Adjudicating Authority Can Extend Time Limit Of PPIRP Beyond 120 Days: NCLAT New Delhi

Brief Facts

The PPIRP of the corporate debtor was initiated by MSME under section 54C of the Insolvency and Bankruptcy Code (IBC). The corporate debtor was admitted into PPIRP on January 4, 2024. In a meeting held on April 30, 2024, committee of creditors (CoC) authorised with 91.75% vote share Resolution Professional (RP) to file for extension of 60 days as the period of 120 days was to be expired on May 3, 2024.

The RP applied for extension of time period. However, Adjudicating Authority refused to extend the time period on the ground that the RP had to file for termination of the PPIRP on the expiry of 120 days if no resolution plan was approved under section 54D(3) of the IBC. The Tribunal rejected the RP's request and put an end to the PPIRP.

Issues Before NCLAT

1. Whether PPIRP terminates automatically on the expiry of 120 days or Resolution Professional has to apply for its termination.
2. Whether Adjudicating Authority has discretion to extend the time limit beyond 120 days.

NCLAT's Analysis

The NCLAT first analysed the provisions related to PPIRP under the IBC particularly chapter IIIA which came into force on April 4, 2021. The primary goal of the PPIRP was to lay down an efficient insolvency framework for MSMEs. Section 54D provides that the RP has to file for termination of the PPIRP once the time period of 120 days has expired and no resolution plan was approved. However, it does not lead to automatic termination of the PPIRP. The tribunal further noted that the PPIRP provisions were introduced to support the MSMEs in trouble therefore they should not be applied mechanically. It was observed as under:

“The provisions of Section 54D(1) provide PPIRP shall be completed within a period of 120 days from the PPIRP commencement date. Sub-Section (3) of Section 54D further provides when no Resolution Plan is approved by the CoC within time period referred to in sub-Section (ii) RP shall, on the day after the expiry of such period, file an Application with the Adjudicating Authority for termination of PPIRP.

Section 54D and Section 54N clearly indicate that termination of PPIRP happens after an Order is passed by the Adjudicating Authority. The statute makes one thing clear that there is no concept of automatic termination of PPIRP after expiry of 120 days. No exception, can be taken for providing 120 days of completion of PPIRP”.

The NCLAT referred to the judgments of the Supreme Court in Surendra Trading Company v. Juggilal Kamlapat Jute Mills Company Ltd. and Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta & Ors in which the discretion was allowed to be exercised in extending the time limit provided under the IBC. The tribunal observed that although this decision was in relation to section 12 of the IBC which provides timelines for Corporate Insolvency Resolution Process, the rationale of this judgment can also be applied to PPIRP. It was observed as under:

“The Hon'ble Supreme Court had occasion to consider the second proviso of Section 12 of the IBC in Committee of Creditors of Essar Steel India Ltd. (Supra). The second proviso which provided for mandatory completion of CIRP within 330 days came for consideration before the Hon'ble Supreme Court in the above case and Hon'ble Supreme Court has struck down the word “mandatorily”. It was held by the Hon'ble Supreme Court that in appropriate case even after 330 days, Adjudicating Authority or Appellate Tribunal can extend the period.

The above Judgment of the Hon'ble Supreme Court clearly indicates that where legislature provided for mandatorily completion of CIRP within 330 days the word “mandatory” was struck down and it was held that in appropriate cases, Adjudicating Authority shall have jurisdiction to extend the time beyond 330 days.

Even if Section 12 is not made applicable to PPIRP, the interpretation put by the Hon'ble Supreme Court on the second proviso of Section 12 is very well applicable by interpreting the provisions of Section 54B”.

The NCLAT further observed that section 54D and 54N do not contemplate automatic termination of the PPIRP once the period of 120 days expires. Rather, the RP has to file an application for termination of the PPIRP and the adjudicating authority has discretion to extend the time limit if justifiable reasons are provided.

It was further noted by the NCLAT that although strict timelines provided under the IBC has to adhere to considering the objectives of the IBC- Maximisation of assets value and timely resolution of the corporate debtor. However, this timeline can be relaxed in the facts and circumstances of each case especially in the case of MSMEs. It was held as under:

“Grant of extension is matter of facts of each case. In the Statutory Scheme, in Chapter III–A, it is clear that the PPIRP has been provided for the benefit of MSME. The provisions is a beneficial provisions to resolve MSME which are in distress. Timeline period of 120 days for completion of the process is Statutory Scheme, but Statutory Scheme cannot be interpreted to interpret in a manner to mean that after 120 days, there is no jurisdiction left in the Adjudicating Authority to extend the time when a sufficient cause is shown”.

Conclusion

The NCLAT concluded that the Adjudicating Authority erred in rejecting the application filed for extending the time period. The time period within which the PPIRP has to be completed is not mandatory in every case instead it can be relaxed in a peculiar circumstances of a case by the Adjudicating Authority while exercising its discretionary power. Accordingly, the decision of the Adjudicating Authority was set aside and the time period was extended by 60 days.

Case Title: Mr. Vikash Gautamchand Jain RP of Kethos Tiles Pvt. Ltd.

Court: National Company Law Appellate Tribunal, New Delhi

Case Reference: Company Appeal (AT) (Insolvency) No. 1173 of 2024 & I.A. No. 4190, 4191 of 2024 with Company Appeal (AT) (Insolvency) No. 1323 of 2024
Judgment Date: 20/08/2024

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