CIRP Can't Be Extended Beyond 330 Days U/S. 12(3) Of IBC Absence Of “Exceptional Circumstances”: NCLAT

The NCLAT bench of Justice Ashok Bhushan (Chairperson) and Arun Baroka (Technical Member) has observed that the maximum timeline prescribed under Section 12(3) of the Insolvency and Bankruptcy Code (IBC) is 330 days. While this period is directory (not mandatory), an extension beyond 330 days is permissible only in “exceptional circumstances”, where a short time is required to complete the CIRP. The Tribunal held that the period sought to be excluded was 252 days, which is huge, hence the request for exclusion is liable to be turned down as the Appellant failed to show requisite “exceptional circumstances”. Relying on the Supreme Court's judgment in Greater Noida Industrial Development Authority v. Prabhjit Singh Soni & Anr., the Tribunal observed that an order can only be recalled on limited grounds, “where (a) the order is without jurisdiction; (b) the party aggrieved with the order is not served with notice of the proceedings in which the order under recall has been passed; and (c) the order has been obtained by misrepresentation of facts or by playing fraud upon the Court/Tribunal resulting in gross failure of justice." Brief Facts: Srabani Constructions Pvt. Ltd. (Corporate Debtor) took financial facilities from Indian Overseas Bank in 2011. The Corporate Debtor committed default. Several OTS proposals were submitted but none were finalized. The Financial Creditor filed an application under Section 7 of IBC, which came to be admitted on 29.11.2022. The CoC decided to replace the Resolution Professional (RP). Application for replacement was filed on 06.07.2023. It was allowed on 09.10.2023. On 30.11.2023, the RP filed an application for exclusion of CIRP period from 22.03.2023 to 30.11.2023. The application was dismissed. The Adjudicating Authority directed liquidation of the Corporate Debtor. The Liquidator issued an auction sale notice on 24.10.2024. The Appellant's plea to stay the auction notice was dismissed. An application was filed by Appellant to seek recall of the liquidation order dated 13.12.2023. The application came to be dismissed by the Adjudicating Authority on 17.04.2024. An interim order was passed on 03.05.2024 stating, “In the meantime, Adjudicating Authority shall not approve the Auction already taken place.” The Suspended Director filed an application seeking a stay on the sale notice. On 21.11.2024, the Adjudicating Authority directed the liquidator to continue the auction process subject to the order in the pending appeal. The Suspended Director filed the appeal challenging the orders dated 17.04.2024 and 21.11.2024 passed by the Adjudicating Authority (NCLT, Cuttack). Submissions: Counsel for the Appellant submitted that the Adjudicating Authority erred in directing liquidation of the corporate debtor whereas the application was filed by the Resolution Professional for exclusion of time from the date when CoC decided to replace the Resolution Professional and the date on which application was filed. It was submitted that when the OTS proposal was under consideration, there was no occasion to direct liquidation. It was further submitted that when the Tribunal passed an interim order on 03.05.2024, liquidator ought not to have proceeded with any auction and auction notice which has been issued by liquidator is on grossly undervalued reserved price and the assets. Counsel for the Respondent submitted that the bank had never accepted any OTS proposal. It was further submitted that when no resolution has taken place within time of CIRP, no error has been committed by the Adjudicating Authority in passing any order of liquidation. No case has been made out for recall of the liquidation order dated 13.12.2023. Neither there was any fraud nor misrepresentation. This Tribunal in interim order dated 03.05.2023 never stayed the auction and only held that auction shall be subject to the order passed in these appeals. Observations: The first issue that the NCLAT considered was whether the NCLT committed an error in rejecting the recall application. The Tribunal noted that the application for exclusion was filed after 1 year. There was also no explanation for the delay of about 100 days in filing the application for removal of RP. The NCLT had noted the maximum time period prescribed under section 12(3) of IBC i.e. 330 days. There is no scope to exclude the entire period of 252 days in one stroke and allow to commence the CIRP afresh. It observed that the time period under section 12(3) IBC is directory but the extension beyond 330 days could only be allowed in 'exceptional cases' where a short period is left for completion. The NCLT held that the period sought to be excluded was 252 days, which is huge, hence the request for exclusion is liable to be turned down. The Tribunal referred to the judgment of the Supreme Court in Committee of Creditors of Essar Steel India Limited...

CIRP Can't Be Extended Beyond 330 Days U/S. 12(3) Of IBC Absence Of “Exceptional Circumstances”: NCLAT

Tazeen Ahmed

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