SUPREME COURT ALLOWS AMENDMENT OF PLEADINGS PRIOR TO ADMISSION BY NCLT
Recently, the Bench of the Hon’ble #SupremeCourt of India in the case of Dena Bank vs. C. Shivakumar Reddy [CA 1650/2020] vide its Judgment dated 04-08-2021 held that there is no #bar in allowing #amendment or filing of additional documents with respect to Application for initiating Corporate Insolvency Resolution Process (#CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (#IBC).
The facts of the case relates to one C. Shivakumar Reddy, who is a director of the Corporate Debtor (Respondent). The Respondent defaulted in the repayment of its dues to the Dena Bank (Appellant) under a Term Loan Account. The Respondent’s Loan Account was declared as Non-Performing Assets (NPA) in December 2013. The Appellant Bank issued a Legal Notice to the Respondent and called upon them to make payment of Rs. 52.12 Crores, which claimed to be due from the Corporate Debtor. The Corporate Debtor did not make the payment.
Thereafter, the Appellant Bank filed an Application before the Debt Recovery Tribunal, Bengaluru (DRT) being O.A. No.16/2015 under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 in 2015. However, the Corporate Debtor requested for restructuring of the Term Loan and gave a proposal for one time settlement of the Term Loan Account, upon payment of Rs.5.50 Crores. The Appellant Bank did not accept the same.
The DRT vide its final Order dated 25.05.2017 held in favour of the Appellant and issued a Recovery Certificate of Rs.52,12,49,438.60 with future interest at the rate of 16.55% per annum.
Thereafter, the Appellant Bank issued a Demand Notice to the Corporate Debtor and filed the Insolvency Petition being CP(IB) No.244/BB/2018 before the Adjudicating Authority under Section 7 of the IBC in the year 2018.
The Appellant Bank filed an Application in CP (IB) No.244/BB/2018 before the Adjudicating Authority for permission to place on record additional documents, including the Final Judgment and Order dated 27.03.2017 of the DRT in OA No.16/2015 and the Recovery Certificate No. 2060/2017 dated 25.05.2017 issued by the DRT. The Respondent contended that the said Company Petition was barred by limitation.
The Adjudicating Authority, vide its Order dated 04-02-2019 allowed the Application and directed the Appellant Bank to file an amended petition enclosing the documents referred in its Application.
Thereafter, the Appellant Bank filed another Application in the said Company Petition for filing additional documents related to the Corporate Debtor. The Adjudicating Authority vide its Order dated 06-03-2019 also allowed the said Application of the Appellant Bank. As a result, the Adjudicating Authority, vide its Order dated 21-03-2019 finally admitted the said Company Petition under Section 7 of the IBC against the Corporate Debtor. The Corporate Debtor objected that the said Petition is barred by limitation however, the Adjudicating Authority rejected the said objection vide its Order dated 21-03-2019 (NCLT).
The Respondent filed an Appeal against the NCLT Order dated 21-03-2019 before the NCLAT. The NCLAT set aside the NCLT Order dated 21-03-2019 and dismissed the Company Petition filed under Section 7 of the IBC by the Corporate Debtor on the ground of limitation.
The Appellant Bank filed an Appeal against the NCLAT Order before the Supreme Court of India. The major issue before the Supreme Court was whether there is any bar in law to the amendment of pleadings or to filing of additional documents in a Petition under Section 7 of the IBC.
The Supreme Court answered the aforesaid issue in negative and observed that:
- The Court referred to the provisions under Chapter II of the IBC and said that the provisions of the IBC are designed to ensure that the business or commercial activities of the Corporate Debtor are continued by a Resolution Professional. This would give the Corporate Debtor some reprieve from coercive litigation, which could drain the Corporate Debtor of its financial resources. This is to enable the Corporate Debtor to improve its financial health and at the same time repay the dues of its creditors.
- The Court discussed the statutory Form 1 under Rule 4(1) of the NCLT Rules 2016, which comprises Parts I to V. It referred to Parts IV and V which require particulars of financial debt with documents and evidence of default. There is no scope for elaborate pleadings. An application to the NCLT under Section 7 of the IBC in the prescribed form cannot therefore, be compared with a plaint in a suit. Such application cannot be judged by the same standards, as a plaint in a suit, or any other pleadings in a Court of law.
- It is, therefore, imperative that the provisions of the IBC and the Rules and Regulations framed thereunder be construed liberally, in a purposive manner to further the objects of enactment of the statute. It should not be given a narrow, pedantic interpretation which defeats the purposes of the Code.
- Also, there is no penalty prescribed under the proviso to Section 7(5)(b) of the IBC, for inability to cure the defects in an Application within seven days from the date of receipt of notice. In an appropriate case, the Adjudicating Authority may accept the cured application, even after expiry of seven days, for the ends of justice.
- It held that on a careful reading of the provisions of the IBC and in particular the provisions of Section 7(2) to (5) of the IBC read with the NCLT Rules, 2016 there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed.
- However, the Court said that depending on the facts and circumstances of the case, when there is inordinate delay, the Adjudicating Authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents and proceed to pass a final order.
In view of this, the Supreme Court set aside the NCLAT Order and upheld the NCLT Order dated 21-03-2021. It further held that there is no bar in law to the amendment of pleadings or to the filing of additional documents in an Application under Section 7 of the IBC in the absence of any express provision which either prohibits or sets a time limit for filing of additional documents.
Senior Legal Associate
The Indian Lawyer & Allied Services
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