M/S SURENDRA TRADING COMPANY VS M/S JUGGILAL KAMLAPAT JUTE MILLS COMPANY LTD AND OTHERS : CASE SUMMARY

The Supreme Court held in Surendra Trading Company Vs Juggilal Kamlapat Jute Mills Compnay  Ltd. (2017)16SCC 143  that period of seven days provided under Section 7 (5), Section 9 (5) or Section 10 (4) for removal of defects in an Application for initiating CIRP is not mandatory.

FACTS OF THE CASE

Juggilal Kamlapat Jute Mills Company became a sick industrial company and referred under SICA Act. Appellant had supplied raw jute to Respondent No. 1 payment against which was outstanding.  After coming in force of IBC, the Appellant sent demand notice under prescribed form on 06.01.2017. As the dues were not paid the Appellant filed application before Adjudicating Authority for initiating CIRP against the Respondent on 10.02.2017.  The Registry raise some defects on 14.02.2017.  The Adjudicating Authority granted time to remove defects on 16.02.2017. The Appellant removed defects on 28.02.2017. The Appellant filed documents related with BIFR proceedings on 03.03.2017. On 09.03.2017 the Adjudicating Authority directed the Corporate Debtor to maintain status quo in respect of immovable properties. An appeal was filed before NCLAT wherein order of NCLT was set aside and directed the NCLT to close the application. NCLAT held that period of 14 days prescribed for admitting or rejecting an application is not mandatory but provision of removal of defects within seven days are mandatory.

FINDINGS OF THE SUPREME COURT

The issue before the Supreme Court was whether period of seven days prescribed under Section 7 (5), Section 9 (5) and Section 10 (4) for removing of defects in an Application for initiating CIRP  is mandatory or directory ?

The Supreme Court noted that timeline for several  activities  by either  creditor or adjudicating authority are mentioned under IBC.  

The Supreme Court observed that time consumed in filing of application under Section 7, 9 or 10 and removal of defects  do not impact time period for completion of CIRP  given under Section 12 IBC. Counting of such period starts from date of admission.  In fact till the objections are removed it is not to be treated as application validly filed. No purpose is going to be served in making period of seven days mandatory.  

The Supreme Court observed that if rejection on account of delay in removing defect  is treated as rejection on merits, it will be  travesty of justice as even if the case of the Applicant is strong on merits, such applicant will be shown the door.  if rejection is treated as administrative order, such application can again be filed afresh. In both scenarios, treating the period of seven days as  mandatory will serve no purpose.

The Supreme Court observed that there are  three stages in IBC proceedings – (i) In the first stage Application is filed. If there is any defect, seven days have to be given for removing defects. If application is defect free it is listed before the Adjudicating Authority. (ii) The Adjudicating Authority has to take a decision within fourteen days to either accept or reject the Application, (iii) After admission of Application CIRP commences.

NCLAT has held time line of fourteen days  given in second stage as directory. The Supreme Court reasoned that  If time line provided in second stage is not mandatory then there is no reason to make timeline given in the first stage mandatory.

The Supreme Court held that provision providing for removal of defects within seven days is directory and not mandatory. At the same time Supreme Court directed that if defects are not removed within seven days, the Applicant has to file an application explaining reasons why defects could not be removed within seven days.

Accordingly, the Supreme Court allowed the appeal and set aside the order of NCLAT to the extent it held that provision providing for period of seven days for removal of defect  is mandatory.

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