Surendra Trading Company vs Juggilal Kamlapat Jute Mills Company ...

According to the appellant (who is the operational creditor in this case), which is a jute trader, it had supplied raw jute to respondent No.1 (the corporate debtor) in the years 2001, 2002 and 2003 in respect of which the corporate debtor owned a sum of Rs.17,06,766.95 p. Further, according to the operational creditor, the corporate debtor had issued Certificate dated October 24, 2004 acknowledging the aforesaid debt. However, it was not in a position to recover this debt because of the pendency of proceedings which resulted in stay of proceedings in view of Section 22(1) of SICA. In the year 2007, one Kolkata based company, known as Rainey Park Suppliers Private Limited (hereinafter referred to as ‘Rainey Park’), invested in corporate debtor and took over its management from its erstwhile promoters, i.e. J.K. Singhania Group. The operational creditor had sent notices to Rainey Park to pay the aforesaid amount. However, it was not paid. Legal notices were also sent and applications were also filed before the BIFR in this behalf. It led to various events which are not required to be mentioned for the sake of brevity. Fact remains that the aforesaid debt was not honoured or liquidated by the corporate debtor or Rainey Park. While the matter was pending with BIFR, Sick Industrial Civil Appeal No. 8400 of 2017 & Anr. Page 11 of 32 Companies Repeal Act was passed on the enactment of the Code with effect from May 28, 2016. Resultantly, all proceedings before BIFR and AAIFR stood abated. With this embargo, Section 22(1) of SICA also vanished.

12) In these changed circumstances, the operational creditor served another demand notice dated January 06, 2017, in the statutory format prescribed under the Code, upon the corporate debtor calling up it to pay the outstanding dues. As it was not paid, the operational creditor filed application for initiation of corporate insolvency resolution process under Section 9 of the Act. The chronology of events which took place from the date of filing of the said application till the passing of the impugned order by the NCLAT are mentioned herein below:

18) The NCLAT has also held that fourteen days period is to be calculated ‘from the date of receipt of application’. The NCLAT has clarified that date of receipt of application cannot be treated to be the date of filing of the application. Since the Registry is required to find out whether the application is in proper form and accompanied with such fee as may be prescribed, it will take some time in examining the application and, therefore, fourteen days period granted to the adjudicating authority under the Civil Appeal No. 8400 of 2017 & Anr. Page 23 of 32 aforesaid provisions would be from the date when such an application is presented before the adjudicating authority, i.e. the date on which it is listed for admission/order.

However, if it is admitted, we enter the third stage.

(iii) After admission of the application, insolvency resolution process commences. Relevant provisions thereof have been mentioned above. This resolution process is to be completed within 180 days, which is extendable, in certain cases, up to 90 days. Insofar as the first stage is concerned, it has no bearing on the insolvency resolution process at all, inasmuch as, unless the application is complete in every respect, the adjudicating authority is not supposed to deal with the same. It is at the second stage Civil Appeal No. 8400 of 2017 & Anr. Page 27 of 32 that the adjudicating authority is to apply its mind and decide as to whether the application should be admitted or rejected. Here adjudication process starts. However, in spite thereof, when this period of fourteen days given by the statute to the adjudicating authority to take a decision to admit or reject the application is directory, there is no reason to make it mandatory in respect of the first stage, which is pre-adjudication stage.

24) Thus, we hold that the aforesaid provision of removing the defects within seven days is directory and not mandatory in Civil Appeal No. 8400 of 2017 & Anr. Page 28 of 32 nature. However, we would like to enter a caveat.

25) We are also conscious of the fact that sometimes applicants or their counsel may show laxity by not removing the objections within the time given and make take it for granted that they would be given unlimited time for such a purpose. There may also be cases where such applications are frivolous in nature which would be filed for some oblique motives and the applicants may want those applications to remain pending and, therefore, would not remove the defects. In order to take care of such cases, a balanced approach is needed. Thus, 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 refiling the application after removing the objections, file an application in writing showing sufficient case as to why the applicant could not remove the objections within seven days. When such an application comes up for admission/order before the adjudicating authority, it would be for the adjudicating authority to decide as to whether sufficient cause is shown in not removing the defects beyond the period of seven days. Once the adjudicating authority is satisfied that such a case is shown, only then it would entertain the application on Civil Appeal No. 8400 of 2017 & Anr. Page 29 of 32 merits, otherwise it will have right to dismiss the application. The aforesaid process indicated by us can find support from the judgment of this Court in Kailash v. Nanhku & Ors., (2005) 4 SCC 480, wherein the Court held as under:

No costs.

SEPTEMBER 19, 2017.

Civil Appeal No. 8400 of 2017 & Anr. Page 31 of 32

Date : 19-09-2017 These appeals were called on for pronouncement of judgment today.

For Appellant(s) Mr. Sunil Fernandes, AOR Mr. Gaurav Kejriwal, AOR Mr. Sujit Keshri, Adv.

For Respondent(s) Mr. Kailash Chand, AOR Mr. Satish Vig, AOR Ms. Kanika Singh, Adv.

Ms. R.K. Mohit Gupta, Adv.

Ms. Sangram Singh Hooda, Adv.

The appeals are allowed in terms of the signed reportable judgment.

(Signed reportable judgment is placed on the file)