Pre-package Insolvency Resolution Process (PPIRP) allows for judicial discretion to extend timelines despite statutory limits, reflecting the principle that provisions using "shall" may be interpreted as a directory when it serves the interests of stakeholders and maximizes corporate recovery.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) reviewed an appeal filed by the Resolution professional and observed that the NCLT has the discretion to grant extensions for the Pre-Package Insolvency Resolution Process (PPIRP) beyond the 120 days, as the statutory provisions, while using "shall," can be interpreted as directory rather than mandatory, allowing for judicial flexibility in appropriate cases. The NCLAT Bench noted that this aligns with the Supreme Court’s precedent that allows for extensions in insolvency processes when it serves the interests of stakeholders and is not attributable to the litigants' actions.
In a recent NCLAT judgment where two appeals were filed against the NCLT’s order dated June 6, 2024, which rejected the Resolution Professional's request for a 60-day extension of the Pre-Package Insolvency Resolution Process (PPIRP). The RP had initiated the PPIRP under Section 54C of the Insolvency and Bankruptcy Code (IBC) following the NCLT's admission of the application on January 4, 2024. After a public announcement and the formation of a Committee of Creditors (CoC), the impending end of the 120-day PPIRP period was addressed in a CoC meeting on April 30, 2024, where a resolution to seek an extension was passed. However, the NCLT ruled that the IBC did not expressly permit such extensions and mandated that the RP file for termination without an approved resolution plan, leading to the rejection of the extension request and subsequent termination of the PPIRP.
The RP and the suspended director of Kethos Tiles appealed, arguing that the extension application was in accordance with the CoC's resolution and that the 120-day timeline should not preclude judicial discretion for extensions under appropriate circumstances. They emphasized that prior interpretations of IBC provisions using "shall" had been viewed as a directory, which should similarly apply to Section 54D regarding the PPIRP timeline. The NCLAT considered these arguments, referencing established precedents that identified certain IBC provisions as directory rather than mandatory.
The NCLAT's assessment drew upon the Supreme Court’s ruling in the Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others, REEDLAW 2019 SC 11505 case, which had struck down the term “mandatorily” from the statutory time limits in the context of the Corporate Insolvency Resolution Process (CIRP). This ruling allowed for extensions when in the interest of stakeholders and when delays were not due to litigant fault. Although Section 12 did not apply to the PPIRP, the NCLAT noted that the Supreme Court's interpretation provided a framework for interpreting Section 54B.
Ultimately, the NCLAT concluded that the NCLT had erred in its refusal to grant the requested extension, clarifying that Section 54D did not impose automatic termination after 120 days. The Tribunal allowed the appeal, set aside the NCLT's prior order, and granted the requested 60-day extension. The appeal was disposed of with the parties bearing their own costs, underscoring the judiciary's willingness to interpret statutory timelines flexibly when justified by the circumstances of a case.
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