NCLT Kochi Bench Allows Delay in Bankruptcy Application Filing, Upholds Substantive Justice

Kerala Financial Corporation Granted Condonation of Delay for Bankruptcy Proceedings Against Personal Guarantors

In a significant ruling, the Kochi Bench of the National Company Law Tribunal (NCLT) has condoned the delay in filing bankruptcy applications by Kerala Financial Corporation (KFC) against personal guarantors Dr. Bharath Chandran and Dr. Ashalatha Nair. The applications, filed under Section 123 of the Insolvency and Bankruptcy Code, 2016, were delayed by 266 days beyond the prescribed timeline. The Tribunal, comprising Member (Judicial) Shri. Vinay Goel and Member (Technical) Smt. Madhu Sinha, ruled that the timelines under Section 121(2) are directory and not mandatory when substantive justice could otherwise be defeated.

The case arose from the resolution process initiated by Dhanlaxmi Bank Ltd. against the personal guarantors of Trivandrum International Health Services Limited, with KFC seeking to file bankruptcy applications as a creditor. The delay in filing was attributed to ongoing asset liquidation proceedings and the need for administrative approvals. Despite the delay, the Tribunal emphasized that procedural timelines should serve the broader objective of justice and not impose undue hardship, especially in cases where delay is neither deliberate nor mala fide.

The Tribunal relied on precedents set by the Supreme Court, including the interpretation of the term "shall" in statutes, which does not necessarily render a provision mandatory. The absence of specific penalties for non-compliance with the timeline under Section 121(2) supported the view that the provision is directory. Furthermore, the applicability of the Limitation Act, 1963, to proceedings under the Insolvency and Bankruptcy Code, 2016, was affirmed, allowing for the condonation of delay in appropriate cases.

While granting the condonation, the Tribunal noted the importance of adhering to timelines under the Insolvency and Bankruptcy Code for its effective implementation, urging statutory financial institutions like KFC to act with greater diligence. As a condition of the condonation, KFC was directed to deposit Rs. 25,000 in each case with the National Defence Fund.

The ruling underscores the Tribunal's commitment to balancing procedural requirements with the principles of natural justice, ensuring that parties are not unjustly penalized due to technical delays. The decision provides relief to KFC, enabling the continuation of bankruptcy proceedings against the personal guarantors for the unresolved debt.

Bottom Line:

Insolvency and Bankruptcy Code, 2016 - Application for bankruptcy under Section 121(2) - Condonation of delay in filing the application beyond the prescribed three months - Held, timelines under Section 121(2) are directory and not mandatory when substantive justice would otherwise be defeated. 

Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Sections 7, 9, 94, 95, 100, 112, 114, 115, 118, 121, 123, 238A; Limitation Act, 1963 - Section 5, Article 137

M/s. Kerala Financial Corporation v. Dr. Bharath Chandran, (NCLT)(Kochi Bench) : Law Finder Doc Id # 2773188