The Supreme Court has loosened the time restriction for correcting application errors, saying that the seven-day time limit set forth in the Insolvency and Bankruptcy Code, 2016 for removing defects in an insolvency plea is not necessary.
In the instant case titled M/S. Surendra Trading Company Vs. M/S. Juggilal Kamlapat Jute Mills Company Limited and issue that was raised before the Supreme Court for clarification were:
Whether the time limit prescribed in Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as Code 2016) for admitting or rejecting a petition or initiation of the insolvency resolution process is mandatory?”
The Hon'ble Supreme Court observed that It is important to remember that the 180-day period set forth in Section 12 begins on the date of the application's admission.
The period prior thereto which is consumed, after the filing of the application under Section 9 (or for that matter under Section 7 or Section 10), whether by the Registry of the adjudicating authority in scrutinising the application or by the applicant in removing the defects or by the adjudicating authority in admitting the application is not to be taken into account.
Provision for removing the defects within seven days is a directory and not mandatory in nature.
While interpreting the provisions to be directory in nature, at the same time, it can be laid down that if the objections are not removed within seven days, the applicant while re-filing the application after removing the objections, file an application in writing showing sufficient cause as to why the applicant could not remove the objections within seven days.
The Court categorically held that:
“Order 8 Rule 1 CPC which provided for 30 days limit and said that “it is to expedite and not to scuttle the hearing. The provision spells out a disability for the defendant. It does not impose an embargo on the power of the court to extend the time”.
The Court directed that each request for a time extension be examined in a balanced manner to prevent misuse. If the objections are not removed within seven days, the applicant must file a written application when refilling the application after the objections are removed, indicating sufficient cause for why the objections were not removed within seven days. The application can be examined if the NCLT is satisfied with the cause; otherwise, it must be denied.