REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8400 of 2017

M/S. SURENDRA TRADING COMPANY .....APPELLANT(S)

VERSUS

M/S. JUGGILAL KAMLAPAT JUTE MILLS COMPANY LIMITED AND OTHERS .....RESPONDENT(S)

W I T H

CIVIL APPEAL NOS.15091-15091 OF 2017 (ARISING OUT OF DIARY NO. 22835 OF 2017)

J U D G M E N T

A.K. SIKRI, J.

Permission to file the appeal is granted and delay condoned

in Diary No. 22835 of 2017.

2) Though this case has a past history as well, in the instant appeal,

we are concerned with the correctness of the order dated May 01,

2017 passed by the National  Company Law Appellate Tribunal

(hereinafter referred to as, the ‘NCLAT’) whereby it is held that

the time of seven days prescribed in proviso to sub-section (5) of

Civil Appeal No. 8400 of 2017 & Anr. Page 1 of 32

Section  9  of  the  Insolvency  and  Bankruptcy  Code,  2016  (for

short,  the  ‘Code’)  is  mandatory  in  nature  and  if  the  defects

contained in the application filed by the ‘operational creditor’ for

initiating  corporate  insolvency  resolution  against  a  corporate

debtor are not removed within seven days of the receipt of notice

given by the adjudicating authority for removal of such objections,

then such an application filed  under  Section 9  of  the Code is

liable  to  be  rejected.   The  precise question of  law which was

framed by the NCLAT for its decision is to the following effect:

“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  insolvency  resolution  process  is mandatory?”

3) Chapter II of Part II of the Code deals with corporate insolvency

resolution  process.   Under  Section  7  of  the  Code,  financial

creditor  (as  per  the  definition  contained  in  Section  5(7))  can

initiate corporate insolvency resolution process.  Section 8, on the

other  hand,  deals  with  insolvency  resolution  by  operational

creditor.   Operational  creditor  is  defined in  Section 5(2)  of  the

Code to mean a person to whom an operational debt is owed and

includes  any  person  to  whom  such  debt  has  been  legally

assigned or transferred.  This Section provides that if ‘default’ has

occurred  in  payment  of  the  said  debt  within  the  meaning  of

Civil Appeal No. 8400 of 2017 & Anr. Page 2 of 32

Section 2(12), such an operational creditor may send a demand

notice to the corporate debtor demanding payment of the amount

involved in the default, in the prescribed manner, giving ten days

notice in this behalf.  The corporate debtor is given ten days time

to  bring  to  the  notice  of  the  operational  creditor  about  the

existence of a dispute, if any, however, send requisite proof for

repayment  of  unpaid  operational  debt.   However,  in  case  the

payment  is  not  received  or  notice  of  dispute  is  not  received,

operational  creditor  can file  an application under  Section 9 for

initiation of  corporate insolvency resolution process.   Since we

are concerned with this provision, the same is reproduced below

in its entirety:

“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

Civil Appeal No. 8400 of 2017 & Anr. Page 3 of 32

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 operational debt by the corporate debtor; and  

(d)  such  other  information  as  may  be specified.  

(4)  An  operational  creditor  initiating  a  corporate insolvency resolution process under this section, may propose a resolution professional to act as an interim resolution professional.

(5)  The  Adjudicating  Authority  shall,  within  fourteen days  of  the  receipt  of  the  application  under  sub- section (2), by an order—  

(i)  admit  the  application  and  communicate  such decision to the operational creditor and the corporate debtor if,—  

“(a) the application made under sub-section (2) is complete;

(b)  there  is  no  repayment  of  the  unpaid operational debt;

(c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor;  

(d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and  

(e)  there  is  no  disciplinary  proceeding pending against  any resolution professional proposed under sub-section (4), if any.  

(ii)  reject  the  application  and  communicate  such

Civil Appeal No. 8400 of 2017 & Anr. Page 4 of 32

decision to the operational creditor and the corporate debtor, if—  

“(a) the application made under sub-section (2) is incomplete;

(b) there has been repayment of the unpaid operational debt;

(c) the creditor has not delivered the invoice or notice for payment to the corporate debtor;

(d)  notice of  dispute has been received by the operational creditor or there is a record of dispute in the information utility; or

(e)  any  disciplinary  proceeding  is  pending against  any  proposed  resolution professional:

Provided  that  Adjudicating  Authority,  shall  before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the adjudicating Authority.

(6) The corporate insolvency resolution process shall commence  from  the  date  of  admission  of  the application under sub-section (5) of this section.”

4) A reading of the aforesaid provision would reflect that time limits

for  taking  certain  actions  by  either  the  operational  creditor  or

adjudicating authority are mentioned therein.  As per sub-section

(1) of Section 9, application can be filed after the expiry of period

of  ten  days  from the  delivery  of  notice  or  invoice  demanding

payment, which is in tune with the provisions contained in Section

8 that gives ten days time to the corporate debtor to take any of

Civil Appeal No. 8400 of 2017 & Anr. Page 5 of 32

the steps mentioned in sub-section (2) of Section 8.  As per sub-

section (2) of Section 9, the operational creditor is supposed to

file an application in the prescribed form and manner which needs

to  be  accompanied  by  requisite/prescribed  fee  as  well.   Sub-

section  (3)  puts  an  obligation  on  the  part  of  the  operational

creditor to furnish the information stipulated therein.  Once such

an application is filed and received by the adjudicating authority,

fourteen  days  time  is  granted  to  the  adjudicating  authority  to

ascertain from the records of an information utility or on the basis

of other evidence furnished by the operational creditor, whether

default  on  the  part  of  corporate  debtor  exists  or  not.   This

exercise,  as per sub-section (5),  is  to be accomplished by the

adjudicating  authority  within  fourteen  days.   Sub-section  (5)

provides  two  alternatives  to  the  adjudicating  authority  while

dealing  with  such  an  application.   In  case  it  is  satisfied  that

conditions mentioned in clause (i) of Section 9(5) are satisfied,

the adjudicating authority may pass an order admitting such an

application.  On the other hand, if the adjudicating authority finds

existence of any eventuality stated in sub-section (2), it may order

rejection of such an application.

5) One  of  the  conditions,  with  which  we  are  concerned,  is  that

Civil Appeal No. 8400 of 2017 & Anr. Page 6 of 32

application  under  sub-section  (2)  has  to  be  complete  in  all

respects.  In other words, the adjudicating authority has to satisfy

that it is not defective.  In case the adjudicating authority, after the

scrutiny  of  the  application,  finds  that  there  are  certain  defects

therein and it is not complete as per the provisions of sub-section

(2), in that eventuality, the proviso to sub-section (5) mandates

that before rejecting the application, the adjudicating authority has

to  give  a  notice  to  the  applicant  to  rectify  the  defect  in  his

application within seven days of receipt of such notice.

6) Sub-section (5)  of Section 9,  thus, stipulates two time periods.

Insofar as the adjudicating authority is concerned, it has to take a

decision to either admit or reject the application with the period of

fourteen  days.   Insofar  as  defects  in  the  application  are

concerned, the adjudicating authority has to give a notice to the

applicant to rectify the defects before rejecting the application on

that ground and seven days period is given to the applicant to

remove the defects.

7) The  question  before  the  NCLAT  was  as  to  whether  time  of

fourteen days given to the adjudicating authority for ascertaining

the existence of default and admitting or rejecting the application

is mandatory or directory.  Further question (with which this Court

Civil Appeal No. 8400 of 2017 & Anr. Page 7 of 32

is  concerned) was as to whether the period of seven days for

rectifying the defects is mandatory or directory.

8) The NCLAT has held that period of fourteen days prescribed for

the adjudicating authority to pass such an order is directory in

nature,  whereas  period  of  seven  days  given  to  the  applicant/

operational  creditor  for  rectifying  the  defects  is  mandatory  in

nature.  Conclusion in this behalf is stated in paragraphs 43 and 4

of the impugned order and these paragraphs read as under:

“43. Thus, in view of the aforementioned unambiguous position of law laid 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  is 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.”

On the basis of the aforesaid findings, the NCLAT directed

rejection of the application filed by the operational creditor in the

following manner:

“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

Civil Appeal No. 8400 of 2017 & Anr. Page 8 of 32

presumed  that  7  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  aforesaid,  we  direct  the Adjudicating Authority to reject and close the Petition preferred  by  Respondents.   After  we  reserved  the judgment  if  any  order  has  been  passed  by  the Adjudicating  Authority,  except  order  of  dismissal,  if any, are also declared illegal.”

9) Before we pronounce as to whether the aforesaid rendition by the

NCLAT is justified or not, it  would be apposite to take stock of

certain essential facts.

10) Before the enactment of the Code, the relevant legislation

dealing  with  such  subject  matters  was  the  Sick  Industrial

Companies (Special Provisions) Act, 1985 (hereinafter referred to

as  ‘SICA’).   Under  this  Act,  an  industrial  undertaking,  on

becoming sick (i.e. where its net worth got eroded), could file a

reference  under  Section  15(1)  of  SICA,  before  the  Board  for

Industrial  and  Financial  Reconstruction  (for  short,  ‘BIFR’)

constituted under SICA.  BIFR, on admitting such a reference,

was supposed to  undertake  the  exercise  whether  such  a  sick

company can be revived or not.  For this purpose, BIFR would

appoint  an  Operating  Agency  (OA)  which  was  supposed  to

Civil Appeal No. 8400 of 2017 & Anr. Page 9 of 32

explore the possibility of revival plan in consultation with the other

stakeholders,  particularly  the  creditors.   If  such

reconstruction/revival scheme prepared by the OA was found to

be feasible by the BIFR, after ascertaining the views/objections of

the concerned parties, BIFR would sanction such a scheme.  If

that was not possible, BIFR would recommend winding up of sick

company by making reference in this behalf to the jurisdictional

High Court.  There was a provision of appeal before the Appellate

Authority  for  Industrial  and  Financial  Reconstruction  (AAIFR).

This scheme is stated in brief for the purposes of clarity of the

matter though we are not concerned with any of the provisions of

SICA.  Another aspect which needs to be mentioned is that on

admitting the reference, all other legal proceedings by creditors or

other persons initiated against the said sick industrial company

had to be put on hold by virtue of the protection granted under

Section 22(1) of SICA.  

11) Respondent  No.1  herein,  namely,  Juggilal  Kamlapat  Jute

Mills Company Limited, became a sick industrial company in the

year 1994 and because of this reason it filed its reference under

Section  15(1)  of  SICA.   It  was  declared  as  a  sick  industrial

company by the BIFR on December 16, 1994 as a result whereof

Civil Appeal No. 8400 of 2017 & Anr. Page 10 of 32

it came under the protective umbrella of Section 22(1) of SICA.

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:

10.02.2017 → The appellant filed the application under Section 9(2) of the Code, being CP No. 10/ALD/2017,  before  the  adjudicating authority under the Code.

14.02.2017 → The registry of the adjudicating authority pointed out some procedural defects on the basis  of  the check list  prepared for scrutiny  of  the  petition/application/ appeal/reply as per Order No. 25/2/2016- NCLT  dated  28.07.2016  and  listed  the application  for  hearing  before  the adjudicating authority on 16.02.2017.

16.02.2017 → The adjudicating authority granted time to the  appellant  for  removal  of  the  said

Civil Appeal No. 8400 of 2017 & Anr. Page 12 of 32

procedural  defects  on  28.02.2017  and also wanted to know about the stage of the  proceedings  before  BIFR  when  the proceedings stood abated.

28.02.2017 → The  appellant  removed  the  procedural defects.  As inquired by the adjudicating authority,  the appellant’s counsel sought for  some  more  time  for  filing  formal memo by  providing/furnishing  the  latest order  passed by BIFR before the Code came into force.

03.03.2017 → The  appellant  filed  its  formal memo/additional  documents/orders arising  in/out  of  the  pending  BIFR’s proceedings  which  stood  abated.   On 03.03.2017, the respondent No. 1 debtor appeared  before  the  Adjudicating Authority  and  sought  liberty  to  raise  its objections  qua  the maintainability of  the application.

09.03.2017 → The  Corporate  debtor/respondent  No.1 company  filed  its  written  objections before  the  Adjudicating  Authority disputing  the  maintainability  of  the application filed on various grounds like time barred debt;  the defective demand notice; civil suit filed against the appellant being Civil  Suit  No. 225 of 2017 before the  District  Court  and  embargo  created by Section 252 of the IB Code, 2016 the proceedings  cannot  be  initiated  for  a period of  six months after  abatement of SICA.

One  JK  Jute  Mill  Mazdoor  Morcha, Kanpur  i.e.  respondent  No.  2  herein moved  an  application  seeking intervention in the mater and brought on record  various  orders  including  the judgment  dated  13.11.2014  passed  by

Civil Appeal No. 8400 of 2017 & Anr. Page 13 of 32

this Court in the matter of  Ghanshyam Sarda  v.  Shiv  Shankar  Trading Company & Ors.,  reported in  (2015)  1 SCC 298 wherein  this  Court  has found that  the  sale  of  assets  without  BIFR’s permission  as  questionable  before  the BIFR and also an order dated 18.11.2016 passed  by  this  Court  in  the  case  of Ghanshyam  Sarda  v.  Sashikant  Jha (i.e.  contempt  petition  (civil)  No.  338  of 2014),  wherein  the  Director(s)  of  the corporate  debtor  i.e.  respondent  No.  1 have been held guilty of contempt.  It is also  said  that  the  corporate  debtor  i.e. respondent No. 1 also failed to clear the legitimate  dues  of  the  workmen  of  jute mill  which  are  worth  more  than  100 crores in rupees.   

09.03.2017 → In  light  of  the  foregoing  scenario,  the Adjudicating  Authority  for  providing substantial  justice  inter  alia  directed the respondent  No.  1/Corporate  Debtor  to maintain  status  quo  in  respect  of  its immovable property until further orders.

21.03.2017 → The  interim  order  passed  by  the Adjudicating  Authority,  Allahabad  Bench on  09.03.2017  was  challenged  by  the respondent  No.  1/Corporate  Debtor under Section 61 of  the IB Code, 2016 before  the  National  Company  Law Appellate  Tribunal  (NCLAT)  being Company  Appeal  No.  9  of  2017.   The NCLAT on  21.03.2017  issued  notice  in the said appeal  inter alia  observing that question of  law is  involved in  this  case and  directing  the  Adjudicating  Authority not  to  admit  the  application  filed  under the IB Code, 2016 by the appellant.   

01.05.2017 → The  NCLAT  has  allowed  the  AT  No. 09/2017  on  the  ground  that  the

Civil Appeal No. 8400 of 2017 & Anr. Page 14 of 32

application and Section 9 petition filed by appellant  herein  was  incomplete, defected  and  was  fit  to  be  rejected. Hence, the NCLAT was pleased to direct NCLT to reject and close the application filed by the appellant under Section 9 of the  IB  Code,  2016  passed  in  the impugned  order  inter  alia  rejecting  the application  filed  by  the  appellant  under Section 9 of the IB Code, 2016 read with IB (Application to Adjudicating Authority) Rules,  2016  being  CP No.  (IB)10/ALD/ 2017.

13) We  may  point  out  at  the  outset  that  the  learned  senior

counsel  appearing  for  the  appellant  had  submitted  that  in  the

instant case the defects which were pointed out were not of the

nature  mentioned  in  the  Code  but  were  in  terms  of  the

Companies Act, 2013.  For this purpose, he had referred to the

Insolvency and Bankruptcy (Application to Adjudicating Authority)

Rules, 2016 (hereinafter referred to as ‘Rules 2016’) and on that

basis it was argued that Section 9(5) of the Code did not apply in

the instant case inasmuch as there has to be difference between

‘defective’  application  and  ‘incomplete’  application.   He  also

submitted that the respondent had been violating interim orders

passed by BIFR in the proceedings pending before it under SICA.

However, we make it clear at the outset that since we are dealing

with  the  substantial  issue  as  to  whether  seven  days  period

Civil Appeal No. 8400 of 2017 & Anr. Page 15 of 32

provided for removing the defects is mandatory or not, it is not

necessary  to  touch  upon these  mundane aspects.   Instead,  it

would be better to concentrate on the substance of the matter.

14) As  mentioned  above,  insofar  as  prescription  of  fourteen

days within which the adjudicating authority has to pass an order

under sub-section (5) of Section 9 for admitting or rejecting the

application  is  concerned,  the  NCLAT has  held  that  the  same

cannot be treated as mandatory.  Though this view is not under

challenge (and rightly so), discussion in the impugned order on

this aspect has definite bearing on the other question, with which

this  Court  is  concerned.   Therefore,  we  deem  it  apposite  to

discuss the rationale  which is  provided by the NCLAT itself  in

arriving  at  the  aforesaid  conclusion  insofar  as  first  aspect  is

concerned.

15) 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

Civil Appeal No. 8400 of 2017 & Anr. Page 16 of 32

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.

16) On admission of the application, the adjudicating authority is

required to appoint an Interim Resolution Professional (for short,

‘IRP’) in terms of Section 16(1) of the Code.  This exercise is to

be done by the adjudicating authority within fourteen days from

the commencement of the insolvency date.  This commencement

date  is  to  reckon  from  the  date  of  the  admission  of  the

Civil Appeal No. 8400 of 2017 & Anr. Page 17 of 32

application.  Under sub-section (5) of Section 16, the term of IRP

cannot  exceed thirty  days.   Certain  functions which are  to  be

performed by the IRP are mentioned in subsequent provisions of

the Code, including management of affairs of corporate debtor by

IRP as well as duties of IRP so appointed.  One of the important

functions of the IRP is to invite all claims against the corporate

debtor,  collate  all  those  claims  and  determine  the  financial

position  of  the  corporate  debtor.   After  doing  that,  IRP  is  to

constitute  a  committee  of  creditors  which  shall  comprise  of

financial creditors of the corporate debtor.  The first meeting of

such a committee of creditors is to be held within seven days of

the constitution of the said committee, as provided in Section 22

of the Code.  In the said first meeting, the committee of creditors

has  to  take  a  decision  to  either  appoint  IRP  as  Resolution

Professional (RP) or to replace the IRP by another RP.  Since

term  of  IRP  is  thirty  days,  all  the  aforesaid  steps  are  to  be

accomplished within this thirty days period.  Thereafter, when RP

is  appointed,  he  is  to  conduct  the  entire  corporate  insolvency

resolution process and manage the operations of the corporate

debtor during the said period.  It  is not necessary to state the

further steps which are to be taken by the RP in this behalf.  What

is  important  is  that  the  entire  corporate  insolvency  resolution

Civil Appeal No. 8400 of 2017 & Anr. Page 18 of 32

process is to be completed within the period of 180 days from the

date of admission of the applicant.  This time limit is provided in

Section 12 of the Act.  This period of 180 days can be extended,

but  such  extension  is  capped as  extension  cannot  exceed 90

days.  Even such an extension would be given by the adjudicating

authority  only  after  recording  a  satisfaction  that  the  corporate

insolvency  resolution  process  cannot  be  completed  within  the

original stipulated period of 180 days.  If the resolution process

does not get  completed within the aforesaid time limit,  serious

consequences  thereof  are  provided  under  Section  33  of  the

Code.  As per that provision, in such a situation, the adjudicating

authority  is  required  to  pass  an  order  requiring  the  corporate

debtor to be liquidated in the manner as laid down in the said

Chapter.

17) The  aforesaid  statutory  scheme  laying  down  time  limits

sends a clear message, as rightly held by the NCLAT also, that

time is the essence of the Code.  Notwithstanding this salutary

theme and spirit behind the Code, the NCLAT has concluded that

as far as fourteen days time provided to the adjudicating authority

for admitting or rejecting the application for initiation of insolvency

resolution  process  is  concerned,  this  period  is  not  mandatory.

Civil Appeal No. 8400 of 2017 & Anr. Page 19 of 32

For arriving at such a conclusion, the NCLAT has discussed the

law laid down by this Court in some judgments.  Therefore, we

deem it proper to reproduce the discussion of the NCLAT itself in

this behalf:

“32.  In P.T. Rajan Vs. T.P.M. Sahir and Ors. (2003) 8 SCC 498, the Hon’ble Supreme Court observed that where  Adjudicating  Authority  has  to  perform  a statutory  function  like  admitting  or  rejecting  an application within a time period prescribed,  the time period  would  have  to  held  to  be  directory  and  not mandatory.   In  the  said  case,  Hon’ble  Apex  Court observed:

“48.  It  is  well-settled  principle  of  law  that where  a  statutory  functionary  is  asked  to perform  a  statutory  duty  within  the  time prescribed  therefor,  the  same  would  be directory  and  not  mandatory.   (See Shiveshwar  Prasad  Sinha  v.  The  District Magistrate  of  Monghur  &  Anr. AIR  (1966) Patna 144,  Nomita Chowdhury v. The State of West Bengal  & Ors. (1999) CLJ 21 and Garbari  Union  Co-operative  Agricultural Credit  Society  Limited  &  Anr.  V.  Swapan Kumar Jana & Ors. (1997) 1 CHN 189).

49.  Furthermore,  a  provision  in  a  statute which  is  procedural  in  nature  although employs the word “shall” may not be held to be  mandatory  if  thereby  no  prejudice  is caused.”

33.  That  the  Hon’ble  Apex  Court  has  on  numerous occasions interpreted the word ‘shall’ to mean ‘may’. An analogous position can be found in the context of the  time  prescribed  for  filing  Written  Statements  by Defendants to a suit, wherein the Hon’ble Apex Court was faced with the question of a Court’s power to take on record Written Statements that were filed beyond the period of 90 days, as prescribed under Order VIII Rule 1 of the Code of Civil Procedure, 1908.  In this regard, the Hon’ble Supreme Court in Kailash Versus

Civil Appeal No. 8400 of 2017 & Anr. Page 20 of 32

Nanhku and Ors (2005) 4 SCC 480 held as under:

“27.   Three things are clear. Firstly, a careful reading  of  the  language  in  which  Order  8 Rule 1 has been drafted, shows that it casts an  obligation  on  the  defendant  to  file  the written  statement  within  30  days  from  the date  of  service  of  summons  on  him  and within  the  extended  time  falling  within  90 days. The provision does not deal  with the power  of  the  court  and  also  does  not specifically take away the power of the court to  take  the  written  statement  on  record though filed beyond the time as provided for. Secondly,  the  nature  of  the  provision contained in Order 8 Rule 1 is procedural. It is not a part of the substantive law. Thirdly, the object behind substituting Order 8 Rule 1 in the present shape 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’ble Supreme Court in the matter of Smt. Rani Kusum vs Smt. Kanchan Devi (2005) 6 SCC  705,  concurring  with  the  ratio  laid  down  in Kailash Versus Nanhku (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

Civil Appeal No. 8400 of 2017 & Anr. Page 21 of 32

of the statute, the provisions of CPC or any other procedural enactment ought not to be construed in a manner which would leave the court  helpless  to  meet  extraordinary situations in the ends of justice.

11.  The mortality of justice at the hands of law troubles a judge’s conscience and points an angry interrogation at the law reformer.

12.   The  processual  law  so  dominates  in certain systems as to overpower substantive rights and substantial  justice. The humanist rule that procedure should be the handmaid, not  the  mistress,  of  legal  justice  compels consideration of vesting a residuary power in the judges to act ex debito justitiae where the tragic  sequel  otherwise  would  be  wholly inequitable.  Justice  is  the  goal  of jurisprudence,  processual,  as  much  as substantive. (See Sushil Kumar Sen v. State of Bihar [(1975) 1 SCC 774] .)

13.   No  person  has  a  vested  right  in  any course of procedure. He has only the right of prosecution or defence in the manner for the time being by or for the court  in which the case  is  pending,  and  if,  by  an  Act  of Parliament the mode of procedure is altered, he  has  no  other  right  than  to  proceed according  to  the  altered  mode. (See Blyth v. Blyth [(1966)  1  All  ER  524  : 1966 AC 643 : (1966) 2 WLR 634 (HL)] .) A procedural  law  should  not  ordinarily  be construed as mandatory; the procedural law is  always  subservient  to  and  is  in  aid  to justice.  Any  interpretation  which  eludes  or frustrates the recipient of justice is not to be followed. (See Shreenath v. Rajesh [(1998) 4 SCC 543 : AIR 1998 SC 1827] .)

14.  Processual law is not to be a tyrant but a servant,  not  an  obstruction  but  an  aid  to justice.  Procedural  prescriptions  are  the handmaid and not the mistress, a lubricant, not  a  resistant  in  the  administration  of justice.”

Civil Appeal No. 8400 of 2017 & Anr. Page 22 of 32

xx xx xx

41.  Further, nature of the provisions contained in sub- section (5) of section 7 or sub-section (5) of section 9 and sub-section (4)  of  section 10  of  the ‘Code’ like Order VIII Rule 1 being procedural in nature cannot be treated to be a mandate of law.

42.   The  object  behind  the  time  period  prescribed under sub-section (5) of section 7, sub-section (5) of section 9 and sub-section (4) of section 10, like Order VIII, Rule 1 of CPC is to prevent the delay in hearing the disposal of the cases.  The Adjudicating Authority cannot  ignore  the  provisions.   But  in  appropriate cases, for the reasons to be recorded in writing, it can admit or reject the petition after the period prescribed under section 7 or section 9 or section 10.

43.  Thus, in view of the aforementioned unambiguous position of law laid 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  is procedural  in  nature,  a  tool  of  aid  in  expeditious dispensation of justice and is directory.”

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.

19) After  analysing the provision of  fourteen days time within

which the adjudicating authority is to pass the order, the NCLAT

immediately  jumped  to  another  conclusion,  viz.  the  period  of

seven days mentioned in proviso to sub-section (5) of Section 9

for  removing  the  defect  is  mandatory,  with  the  following

discussion:

“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.”

There is no further discussion on this aspect.

20) We are not able to decipher any valid reason given while

coming to the conclusion that the period mentioned in proviso is

mandatory.  The order of the NCLAT, thereafter, proceeds to take

note of the provisions of Section 12 of the Code and points out

the time limit for completion of insolvency resolution process is

180 days,  which period can be extended by another  90 days.

Civil Appeal No. 8400 of 2017 & Anr. Page 24 of 32

However, that can hardly provide any justification to construe the

provisions of proviso to sub-section (5) of Section 9 in the manner

in which it is done.  It is to be borne in mind that limit of 180 days

mentioned in Section 12 also starts from the date of admission of

the application.  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.  In

fact,  till  the  objections  are  removed  it  is  not  to  be  treated  as

application validly filed inasmuch as only after the application is

complete in every respect it is required to be entertained.  In this

scenario,  making  the  period  of  seven  days  contained  in  the

proviso as mandatory does not commend to us.  No purpose is

going to be served by treating this period as mandatory.   In a

given case there may be weighty, valid and justifiable reasons for

not  able  to  remove  the  defects  within  seven  days.

Notwithstanding  the  same,  the  effect  would  be  to  reject  the

application.

21) Let us examine the question from another lens.  The moot

Civil Appeal No. 8400 of 2017 & Anr. Page 25 of 32

question  would  be  as  to  whether  such  a  rejection  would  be

treated as rejecting the application on merits thereby debarring

the application from filing fresh application or it is to be treated as

an administrative order since the rejection was because of the

reason that defects were not removed and application was not

examined on merits.  In the former case it would be travesty of

justice that  even if  the case of  the applicant on merits is very

strong, the applicant is shown the door without adjudication of his

application on merits.  If the latter alternative is accepted, then

rejection of  the application in  the first  instance is  not  going to

serve any purpose as the applicant  would be permitted to  file

fresh application, complete in all aspects, which would have to be

entertained.   Thus,  in  either  case,  no  purpose  is  served  by

treating the aforesaid provision as mandatory.

22) Various provisions of the Code would indicate that there are

three stages:

(i) First  stage  is  the  filing  of  the  application.   When  the

application is filed, the Registry of the adjudicating authority

is supposed to scrutinise the same to find out as to whether

it is complete in all respects or there are certain defects.  If

it  is  complete,  the  same  shall  be  posted  for  preliminary

Civil Appeal No. 8400 of 2017 & Anr. Page 26 of 32

hearing  before  the  adjudicating  authority.   If  there  are

defects, the applicant would be notified about those defects

so that these are removed.  For this purpose, seven days

time  is  given.   Once  the  defects  are  removed  then  the

application  would  be  posted  before  the  adjudicating

authority.

(ii) When  the  application  is  listed  before  the  adjudicating

authority, it has to take a decision to either admit or reject

the  application.   For  this  purpose,  fourteen  days  time  is

granted to the adjudicating authority.   If  the application is

rejected,  the matter  is given a quietus at  that level  itself.

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.

23) Further, we are of the view that the judgments cited by the

NCLAT and the principle contained therein applied while deciding

that  period  of  fourteen  days  within  which  the  adjudicating

authority has to pass the order is not mandatory but directory in

nature  would  equally  apply  while  interpreting  proviso  to  sub-

section (5) of Section 7, Section 9 or sub-section (4) of Section 10

as well.   After all,  the applicant does not gain anything by not

removing  the  objections  inasmuch  as  till  the  objections  are

removed,  such  an  application  would  not  be  entertained.

Therefore,  it  is  in  the  interest  of  the  applicant  to  remove  the

defects as early as possible.

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:

“46.  (iv) The purpose of providing the time schedule for filing the written statement under Order 8 Rule 1 CPC is to expedite and not to scuttle the hearing. The provision  spells  out  a  disability  on  the defendant.  It does  not  impose  an  embargo  on  the  power  of  the court to extend the time. Though the language of the proviso to Rule 1 Order 8 CPC is couched in negative form,  it  does  not  specify  any  penal  consequences flowing from the non-compliance. The provision being in the domain of the procedural law, it has to be held directory and not mandatory. The power of the court to extend time for filing the written statement beyond the time schedule provided by Order 8 Rule 1 CPC is not completely taken away.

(v) Though Order 8 Rule 1 CPC is a part of procedural law and hence directory, keeping in view the need for expeditious  trial  of  civil  causes  which  persuaded Parliament to enact the provision in its present form, it is held that ordinarily the time schedule contained in the provision is to be followed as a rule and departure therefrom would be by way of exception. A prayer for extension of time made by the defendant shall not be granted just as a matter of routine and merely for the asking,  more  so  when  the  period  of  90  days  has expired. Extension of time may be allowed by way of an  exception,  for  reasons  to  be  assigned  by  the defendant  and  also  be  placed  on  record  in  writing, howsoever briefly, by the court on its being satisfied. Extension of time may be allowed if it is needed to be given  for  circumstances  which  are  exceptional, occasioned  by  reasons  beyond  the  control  of  the defendant and grave injustice would be occasioned if the time was not  extended.  Costs  may be imposed and affidavit or documents in support of the grounds pleaded by the defendant for extension of time may be demanded, depending on the facts and circumstances of a given case.”

Civil Appeal No. 8400 of 2017 & Anr. Page 30 of 32

26) In  fine,  these  appeals  are  allowed  and  that  part  of  the

impugned judgment of NCLAT which holds 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 defects

within seven days as mandatory and on failure applications to be

rejected, is set aside.

No costs.

.............................................J. (A.K. SIKRI)

.............................................J. (ASHOK BHUSHAN)

NEW DELHI; SEPTEMBER 19, 2017.

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

ITEM NO.1501               COURT NO.6               SECTION XVII

              S U P R E M E  C O U R T  O F  I N D I A                        RECORD OF PROCEEDINGS

Civil Appeal  No(s).8400/2017

SURENDRA TRADING COMPANY                           Appellant(s)

                               VERSUS

JUGGILAL KAMLAPAT JUTE MILLS COMPANY LTD & ORS.    Respondent(s)   

WITH Diary No(s). 22835/2017 (XVII)

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.

              M/s. Coac, AOR                Mr. Akshat Kumar, AOR                      

        Hon'ble Mr. Justice A.K. Sikri  pronounced the

judgment of  the  Bench  comprising  His  Lordship  and   

Hon'ble Mr.Justice A.K. Sikri.   

 The appeals are  allowed in terms of the signed

reportable judgment.

     (B.PARVATHI)                    (MALA KUMARI SHARMA)

 COURT MASTER                        COURT MASTER        (Signed reportable judgment is placed on the file)