Whether Appellate Tribunal have power to extend Time limit u/s 12 of IBC beyond 330 days.

Whether Appellate Tribunal (NCLAT) have power to extend Time limit under section 12 of IBC beyond 330 days.

On 23rd March, Hon’ble Supreme Court extended the period of limitation on filing petitions, applications, suits, appeals, and other proceedings at courts and tribunals across the country in light of the present circumstance caused by the Covid-19 pandemic with effect from 15th March, 2020 till further order/s in terms of order dated 23rd March, 2020 in Suo Motu Writ Petition (Civil) No(s).03/2020.

On 29th March, IBBI inserted a new Regulation 40C in CIRP Regulation, 2016 with initial line “Notwithstanding the time-lines contained in these regulations, but subject to the provisions in the Code,…” to exclude time for the purposes of the time-line for any activity that could not be completed due to such lockdown. That is the Regulation 40C excludes only the time of activities prescribed under Regulation 40A and other CIRP regulations. This Regulation 40C cannot extend the time limit prescribed under Section 12 as restricted by opening words.

Now, today NCLAT exercise of powers conferred by Rule 11 of NCLAT Rules, 2016 and referring the decision Quinn Logistics India Pvt. Ltd. vs. Mack Soft Tech Pvt. Ltd. 192(IBC)10/2018 excluded such lockdown period from the time limit mentioned under section 12 of the Code.

The case of  Quinn Logistics was decided in May, 2018. The exceptions carved out in this case to extend the time period include i.e. for following good grounds and unforeseen circumstances, the intervening period can be excluded for counting of the total period of 270 days of resolution process:-

1. If the corporate insolvency resolution process is stayed by ‘a court of law or the Adjudicating Authority or the Appellate Tribunal or the Hon’ble Supreme Court.
2. If no ‘Resolution Professional’ is functioning for one or other reason during the corporate insolvency resolution process, such as removal.
3. The period between the date of order of admission/moratorium is passed and the actual date on which the ‘Resolution Professional’ takes charge for completing the corporate insolvency resolution process.
4. On hearing a case, if order is reserved by the Adjudicating Authority or the Appellate Tribunal or the Hon’ble Supreme Court and finally pass order enabling the ‘Resolution Professional’ to complete the corporate insolvency resolution process.
5. If the corporate insolvency resolution process is set aside by the Appellate Tribunal or order of the Appellate Tribunal is reversed by the Hon’ble Supreme Court and corporate insolvency resolution process is restored.
6. Any other circumstances which justifies exclusion of certain period. However, after exclusion of the period, if further period is allowed the total number of days cannot exceed 270 days which is the maximum time limit prescribed under the Code.

In Aug, 2019 (after the Quinn Logistics case) the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (amendment act), w.e.f. 16.08.2019, inserted a proviso to Section 12 to cap the CIRP time limit mandatorily 330 day. The proviso reproduced here:

“Provided further that the corporate insolvency resolution process shall mandatorily be completed within a period of three hundred and thirty days from the insolvency commencement date, including any extension of the period of corporate insolvency resolution process granted under this section and the time taken in legal proceedings in relation to such resolution process of the corporate debtor”

(Emphasis provided)

Section 12 of the Code thus mandates that the CIRP must conclude within 330 days from the insolvency commencement date. This period of 330 days includes:

(a) normal CIRP period of 180 days,
(b) one-time extension, if any, up to 90 days of such CIRP period granted by the Adjudicating Authority, and
(c) the time taken in legal proceedings in relation to the CIRP of the CD.

Now, the question  raised is whether Appellate Tribunal (NCLAT) have power to extend the time limit of those cases which are expiring 330 days during this lockdown period i.e. beyond the status limit?

As per sub-section (2) & (3) of section 12 of the Code, Adjudicating Authority(NCLT) can extent the CIRP time limit further 90 days. NCLAT have inherent power under Rule 11 of NCLAT Rules, 2016 to extend the time limit, which is reproduced here:

11.  Inherent powers

Noting in these rules shall be deemed to limit or otherwise affect the inherent powers of the Appellate Tribunal to make such orders or give such directions as may be necessary for meeting the ends of justice or to prevent abuse of the process of the Appellate Tribunal.

This is settled law that rules cannot override the main statute and the main status, here the Code,  defined the maximum cap 330 days which is mandatory in nature.

The question was answered by Hon’ble Supreme Court in the matter of Committee of Creditors of Essar Steel India Vs. Satish Kumar Gupta & Ors.

Hon’ble Apex Court struck-off the mandatorily word and held that while leaving the provision otherwise intact, the term “mandatorily” is struck down as being manifestly arbitrary under Article 14 of the Constitution of India and as being unreasonable restriction on the litigant’s right to carry on business under Article 19(1)(g) of the Constitution. The effect of this declaration is that ordinarily the time taken in relation to the CIRP must be completed within the outer limit of 330 days from the insolvency commencement date, including extensions and the time taken in legal proceedings. If the delay or a large part thereof is attributable to the tardy process of the AA and/or the NCLAT itself, it may be open in such cases for the AA and/or NCLAT to extend time beyond 330 days. It is only in exceptional cases that time can be extended, the general rule being that 330 days is the outer limit within which resolution of the stressed assets of the CD must take place beyond which it is to be driven into liquidation.

As per above decision of the Hon’ble Supreme Court,  NCLT as well as NCLAT can extend time limit under section 12 of the Code beyond 330 days.

So, it is well in power of NCLAT to extent the time limit beyond 330 days for those cases crossing the limit during the lockdown period vide the suo motu order dated 30.03.2020.

Read more about section 12.

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