Delay in Filing of Repayment Plan Not Grounds For Bankruptcy: NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT) held that mere delay in filing a repayment plan cannot, by itself, justify continuation of bankruptcy proceedings, especially in circumstances where there has been no opposition from the creditor bank “(sbi)” to a request for an extension of time. The Appellate Tribunal allowed an appeal and set aside an order of bankruptcy passed against the personal guarantor.

This appeal arose from the bankruptcy proceedings brought against Saleesh K. Satheesh, a personal guarantor, under the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC). The Adjudicating Authority (NCLT) had declared the appellant bankrupt on the sole basis that he failed to file his repayment plan within the stipulated time period.

Aggrieved with the order, the appellant preferred an appeal before the NCLAT, stating that the delay in filing the repayment plan was not intentional and that he had prayed for the extension of time. Notably, the principal creditor, State Bank of India (SBI), was also informed that it does not object to the grant of further time for filing the repayment plan.

The appellant held that "the object of IBC is resolution and not liquidation or bankruptcy" and that a mere procedural default is not a ground to defeat substantive rights, particularly when the creditor himself was willing to grant an extension of time. The appellant also contended that "the Adjudicating Authority did not take note of the fact that the creditor was willing to grant an extension of time and acted mechanically in ordering a case of bankruptcy."

On the other hand, although the proceedings had been initiated through a notice from the SBI itself, the bank made it clear to the Appellate Tribunal that it had no objection to extending the time for the purpose of filing the repayment plan.

The two-member bench comprising Justice Sharad Kumar Sharma [Judicial Member] and Jatindranath Swain[Technical Member] gave merit to the submissions advanced by the appellant and observed that non-filing of a repayment plan within the stipulated time cannot automatically result in bankruptcy, especially when the creditor does not object to granting an extension. The Tribunal observed that the IBC framework is designed to promote resolution and that while procedural timelines are important, they should not be applied in a way as to frustrate the very object of the statute.

The Appellate Tribunal held that the Adjudicating Authority ought to have considered SBI's no-objection before the bankruptcy order was passed. It reiterated that as long as a creditor is willing to give an opportunity, it cannot be denied, besides being contrary to the principles of natural justice.

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