Holding

The provision to remove defects within seven days under the proviso to Section 9(5) of the IBC is directory, not mandatory, and a fresh application with a satisfactory explanation may be entertained.

Summary

The operational creditor, Mis. Surendra Trading Co., filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, against the corporate debtor, Mis. Juggilal Kamlapat Jute Mills Co. Ltd. The adjudicating authority identified procedural defects and gave the creditor seven days to cure them. The creditor failed to do so, and the NCLAT held the seven‑day period to be mandatory, rejecting the application. The Supreme Court examined whether the seven‑day cure period in the proviso to Section 9(5) is mandatory or merely directory, and what the consequences of non‑compliance are. It held that the cure period is directory, not mandatory; if defects are not removed within seven days, the creditor may file a fresh application with a written explanation, and the adjudicating authority may entertain it after being satisfied of sufficient cause. Consequently, the NCLAT’s order rejecting the application as mandatory was set aside and the appeals were allowed.

Issues considered

Whether the seven‑day period for rectifying defects under the proviso to Section 9(5) of the Insolvency and Bankruptcy Code, 2016 is mandatory or directory.
Whether rejection of an application for failure to remove defects within seven days amounts to a dismissal on merits, thereby barring a fresh application, or is an administrative order.

Legislation cited

Code of Civil Procedure, 1908s. Order 8 Rule 1
Companies Act, 2013
Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016
Insolvency and Bankruptcy Code, 2016s. 10, s. 12, s. 16, s. 22, s. 33, s. 5, s. 64, s. 7, s. 8, s. 9

Subjects

InsolvencyIB CodeSection 9Procedural defectMandatory vs directoryTime limitAdjudicating AuthorityOperational creditorCorporate insolvency resolution process

Judgment

[2017] 9 S.C.R. 743

MIS. SURENDRA TRADING COMPANY A
V.

MIS. JUGGILAL KAMLAPAT JUTE MILLS
COMPANY LIMITED AND. OTHERS
(Civil Appeal No. 8400 oL2017 etc) .. B

SEPTEMBER 19,2017
(A.K. SIKRI AND ASHOK BHUSHAN, JJ.]
Insolvency and Bankruptcy Code, 2016:
c
s.9(5) proviso thereto - Time limit of seven days in rectifYing
''the defects in the application for initiation of co1porate insolvency .
resolution process, whether mandatory or direct01y - Held:
Provision for removing the defects within seven days is directory
and not mandatory in nature - However, if the defects are not
removed within seven days, the applicant, while refiling the D
application after removing the defects, is required to file an
application explaining sufficient case as to why the defects could
not be removed/cured within seven days - The application u!s. 9(5)
can be entertained by the Adjudicating Authority only after i('is
satisfied that sufficient case is made out for the delay. · ' ..
E
Allowing the appeals, the Court
HELD: 1. No valid reason is given by National Company
Law Appellate Tribunaf (NCLAT) while coming to the conclusion
that the period mentioned in proviso for sub-secthin (5) of s.9 of
Insolvency and Bankruptcy Code, 2016,, is mandatory. Taking F
note of the provisions of Section 12 of the Code and pointing out
the time limit for completion of insolvency resolution process is
180 days, which period can be extended by another 90 days, hardly
provides any justification to construe the p.rovisions of proviso
to sub-section (5) of Section 9 in the manner in which it is done
by the Tribunal. It is to be borne in mind that limit of 180 days G
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 H
743
I
)

744 SUPREME COURT REPORTS [2017} 9 S.C.R. f---

A 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
B this scenario, making the period of seven days contained in the '
proviso as mandatory, does not commend this Court. 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
C application. [Para 20) [761-F-H; 762-A-B)
2. 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
D 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
E 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. [Para 21) [762-C-E)
3. Various provisions of the Code would indicate that there
F are three stages. First stage is the filing of the application. 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 hearing before the adjudicating authority.
G 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. When the
application is listed before the adjudicating authority, it has to
take a decision to either admit or reject the application. For this
H
MIS. SURENDRA TRADING CO. v.. MIS. JUGGILAL 745
KAMLAPAT. JUTE MILLS CO. LTD.

purpose, fourteen days time is granted to the adjudicating A
authority. After admission of the application, insolvency
resolution process commences. 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, B
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 that the adjudicating authority is to apply
·its mind and decide as to whether the application should be
ad01itted or rejected. Here adjudication process starts. However,
in spite thereof, when this period of fourteen days given by the C
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. (Para 22) (762-E-H; 763-A-D] ·
4. The applicant does not gain anything by not removing D
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.
[Para 231 (763-FJ
5. Thus, the proviso to s. 9 ·(S) providing for removing the E
defects within seven days is directory and not mandatory in nature.
However, 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 ca'ses.where such applications
are frivolous in nature which would be filed for some oblique F
·motives and the applicants may want those applications to remain,~ ,
pending and, therefore, would riot 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 thatif the objections are not G
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 sue~ an
application comes up for admission/order before the adjudicating
H
746 SUPREME COURT .REPORTS [2017] 9 S.C.R.

A 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 adjudicatilig authority
is satisfied that such a case is shown, only then it would entertain
the application on merits. [Paras 24 and 251 [763-F-H; 764-A-CI
B Kai/ash v. Nanhku & Ors. (2005) 4 SCC 480 : [2005)
3 SCR 289 - relied on.
Case Law Reference
[2005) 3 SCR 289 relied on Para 25
C CIVIL APPELLATE JURISDICTION : Civil Appeal No.8400
of2017.
From the impugned final Judgment and Order dated 01.05.2017
of the National Company Law Appellate Tribunal at New Delhi in
Company Appeal (AT) No. 9 of 2017
D WITH
Civil Appeal Nos. 15090-15091 of2017.
Krishnan Venugopal, Sr. Adv., Sunil Fernandes, Ms. Astha Sharma,
Ms. Nupur Kumar, Gaurav Kejriwal, Pradeep Agarwal, Sujit Keshri,
Ad vs. for the Appellant.
E
Neeraj Kishan Kaul, Sr. Adv., Arunabh Chaudhary, Ankur Chawla,
Ms. Kanika Singh, Sangram Singh, R.K. Mohit Gupta, Akshay Sahani,
Vaibhav Tomar, Mis COAC, Dr. Kailash Chand, Satish Vig, Akshat
Kumar, Advs. for the Respondents.
F The Judgment of the Court was delivered by
A.K. SIKRI, J. 1. Permission to file the appeal is granted and
delay condoned in Diary No. 22835 of2017.
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
G 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 Section 9 of the Insolvency
and Bankruptcy Code, 20 I6 (for short, the 'Code') is mandatory in nature
and if the defects contained in the application filed by the 'operational
H creditor' for initiating corporate insolvency resolution against a corporate
M/S; SURENDRA TRAQING CO. v. M/S. JUGGILAL 747
K.AMLAPAT JUTE MILLS CO. LTD. [A.K. SIKRI, !-]
. ~

debtor are not removed within seven days of the receipt qf notice given A
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 B
Code, 2016 (herefoafter 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 c
per the definition contained in Section 5(7)) can initiate corporate
insolvency resolution process. Sectjon 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 persop.' to whqm an
operational debt is owed and includes any person to whom such debt
has been legally assigned or transferred. This Section pr~vides that if D
'default' has occurred in payment of the said debt within the meaning of .
Section 2(12), such an operational creditor may send a demand notice to
the cof!)()rate debtor demanding payment of the amount involved in the -
default, in the prescribed manner, giving ten days notice in this beh.alf.
The corporate debtor is given ten days time to bring to the notice of the E
operational creditor about the existence of a dispute, if any, howewi,
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 corpor_ate insolvency resolution process. Since we are concerned F.
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-seetion (1) of
section 8, if the operational creditor does not receive payment G
from the corporate de~tor or notice of the dispute under sub-
section (2) of section 8, the operational creditor may file an .
application before the Adiudicating Authority for initiating a
-corporate insolvency resolution process. ·
H
748 SUPREME COURT REPORTS [2017] 9 S.C.R.
--
,__

I

A (2) The application under sub-section (I) 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
fumish-
B "(a) a copy of the invoice demanding payment or demand notice
delivered by the 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
(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
(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
E 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;
F (b) there is no repayment ofthe 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 ofdispute in the information utility;
G 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 decision to the
operational creditor and the corporate debtor, if-
H
MIS. SURENDRA TRADING CO. v. MIS. JUGGILAL 749
KAMLAPAT JUTE MILLS CO. LTD. [AK. SIKRI, J.]

"(a) the application made under sub-section (2) is incomplete; A
(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 B
or there is a record of dispute in the information utility; or· ·-
(e) !UlY 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 C
applicant to rectify the defect in his applicatioh within seven days
of the date of receipt of such notice from the adjudicating
Authority.
(6) The corporate insolvency resolution process shall conimence
from the date of admission .of the application under sub-section D -.
(5) of this section."
4. Areading 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 (I) of
Section 9, application can be filed after the expiry of period often days E ·
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 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 arid
manner which needs to be accompanied by requisite/prescribed fee as F ·
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 {umished G
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 H
750 SUPREME COURT REPORTS [2017] 9 S.C.R.

A 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 ofany 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
B application under sub-section (2) has to be complete in all respects. In
othe1; 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-
C 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.
D 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
E 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 is
concerned) was as to whether the period of seven days for rectifying
the defects is mandatory or directory.
F 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 applicanU 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
G 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 thatthe mandate of sub-section (5) of section 7 or
sub-section (5) of section 9 or sub-section (4) of section 10 is
H
MIS. SURENDRA TRADING CO. v. MIS. JUGGILAL 751
KAMLAPAT JUTE MILLS CO. LTD. [A.K. SIKRI, J.] .

lJrocedural in nature, a tool of aid in expeditious dispensation of . A
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. B
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 C
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 presumed that 7 additional days time was to be · D
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.
E
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."
F
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, t~e relevant legislation
. dealing with such subject matters was the Sick Industrial Companies G
(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,
H
j ,/
'
•
752 SUPREME COURT REPORTS r20111 ~ s.c.R:/

A was supposed to undertake the exercise whe5her such a sick company
can be revived or not. For this purpose, BIFR would appoint an Operating
Agency (OA) which was supposed to 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
B 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 ofsick 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 .i
• I
C 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 I
"\
company had to be put on hold by virtue of the protection granted under
D . SeCtion 22(1) of SICA._
I I. Respondent No.1 herein, namely, Juggilal Kamlapat Jute Mills
Company Limit~d, became a sick industria'i 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, I 994 as a result whereof it came under the protective
E umbrella of Section 22(1) of SICA. According to the appellant (who is
is
the operational creditor in this case), which a jute trader, it had
supplied raw jute to respondent No.I (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, · . '~

F 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( I) of SICA. In the
year 200,7, one Ko'tkata based company, known as Rainey Park
Suppliers Privaie Limited (hereinafter referred to as 'Rainey Park'),
G invested in corporate debtor and took over its management from its erst-
while promoters, i.e. J.K. Singhania Group. The operational creditor had
sent notices to Rainey Park to pay the aforesaid aniount. However, it
was not paid. Legal notices were also sent and applications were also
filed before the BIFR in this behalf. It Jed to various events which are
H not required to be mentioned for the sake of brevity. Fact remains that
MIS. SURENDRA TRADING CO. v. MIS. JUGGILAL 753
KAMLAPAT JUTE MILLS CO. LTD. [A.K. SIKRI, .J.]

the aforesaid debt was not honoured or liquidated by the corporate debtor A
or Rainey Park. While the matter was pending with BIFR, Sick Industrial
Companies Repeal Act was passed on the enactment of the Code with
effect from May 28, 2016. Resultantly, all proceedings before BIFR
and AAIFRstood abated. With this embargo, Section 22(1) of SICA
also vanished ..
B
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 C
the date of filing of the said application till the passing of the impugned
order by the NCLAT are mentioned h.erein 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. D
.. 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 28.07.20)6 and listed· the E
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 procedural defects
on 28.02.2017 and also wanted to know about the F
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 G
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 H
754 SUPREME COURT REPORTS [2017] 9 S.C.R.

A 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.
B 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
c 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
D· herein moved an application seeking intervention in
'the mater and brought on record various orders
· including the judgment dated 13.11.2014 passed by
this Court in the matter of Ghanshyam Sarda v.
Shiv Shankar Trading Company & Ors.;.reported
in (2015) 1SCC298 wherein this Court has found
E 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. Sasliikant Jha (i.e.
contempt petition (civil) No. 338 of2014), wherein
F 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.
G
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.
H
M/S. SURENDRA TRADING CO. v. M/S, JUGGILAL 755
KAMLAPAT JUTE MILLS CO. LTD. [A.K. SIKRI, J.]

• 21.03.2017 The interim order passed by the Adjudicating A
Authority, Allahabad Bench on 09.03.2017 was
challenged by the respondent No. I/Corporate
Debtor under Section 61 of the IB Code, 2016
before the National Company Law. Appellate
Tribunal (NCLAT) being Company Appeal No. 9
B
of2017. 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 c
the ground that the application and Section .9
petition filed by appellant herein was incomplete,
defected and was fit, to be rejected. Hence, the
I

NCLAT was pleased to direct NCLT to reject and
close the application filed by the appellant under D
Section 9 of the 1B Code, 2016 passed in the
impugned order inter alia rejectingthe 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)lO/ALD/ 2017. E
13. We may point out at tjie outsetthat the learned senior counsel ·
appearing for the appellant had submitted that in the instant case the
in
defects which were pointed out were not of the nature mentioned the.
j
Code but were in terms of the Companies Act, 2013. For this purpose,
he had referred to the Insolvency and Bankruptcy (Application to F I
-1
Adjudicating Authority) Rules, 2016 (hereinafter referred to as 'Rules r
2016') and on that basis it was argued that Section 9(5) of the Code did l

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
G
II

by BIFR in the proceedings pending b_efore it under SICA. However,
we make it clear at the outset that since we are dealing with the lI
''/
- substantial issue as to whether seven days period provided for removing
the defects is mandatory or not, ifis not necessary to touch upon these
mundane aspects. Instead, it would be better to concentrate on the
substance of the matter. H
756 SUPREME COURT REPORTS [2017] 9 S.C.R.

A 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
mandatdry. Though this view· is not under challenge (and rightly so),
B 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 1-
itself in arriving at the aforesaid conclusion insofar as first aspect is
concerned.
15. It is pointed out by the N'CLAT that where an application is
C 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 fo~ extensi.qn of time, who may, after taking
into account the reasons so recorded, extend.the period specifiedin the
D Code, but not exceeding ten days, as provided in Section 64( I) of the
Cocle. 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
. E 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
F 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')
G 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 admis.sion of the application. Under sub-section (5) of
Section 16, the term ofIRP .cannot exceed thirty days. Certain functions
which are to be performed by the !RP are mentioned in subsequent
H
MIS. SURENDRA TRADING CO. v. M/S. JUGGILAL 757
KAMLAPAT JUTE MILLS CO. LTD. [AK. SIKRI, J.]

provisions of the Code, including management of affairs of corporate A
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 (fonstitute a
committee of creditors which shall comprise of financial creditors of the B
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 !RP by another RP. Since
term ofIRP is thirty days, all the aforesaid steps are to be accomplished · C
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 D
resolution 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 9f 180 days can b.e ext.ended, but
such extension is capped as extension cannot exceed . 90 days. Even · ·
such an extension would be given by the adjudicating aiithority only .
after recording a satisfaction that the corporate insolvency resolution .E .
process cannot be completed within the original stipulatl(d 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 te be liquidated in.the manner as taid down in.the said F
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 · G
time provided to the adjudicating authority for admitting or rejecting the
application for initiation of insolvency resolution process is concerned,
this period is notmandatory. For arriving at such a conclusion, the NCLAT .,,. · ·
has discussed the law. laid down by this C9urt in some judgi:nents.
H
758 SUPREME COURT REPORTS [2017] 9 S.C.R.

A . 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
B 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
c 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 & Am: V. Swapan Kumar
D 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."

E 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
F beyond the period of 90 days, as prescribed under Order Vlll
Rule I of the Code of Civil Procedure, 1908. In this regard, the
Hon'ble Supreme Court in Kai/ash Versus Nanhku and Ors
(2005) 4 sec 480 held as under:
"27. Three things are clear. Firstly, a careful reading of the
G 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 surnmons
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
H
· M/S. SURENDRA TRADING CO. v. M/S. JUGGILAL 759
KAMLAPAT JUTE MILLS CO. LTD'.. [A.K. SIKRI, J.]
.
the written statement on record though filed beyond the time ,A
'

as provided for. Secondly, the nature of the provision contained
in Order 8 Rule 1 is proced~l. 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 B
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 ofjustice C
cannot be permitted to be buried."
34. Further, Hon'ble Supreme Court in the matter ofSmt. Rani
Ku.mm vs Smt. Kane/tan Devi (2005) 6 SCC 705, concurring
with the ratio laid down in Kai/ash Versus Naflc/iku (supra) held
that: :k D
''.lo: 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 E
opportunity of participating in the process ofjustice dispensation.
Unless compelled by express and specific language 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. F

11. The mortality of justice atthe hands of law troubles a
judge's conscience and points an angry interrogation at the law
reformer.
12. Th~ processual law so dominates in certain systems as to G
overpower substantive. rights and substantial justice. The
humanist rule that procedure should be the handmaid, not'the
mistress, of legal justice compels consideration of vestjng a
residuary power in the judges to act ex debito justitiae where ·
the tragic sequel otherwise would be whoily inequitable'. J\lstice
H
760 SUPREME COURT REPORTS [2017] 9 S.C.R.

A is the goal ofjurisprudence, processual, as much as substantive ..
(See Sushi! Kumar Sen v. State ofBihar [(1975) I 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) I All ER 524: 1966AC 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
c 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
D the handmaid and not the mistress, a lubricant, not a resistant in
the administration ofjustice."
xx xx xx
41. Further, nature of the provisions contained in sub-section
E (5) of section 7 or sub-section (5) of section 9 and sub-section
(4) ofsection 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 Vlll, Rule 1 ofCPC is to
F
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 un-
der section 7 o~ section 9 or section 10.
G
43. Thus, in view of the aforementioned unambiguous position
oflaw 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
H dispensation ofjustice and is directory."
MIS. SURENDRA TRADING CO. v. MIS. JUGGILAL 761
KAMLAPAT JUTE MILLS CO. LTD. [A.K. SIKRI, J.]

18. The NCLAT has also held that fourteen days period is to be A
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 font1 and accompanied with SlJCh
.fee as may be prescribed, it will take some time in examining the application B
and, therefore, fourteen days ·period granted to the adjudicating
authority under the aforesaid pro.visions 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. · .
.. 1.9. After analysing the provision of foiirteen days time within . C
which the adjudicating authority is to pass the order, the NCLAT
I immediatelyjumped 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 D
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 E
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 manda-
tory. The order of the NCLAT, thereafter, proceeds to take note of the F
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. However, that can hardiy 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 G
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 I 0), 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 H
762 SUPREME COURT REPORTS · [2017) 9 S.C.R.

A 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
B 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
question would be as to whether such a rejection would be treated as
C 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 apj:>licant
D 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
E 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
F , 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 hearing before the
adjudicating authority. If there are defects, the applicant would
be notified about those defects so that these are removed.
G 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.
H
MIS. SURENDRA TRADING CO. v. MIS. JUGGILAL 763
KAMLAPAT JUTE MILLS CO. LTD. [AK. SIKRI, J.]

For this purpose, fourteen days time is granted to the A
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 beeninentioned B
above. This resolution process is to be completed within 180
days, which is extendable, ill certain cases, up to 90 days.
Insofar as the first stage is concerned, it has no bearing on the
insolvency resolution pr-0cess at all, ina&much as, unless the.
application is complete in every respect, the adjudicating
authority is not supposed to deal with the same. It is at the C
second stage 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 D
or reject th.e 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 E
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, Section9
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: F
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 nature.
However, we would like to enter a caveat. · · .G
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
H
764 SUPREME COURT REPORTS [2017] 9 S.C.R. .

A 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
B 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
C 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. The aforesaid
process indicated by us can find support from the judgment of this Court
D in Kai/ash v. Nanlrku & Ors., (2005) 4 SCC 480, wherein the CoU11
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
E 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
F extend time for filing the written statement beyond the time sched-
ule 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
G its present form, it is held that ordinarily the time schedule
contained in the provision is to be followed as a rnle and departure
therefrom would be by way of exception. A prayer for extension
of time made by the defendant shall not be grantedjust 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
H
MIS. SURENDRA TRADING CO. v. M/S. JUGGILAL 765 ·
KAMLAPAT JUTE MILLS CO. LTD. [A.K. SIKRI, J.].

an exception, for reasons to be assigned· by the defendant and A
. also be placed on record in writing, howsoever briefly, by the
court on its being satisfied. Extension of time may be allowed ifit
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. B
Costs may be imposed and affidavit or docmnents in support of
the grounds pleaded by the defendant for extension -0f time may
be demanded, depending on the facts and Circumstances of a
given case."
26. ln fine, these appeals are allowed and that part of the impugned
judgment ofNCLATwhich holds proviso to sub-section (5) of Section 7 C
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.
D

Kalpana K. Tripathy Appeals allowed.