The Insolvency and Bankruptcy Code, 2018 has created for a legal and institutional framework for the process of regulating insolvency in India. The Code has helped in speeding up the process of winding up of insolvent companies along with increasing the level of business activities in India. However, there are certain drawbacks under the Code, among which one of the main drawbacks of the Code is that the Code has not considered the factor of time, that which is of the essence to be followed by the adjudicating authority.

The same was dealt in detail in the landmark case of JK Jute Mills Company Limited V. M/s. Surendra Trading Company[1] which looked into Section 7(5), Section 9(5) and Section 10 (4) of the Code and asserted that the time requirement mandated by the Adjudicating Authority is merely directory and not mandatory in nature as the provisions are procedural in nature and thus are in turn tools used in the aid of expeditious dispensation of justice.

Due to a lack of legal and institutional framework, these problems could not be adjudicated for in a proper manner. Thus, the Insolvency and Bankruptcy Code is an important piece of legislation which has been enacted by the parliament to expedite the adjudication of these matters. The Code has helped in speeding up the process of winding up of insolvent companies and channelling the resources of these companies into more productive and economy-building activities. It has also increased the level of business activities in India and has brought a level of certainty in the market regarding business transactions and their secure ness. However, there are certain drawbacks for this piece of legislation and one of them is with respect to the time limits prescribed in the Code.

Object of The Act
The object of the Act and the intention of the legislation must be taken into account, while asserting the real intention of the legislature. The court must consider the nature and design of the statute and the consequences that which follows from construing it the one way or the other. [2] The object of the Insolvency and Bankruptcy Code was to ensure that the insolvency resolution process is done in a timely manner so that the value of assets are maximized in the economy and to make sure that there is availability of credit and balance the interests of all the stakeholders. Therefore, the object of the enactment will be defeated by holding the same as directory in nature because timely resolution of these matters will require the adjudicating authority to strictly adhere to the timelines and therefore they must be made mandatory in nature so that the object of the Act is not defeated.

Difference Between The Words 'Shall' And 'May'
Another important aspect in determining whether a statutory provision is mandatory or directory is to construe the meaning of the words 'SHALL' and 'MAY' which have been used in many of the provisions under the Code. The use of the word 'MAY' indicates a directory requirement and the word 'SHALL' indicates a mandatory requirement.

An example of the difference between these two words can be ascertained from the provisions given under the Code. Section 9(4) states that the operational creditor 'MAY' propose an Insolvency Professional to act as an Interim Resolution Professional whereas Section 9(5) states that the Adjudicating Authority 'SHALL' within 14 days of receipt of the application take any of the following actions regarding the petition. This clearly shows that there is an option given to the operational creditor to propose an Insolvency Professional and this can be exercised by him if he wants to do so. However, Section 9(5) clearly states that the Adjudicating Authority has to take any of the following actions regarding the petition submitted by the Operational Creditor within 14 days. Almost all the provisions which are specified under the Code regarding filing of application, admission of application and other provisions which specify the time that needs to be followed by the different stakeholders to complete the Insolvency Resolution Process contain the word 'SHALL'. Since these different provisions within the Code are connected with the same word 'SHALL' and with respect to some of them, the intention of the legislature is clear that the word 'SHALL' must be given a mandatory meaning. This may indicate to the fact that with respect to other provisions also, the same construction must be placed.

A solution to make these provisions more clear and mandatory in nature would be to substitute the word 'MUST; in place of the word 'SHALL'. This will be sufficient to hold the provision to be mandatory and it will not be necessary to pursue the enquiry into any further.

NCLAT As The Sole Adjudicating Authority
The NCLAT while deciding whether the timelines specified under the IBC are directory or mandatory in nature relied on a number of judgements which held that the procedural timelines which are stated in the Civil Procedure Code are directory in nature. An example of this can be seen in Order VIII Rule 1 of the CPC which states that a written statement has to be filed within 30 days from the date of services of summons upon a person. This time limit specified under the CPC is considered to be directory in nature and not mandatory. [3]

The time limits specified in the CPC are rightly considered to be directory in nature because the CPC applies to all the civil issues which come forward in the Courts across India. The amount of civil cases that are filed on a daily basis is enormous and hence the time limits specified in the CPC are considered to be directory so as to allow certain amount of breathing space for the civil courts in India.

However, the same cannot be considered to be true for the Insolvency and Bankruptcy Code because it is a single legislation which concerns only Insolvency Resolution matters and the NCLT is the only court which has the power to adjudicate these matters. The NCLT was created as a quasi-judicial body by the Indian Government and it remains till date to be the sole adjudicating authority for company law matters in India. Since there is a difference between the NCLT and the Civil Courts in this regard, the way in which the timelines are considered by the Courts must also be different and hence the timelines should be made mandatory.

The NCLAT has held the timelines to directory in nature because the NCLT has both administrative and judicial functions. Even though the admission and verification of a petition is a time consuming process, it should be not allowed to exceed the time given under the Code i.e. the 14 day period. The verification of petition is mainly done so as to make sure that it is not a frivolous petition and that the petition is in the correct form. Both of these can be done during the adjudication process only and need not be done as a separate judicial function. If a severe punishment is given for false and frivolous claims, it will result in an automatic reduction of such petitions. With regard to the latter, the Code has provided for a rectification of petition [4] and this rectification has to be done within 7 days. This was made mandatory by the NCLAT. When the timelines are made mandatory for the other stakeholders in an insolvency petition, the same must also apply for the adjudicating authority so that the object of the Code can be achieved.

The pressure on the Tribunal to follow the timelines strictly can be eased when there are exceptional circumstances and when the reasons are so provided. Also, with regard adjourning of cases, not more than 2 adjournments should be allowed for the NCLT just like how the CPC provides for the Civil Courts. [5]

Economic Consequences As A Result
Efficiency in an economy can be achieved only if and promoted by assignment of the property rights to the party who can put it the best use and get the best economic efficiency out of its use. [6]

If looked from an economic perspective, the objective of the Insolvency and Bankruptcy Code is to further the economic principles of 'Best Use of Economy's Resources' and 'Wealth Maximization' and this can be derived from the fact that it specifies in its preamble that it will ensure timely resolution of insolvency matters for the maximization of value of assets of such persons. However, this is objective cannot be truly achieved in a situation where the Insolvency Resolution Process does not take place in a time bound manner.

When the insolvency process is not completed as per the timelines provided under the Code, the assets continue to remain with the firms who do not put it to their best use because they do not have the financial ability to do so. These distressed firms are economically inefficient due to their inability to finance their operations. In terms of Allocative Efficiency, they will be considered as a 'Dead Weight Loss'. Also there are likely to be losses resulting from inefficient deployment of the firm's assets ex post. For example, the firm is worth more as a going concern than on a break-up-basis, but nonetheless financial distress results in closure, and then there will be a social loss equivalent to this difference. [7] In order to prevent such social losses, the assets in these Insolvent Companies must be fast tracked to the creditors and other stake holders so that they can be put to their most efficient use by them. This can be achieved only if the timeline of 270 days to finish up an Insolvency Resolution Process is followed mandatorily. Only if these shorter timelines are followed mandatorily can the whole process be completed within 270 days and hence all the timelines under the Code must be mandatory in nature.

Conclusion:
While the Code is a new law in the making, the same holds to be a fast stride in helping creditors get their claims against insolvent companies processed in an speedy, efficient, and quick manner. Although, the same is sometimes hindered when the adjudicating authority takes a leisure approach towards the petition of the creditors, this practice must be curtailed as it not only hinders the interest of the different stakeholders but also it affects the economy as a whole. The structural changes must be brought under the Code so as to make the timelines mandatory regarding those areas under which the NCLT functions as an adjudicator under the Code, so that the objects for which the Code was created can be fulfilled.
The ultimate goal of the Code is to provide for maximization of the value of assets of the creditors in a time bound manner and to ensure availability of credit for companies. This cannot be achieved if the adjudicating authority performs its functions in a lacklustre and leisure manner. The strength of a legal framework ultimately rests on the efficiency of the adjudicator of the law i.e. the NCLT in the above situation. This is especially so for a procedural law like Bankruptcy Law. Structural lapses in the NCLT are likely to cripple the working of the legal framework, reduce the efficiency of resolution and the leave the insolvency reform process undone. Therefore, the timelines provide for under the Code must be made mandatory in nature so that there is a judicial mandate for the adjudicating authority to finish the insolvency resolution process expeditiously and resources can be put to a much more productive use.

End Note:
1. JK Jute Mills Company Limited V. M/s. Surendra Trading Company, Company Appeal (AT) No. 09 of 2017.
2. Narsimhiah (K.) V. H.C. Singri Gowda AIR 1966 SC 330.
3. Kailash V. Nanhku and Others 2005 (4) SCC 480.
4. Proviso to Section to Section 7(5)(b).
5. Order XVII Rule 1 of the Civil Procedure Code, 1908.
6. Economic Analysis of Law by Richard Posner – Chapter 3 Page No. 52.
7. Working Paper on 'The Law and Economics of Corporate Insolvency: A Review' by John Armour.