Facts: The question of law which was framed by the National Company Law Appellate Tribunal (NCLAT) for its decision: “Whether the time limit prescribed in Insolvency & Bankruptcy Code, 2016 for admitting or rejecting a petition or initiation of insolvency resolution process is mandatory?” The question before the NCLAT was as to whether time of fourteen days given to the Adjudicating Authority for ascertaining the existence of default or rejecting the application is mandatory, directory or discretionary. 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.
Decision: The court said that it would like to enter a caveat. Sometimes, applicants or their counsel may show laxity (leniency) by not removing the objections within the time given & may 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 & the applicants may want those applications to remain pending & 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 refilling 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 merits, otherwise it will have right to dismiss the application. Accordingly, these appeals are allowed & 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 & on failure applications to be rejected, is set-aside.
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