section 9(5) of the Code; however, they failed to do so in the allotted time and argued that the time period under Section 9(5) is not required. As a result, the NCLAT determined that the 7-day window for fixing application flaws is required and the 14-day window for determining whether a default exists is optional. The Supreme Court also received the appeal.
In the instant case titled M/S. Surendra Trading Company Vs. M/S. Juggilal Kamlapat Jute Mills Company Limited and Others., the issue raised for clarification before the Supreme Court was:
Is a portion of the NCLAT order appropriate?
With regard to this issue, the Supreme Court questioned the legality of the NCLAT's ruling, which held that the proviso to section 9(5) of the IBC's seven-day time restriction is necessary for accepting or rejecting a petition or starting the insolvency resolution procedure. The word "shall'' has frequently been construed by the Honourable Apex Court to mean "may." It cited cases where it was determined that the legislative responsibilities are advisory rather than obligatory, including P.T. Rajan vs. T.P.M. Sahir and Ors. (2003) 8 SCC 498 and Garbari Union Co-operative Agricultural Credit Society Limited & Anr. V. Swapan Kumar Jana & Ors. (1997) 1 CHN 189.
The Apex Court further cited rulings [(1998) 4 SCC 543: AIR 1998 SC 1827] in which it was appropriately established that procedural laws should not typically be interpreted as obligatory because they are always in service of and supportive of justice. It is not advisable to follow any interpretation that leaves the victim of justice perplexed or frustrated. The Apex Court also cited Order 8 Rule 1 CPC, which set a 30-day deadline, noting that it was intended to speed up rather than stalling the hearing. The clause clearly outlines the defendant's impairment. It does not place a restriction on the court's ability to extend the deadline. The NCLAT's conclusion that a 7-day time limit is necessary was declared invalid by the Supreme Court for lacking any justification. It continued by stating that NCLAT's conclusion could not be supported by the IBC's 180-day limit for concluding the resolution procedure because the period starts on the day the application is accepted. Time spent reviewing the application, fixing application errors, or NCLT admitting the application, among other things, cannot be taken into account before that. Until the objections are withdrawn, the application cannot be regarded as having been presented legally. The application cannot be considered until it is perfect in every manner. It was highlighted that there might be substantial, plausible, and legitimate reasons. The Court ordered that each request for a time extension be given fair consideration in order to prevent abuse. If the objections are not removed within seven days, the applicant must file a formal application while re-submitting the application after removing the objections, providing sufficient justification as to why the objections could not be removed within the allotted time. The application may be taken into consideration if the NCLT approves of the cause; if not, it must be rejected.
The portion of the NCLAT's contested judgement that requires the flaws to be fixed within seven days was overturned.
The Court categorically stated that,
"It is pointed out by the NCLAT that where an application is not disposed of or an order is not passed within a period specified in the Code, in such cases the adjudicating authority may record the reasons for not doing so within the period so specified and may request the President of the NCLAT for extension of time, who may, after taking into account the reasons so recorded, extend the period specified in the Code, but not exceeding ten days, as provided in Section 64(1) of the Code. The NCLAT has thereafter scanned through the scheme of the Code by pointing out various steps of the insolvency resolution process and the time limits prescribed therefor. It is of relevance to mention here that the corporate insolvency resolution process can be initiated by the financial creditor under Section 7 of the Code, by the operational creditor under Section 9 of the Code and by a corporate applicant under Section 10 of the Code. There is a slight difference in these provisions insofar as criteria for admission or rejection of the applications filed under respective provisions is concerned. However, it is pertinent to note that after the admission of the insolvency resolution process, the procedure to deal with these applications, whether filed by the financial creditor or operational creditor or corporate applicant, is the same. It would be relevant to glance through this procedure”.
IBC is only a five-year-old law, and every so often, different changes and rulings give it shape. The critical IBC provision was mentioned in the recently discussed significant judgement. As NCLAT correctly stated, the statutory structure imposing time constraints sends a strong message that time is the fundamental element of the Code. Due to the Code's strict timelines, which reflect the legislature's intention to make India a more effective judicial forum, it is one of the most careful statutes in the nation. It should be highlighted that just because something didn't fulfil its commitment on time, justice cannot be denied to someone.