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In this article, we will analyze whether an application under Section 54C of the Code for initiating CIRP can be admitted if filed after 14 days from the filing of a Section 7 application. We will also examine whether the 14-day period under Section 11A(3) is mandatory or directory and, if mandatory, whether the time taken for approvals under Sections 54A and 54B can be excluded from its calculation.
Section 11A- Priority Of Disposal Of Insolvency Applications
Section 11A of the Code addresses scenarios where applications under Sections 7, 9, 10, and 54C are pending. It states that when an application under Section 54C is pending, it must be decided first before considering any other applications filed under Sections 7, 9, or 10 of the Code against the same corporate debtor. Furthermore, if an application under Section 54C is filed within 14 days of the filing of an application under Sections 7, 9, or 10 of the Code against the same corporate debtor, notwithstanding anything to the contrary, the application under Section 54C shall be decided first. However, if such an application is filed after 14 days from the filing of an application under Sections 7, 9, or 10, the latter application shall be disposed of first.
A bare perusal of the above provision makes it clear that precedence is given to an application filed under Section 54C of the Code against the corporate debtor over any other applications filed under Sections 7, 9, or 10 of the Code concerning the same corporate debtor. However, a caveat under Section 11A(3) states that if such an application is filed after 14 days from the filing of any other application, priority shall be given to the latter applications.
Time Period Under Section 11A(3) Is Mandatory- Bank of Baroda
The issue before the NCLAT in Bank of Baroda Versus Shree Rajashthan Syntex Ltd.1 was whether the time period provided under Section 11A(3) was mandatory or directory in nature. In this case, the application under Section 54C was filed after 14 days from the filing of an application under Section 7 by the financial creditor. It was argued that the time period under this section is directory in nature; therefore, the time taken in obtaining necessary approvals under Sections 54A and 54B should be excluded, and the application should be allowed even after the expiry of the 14-day period.
The tribunal rejected the above submissions and held that it is a well settled principle of statutory interpretation that when the statute itself contemplates consequence the provision is always treated as mandatory. Sub-section (3) of Section 11A deals with time period and is a clear statutory prescription that where an application under Section 54C is filed after 14 days of the filing of any application under Section 7, the Adjudicating Authority shall first dispose of the application under Section 7. The mandate to first dispose of Application under Section 7 is clearly indicated in the provision.
The Supreme Court in Sharif-ud-Din v. Abdul Gani Lone2 held that “in order to find out the true character of the legislation, the court has to ascertain the object which the provision of law in question has to subserve and its design and the context in which it is enacted. If the object of a law is to be defeated by non-compliance with it, it has to be regarded as mandatory.”
Based on the above, the tribunal observed that when Section 11A was inserted through the Amendment Act of 2021, the legislature was fully aware of the statutory scheme outlined under Sections 54A and 54B. Therefore, it is evident from the scheme that no exclusion of the time period is permitted while calculating the 14-day period.
The tribunal concluded that the Adjudicating Authority erred in admitting the Section 54C application, as it was filed after 14 days from the filing of the Section 7 application under the Code.
1Company Appeal (AT) (Insolvency) No. 888 of 2023
21980 AIR 303
