Supreme Court: Time Is Crucial Facet Of Scheme Under IBC; Can't Allow Proceedings To Lapse Into Indefinite Delay

The Supreme Court reiterated that time is a crucial facet of the scheme under the Insolvency and Bankruptcy Code, 2016 (IBC) and to allow proceedings to lapse into indefinite delay would plainly defeat the very object of the statute.

The Court reiterated thus in Civil Appeals filed by a company challenging the Judgment of the National Company Law Appellate Tribunal (NCLAT), which dismissed its Appeals.

The two-Judge Bench of Justice Sanjay Kumar and Justice Alok Aradhe observed, “As rightly noted in the clinching judgment dated 31.05.2024, the NCLT was exercising power under Rule 15 of the NCLT Rules and was, therefore, at liberty to stipulate such terms as the justice of the case required. As pointed out by this Court in Kridhan Infrastructure Private Limited vs. Venkatesan Sankaranarayan and others, time is a crucial facet of the scheme under the IBC and to allow such proceedings to lapse into indefinite delay would plainly defeat the very object of the statute.”

Senior Advocates Mukul Rohatgi and Jaideep Gupta represented the Appellant, while AOR Aditya Verma represented the Respondent.

Factual Background

A Company Appeal was filed by M/s. Shri Karshni Alloys Private Limited (Appellant) before the NCLAT, Chennai Bench, assailing the Order of the NCLT. Another Company was filed before the NCLAT and both the Appeals were heard by a bench composed of two Members and they delivered separate Judgments. However, the Member (Judicial) disagreed with the Judgment authored by the Member (Technical).

The Member (Technical) had partly allowed the Appeals while the Member (Judicial) was inclined to dismiss them in their entirety. Owing to their difference in opinion, the Chairperson of the NCLAT referred the matter to another Member (Technical). By Judgment, the third Member agreed with the view taken by the Member (Judicial) and, in consequence, the Appeals were dismissed. Aggrieved by such dismissal, the Appellant filed Appeals under Section 62 of IBC before the Apex Court.

Reasoning

The Supreme Court after hearing the contentions of the counsel, noted, “We may note that the appellant itself had asked for extension of time till 31.05.2022 in its prayer in the aforestated IA and as the order was being passed on 29.06.2022, the NCLT seems to have acted upon the appellant’s own suggested time frame and directed it to pay ₹34.60 crores with 12% interest from 15.04.2022 by 30.06.2022, i.e., the very next day. As the appellant had approached the NCLT for extension of time two months earlier, stipulating that it required time till 31.05.2022, the NCLT would have obviously expected that the appellant would have arranged for the funds to be paid in terms of the extended timeline prayed for by the appellant itself.”

The Court remarked that when the NCLT granted just one day’s time to the Appellant to pay 50% of the balance amount due, it was justified in doing so and the Appellant cannot make much of the fact that it was required to pay that amount by the very next day.

“Further, as the appellant had already backtracked on the commitment in its offer made on 09.09.2021 with regard to paying the entire amount within 15 days from the date of approval by the NCLT, i.e., from 22.03.2022, and the appellant was being given an extended timeline to make the payment at least by 31.07.2022, i.e., nearly 4 months later, the NCLT was fully justified in adding the forfeiture clause that if the appellant deviated from the timelines as set out in the order dated 29.06.2022, the entire amount paid by it was liable to be forfeited”, it said.

The Court was of the view that the conduct of the Appellant during the course of the proceedings also disentitled it from seeking relief and the clandestine act of filing a Writ Petition before the High Court, suppressing the fact that it had already filed an Appeal before the NCLAT against the Order and attempting to challenge the very same Order under Article 226 of the Constitution, clearly reflected on its lack of bonafides.

“Such abuse of process warranted non-suiting of the appellant on that ground itself. Even on merits, we find that the appellant had no justifiable claim to seek refund of the amounts paid by it, which stood forfeited in keeping with the order passed by the NCLT. This was not a case of a contract between the appellant and the liquidator/stakeholders, whereby the appellant could seek to fall back on Section 74 of the Indian Contract Act, 1872”, it added.

Conclusion

The Court further said that the sale in question was purely under the supervision of the Adjudicating Authority, i.e., the NCLT, and the forfeiture condition stipulated by the NCLT while granting extension of time cannot be equated with a forfeiture clause in a contract.

“Having made an offer, coupled with a temporal commitment, which was duly accepted by the NCLT, vide its order dated 22.03.2022, the appellant went before the NCLT and sought extension of time. That extension was granted, saddled with the condition of forfeiture in the event of failure, and was duly accepted and acted upon by the appellant, as already noted supra. The appellant actually made payments to the tune of ₹1.50 crores after the passing of the extension order dated 29.06.2022 but failed to make the full payment by 31.07.2022. The appellant cannot, therefore, seek to approbate and reprobate at this stage by assailing the forfeiture clause in the said order, having accepted and acted upon the extension granted thereunder”, it concluded.

Accordingly, the Apex Court dismissed the Appeals.

Cause Title- M/s. Shri Karshni Alloys Private Limited v. Ramakrishnan Sadasivan (Neutral Citation: 2025 INSC 1411)

Appearance:

Appellant: Senior Advocates Mukul Rohatgi, Jaideep Gupta, AOR Bharti Tyagi, Advocates S.D. Singh, Shweta Sinha, Racheeta Chawla, Ram Kripal Singh, Siddharth Singh, and Meenu Singh.

Respondent: AOR Aditya Verma, Advocates K. Rigved Prasad, Mayan Jain, and Parkhi Rai.

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