In the case of M/s Surendra Trading Company vs. M/s Juggilal Kamlapat Jute Mills Co. Ltd. and Others [Civil Appeal No.8400 of 2017 with Civil Appeal No. 15091 of 2017], the Hon’ble Supreme Court scrutinized whether the time limit prescribed under the Insolvency and Bankruptcy Code (the “Code”) for rectification or removal of defects in the application filed by an Operational Creditor for initiating Corporate Insolvency Resolution Process (“CIRP”) against a corporate debtor is mandatory or not.

Section 9 of the Code deals with the initiation of the CIRP by the Operational Creditor. Sub section (5) of Section 9 of the Code specifies time periods to be followed by the NCLT, while accepting or rejecting a CIRP application. The NCLT is provided with fourteen (14) days to accept or reject an application after the receipt of the application. However, before rejecting an application on the ground of any defects, the NCLT has to issue a notice to the Operational Creditor who has initiated the CIRP to rectify the defect(s) and seven (07) days period is given to the Operational Creditor to remove the defect(s).

The questions that were put before the NCLAT were:

1. Whether the time of fourteen (14) days given to NCLT for admission or rejection of a CIRP application is mandatory or directory; and
2. Whether the period of seven (07) days given to the Operational Creditor for rectifying the defect(s) is mandatory or directory.

The NCLAT had held that the period of fourteen (14) days prescribed under the Code for NCLT to pass an order on the acceptance or rejection of the CIRP application is directory in nature, however the period of seven (07) days given to the Operational Creditor for rectifying the defect(s) in the CIRP application is mandatory in nature. The NCLAT held that the time period of fourteen (14) days given to NCLT, under the IBC, for accepting or rejecting an application for CIRP is procedural in nature and cannot be treated as a mandate of law. At the same time, the NCLAT held that the time period of seven (07) days given to the Operational Creditors for rectifying the defect(s) in the CIRP application is mandatory but no specific basis or rationale was given for holding the same.

The Hon’ble Supreme Court held that it could not find any valid justification in the holding of the NCLAT that the seven (07) days’ time period given to the Operational Creditor for rectification is mandatory. The Hon’ble Supreme Court also observed that the time period of one hundred and eighty (180) days provided under the Code for completion of the CIRP cannot be taken as a valid ground by the NCLAT for justification of the seven (07) days period as mandatory. Only after the application is complete in every respect, the same is required to be entertained.  The Apex Court observed that under certain circumstances there could be substantial, valid and reasonable reasons for the Operational Creditor to not be able to remove the detected defect(s) within the given seven (07) days’ time period. Thus, the Hon’ble Supreme Court held that the time period provided to the Operational Creditor for removal of the defects in the CIRP application, is directory and not mandatory in nature.

The laying down of specific time limits under the Code is proof that the legislature intended to enforce stricter timelines which in turn would be ensure a speedy disposal of justice.