Libertarian Approach to Delay Condonation Justified Where Corporate Management Disruption and Sickness Constitute Sufficient Cause

The petitioner, a UP Government company, availed credit facilities of ₹16.50 Crores, later raised to ₹21.70 Crores, from a consortium of banks.

The petitioner was declared a "sick company" by the BIFR in 1995, leading to the cessation of operations and management transfers.

In 2018, the DRT Allahabad passed an ex-parte order allowing recovery of ₹21.09 Crores with 12% simple interest.

Respondent No. 3 (IARC) appealed to the DRAT seeking 16% interest with quarterly rests; the DRAT allowed this ex-parte on 21.08.2019.

Following a settlement under Section 12A of the IBC regarding its sister concern, the petitioner’s management was restored in June 2020.

Subsequently, the petitioner filed a recall application along with a delay condonation application on 04.09.2020, citing the company’s "sick" status, lack of staff, and the COVID-19 pandemic.

The DRAT rejected these applications on 01.12.2020 due to a delay of several hundred days.

1. Whether the Debt Recovery Appellate Tribunal (DRAT) was justified in rejecting the delay condonation and recall applications despite the exceptional circumstances faced by the "sick" government corporation.

2. Whether the interest rate enhancement from 12% simple to 16% quarterly rests by the DRAT without detailed reasoning or remittance to the DRT was legally sustainable.

The Court applied Section 5 of the Limitation Act, 1963, regarding "sufficient cause" for condonation of delay.

Adjudication of interest in commercial transactions.

The rule against stale claims is a rule of practice/discretion rather than an inviolable rule of law, necessitating a case-by-case factual inquiry.

Application of "sufficient cause" for a liberal approach to delay.

The Court observed that the petitioner-corporation faced a "roller-coaster" of procedural developments, including sickness, management suspension under the IBC, and revival only in mid-2020.

While the pleadings for delay condonation were not "happily worded," the Court found that the company’s lack of active management and staff during its "sick" period constituted an exceptional circumstance.

The Court reasoned that although there was some negligence, it was not "fatal" given the impersonal nature of State-run corporations and the significant financial impact of the DRAT’s interest hike.

The Court emphasized that "substantial justice" is paramount and that the petitioner should be afforded an opportunity to contest the enhanced interest rate (16% quarterly rests) which had been granted ex-parte without assigning specific reasoning.

It held that the delay in filing the restoration application stands condoned in the interest of justice.

The matter was remitted to the DRAT, Allahabad, with directions to decide the recall application on its merits within three months, conditioned upon the petitioner paying costs of ₹25,000 to Respondent No. 3.