6048 2021 7 1502 36306 Judgement 12-Jul-2022
6048 2021 7 1502 36306 Judgement 12-Jul-2022
6048 2021 7 1502 36306 Judgement 12-Jul-2022
versus
JUDGMENT
Indira Banerjee, J.
and order dated 2nd March 2021 passed by the National Company Law
Digitally signed by
GULSHAN KUMAR
ARORA
Date: 2022.07.12
18:32:55 IST
Reason:
2. The Appellant is a Generating Company within the meaning of
Section 2(28) of the Electricity Act, 2003 and has set up a 600 MW
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Coal-^red Thermal Power Plant comprising of two units each of 300
in Maharashtra.
3. Under the Electricity Act, 2003, and the Rules and Regulations
a Group Power Project (GPP). The GPP was later converted into an
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which the Ministry of Coal (MOC) issued an order on 17 th July 2013
to execute FSAs with CIL. The Appellant was not included in the list.
Appellant and RIL under which the Appellant agreed to supply and RIL
from GPP to IPP for the purpose of executing FSA was approved.
approved the Final Tari_ of the power plant of the Appellant for the
No.91 of 2015 before the MERC for the purpose of truing up the
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Aggregate Revenue Requirement and for determination of tari_ in
terms of MERC (Multi Year Tari_) Regulation 2011, in view of, inter
alia, the increase in fuel costs, consequential to the rise in the cost of
12. By an order dated 20th June 2016, the MERC disposed of Case
and 2015-2016 and also capped the tari_ for the Financial Years
2016-2017 to 2019-2020.
challenging disallowance of the actual fuel cost for the Financial Years
14. By an order dated 3rd November 2016, the APTEL allowed the
appeal and directed MERC to allow the Appellant the actual cost of
coal purchased for Unit-1, capped to the fuel cost for Unit 2 in terms
of the FSA that had been executed, till such time as a FSA was
APTEL.
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however ^led Civil Appeal No.372 of 2017 in this Court, challenging
Appellant is, for the time being, short of funds. According to the
Provided that for the ^nancial creditors, referred to in clauses (a) and
(b) of sub-section (6-A) of Section 21, an application for initiating
corporate insolvency resolution process against the corporate debtor
shall be ^led jointly by not less than one hundred of such creditors in
the same class or not less than ten per cent. of the total number of
such creditors in the same class, whichever is less:
Provided further that for ^nancial creditors who are allottees under a
real estate project, an application for initiating corporate insolvency
resolution process against the corporate debtor shall be ^led jointly by
not less than one hundred of such allottees under the same real estate
project or not less than ten per cent. of the total number of such
allottees under the same real estate project, whichever is less:
Provided also that where an application for initiating the corporate
insolvency resolution process against a corporate debtor has been ^led
by a ^nancial creditor referred to in the ^rst and second provisos and
has not been admitted by the Adjudicating Authority before the
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commencement of the Insolvency and Bankruptcy Code (Amendment)
Act, 2020, such application shall be modi^ed to comply with the
requirements of the ^rst or second proviso within thirty days of the
commencement of the said Act, failing which the application shall be
deemed to be withdrawn before its admission.
Explanation.—For the purposes of this sub-section, a default includes a
default in respect of a ^nancial debt owed not only to the applicant
^nancial creditor but to any other ^nancial creditor of the corporate
debtor.
(2) The ^nancial creditor shall make an application under sub-section (1)
in such form and manner and accompanied with such fee as may be
prescribed.
(3) The ^nancial creditor shall, along with the application furnish—
(a) record of the default recorded with the information utility or such
other record or evidence of default as may be speci^ed;
(4) The Adjudicating Authority shall, within fourteen days of the receipt
of the application under sub-section (2), ascertain the existence of a
default from the records of an information utility or on the basis of other
evidence furnished by the ^nancial creditor under sub-section (3):
Provided that if the Adjudicating Authority has not ascertained the
existence of default and passed an order under sub-section (5) within
such time, it shall record its reasons in writing for the same.
(5) Where the Adjudicating Authority is satis^ed that—
(a) a default has occurred and the application under sub-section (2) is
complete, and there is no disciplinary proceedings pending against the
proposed resolution professional, it may, by order, admit such
application; or
(b) default has not occurred or the application under sub-section (2) is
incomplete or any disciplinary proceeding is pending against the
proposed resolution professional, it may, by order, reject such
application:
Provided that the Adjudicating Authority shall, before rejecting the
application under clause (b) of sub-section (5), give a notice to the
applicant to rectify the defect in his application within seven days of
receipt of such notice from the Adjudicating Authority.
(6) The corporate insolvency resolution process shall commence from
the date of admission of the application under sub-section (5).
(7) The Adjudicating Authority shall communicate—
(a) the order under clause (a) of sub-section (5) to the ^nancial creditor
and the corporate debtor;
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(b) the order under clause (b) of sub-section (5) to the ^nancial
creditor, within seven days of admission or rejection of such
application, as the case may be.”
under Section 7 (2) of the IBC being C.P. (IB) No.264 of 2020 before
Court.
the Appellant in C.P. No.264 of 2020 and refused to stay the CIRP
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The observation of the Hon’ble Court may pro^tably be quoted as
under:
22. This Authority is required only to see whether there has been a
debt and the Corporate Debtor defaulted in making the repayments.
These two aspects when satis^ed would trigger Corporate Insolvency.
Therefore, the decision of the Authorities as well as of the Hon’ble Apex
Court would not a_ect the proceedings before this Authority one way or
the other. Therefore, we are of the considered opinion that this
Authority need not stay its hands from considering the Company
Petition as prayed for. As it is, there has been a considerable delay in
disposal of the Company Petition. It will accordingly be appropriate
that the Company Petition is disposed of as expeditiously as possible.
Hence ordered.
ORDER
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The Application be and the same is rejected on contest. There would
however be no order as to costs.”
22. The Appellant ^led an appeal before the NCLAT, against the
aforesaid order dated 29th January 2021. The said appeal has been
in this Appeal.
Appellant submitted that the Appellant had applied for stay of the
where the Appellant had not been able to pay the dues of the
APTEL in favour of the Appellant, was pending in this Court. Since the
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Appellant, in terms of the order of APTEL.
25. Mr. Gupta submitted that considering the special nature of the
26. Mr. Gupta, referred to Section 7(5)(a) of the IBC which provides
provision shows that the word used in Section 7(5)(a) of the IBC is
the NCLT to admit an application in each and every case, where there
is existence of a debt.
28. Mr. Gupta argued that discretion conferred by Section 7(5) (a) of
existence of debt, for any reason that the NCLT may deem ^t, for
meeting the ends of justice and to achieve the overall objective of the
Section 7(5)(a) of IBC would have been ‘shall’ and not ‘may’.
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29. Mr. Gupta has also relied on Rule 11 of the National Company
out hereinbelow:
the IBC with Rule 11 of the Rules makes it abundantly clear that NCLT,
analogy of that Section has been drawn to Section 10(4) of the IBC,
Jute Mills Company Limited and Ors.1, where this Court held:
“24. Further, we are of the view that the judgments cited by NCLAT and
the principle contained therein applied while deciding that period of
fourteen days within which the adjudicating authority has to pass the
order is not mandatory but directory in nature would equally apply
while interpreting the proviso to sub-section (5) of Section 7, Section 9
or sub-section (4) of Section 10 as well. After all, the applicant does not
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gain anything by not removing the objections inasmuch as till the
objections are removed, such an application would not be entertained.
Therefore, it is in the interest of the applicant to remove the defects as
early as possible.”
32. Mr. Gupta argued, and in our view rightly, that the object of the
IBC is to ^rst try and revive the company and not to spell its death
knell. This objective cannot be lost sight of, when exercising powers
under Section 7 of the IBC or interpreting the said Section. Mr. Gupta
Corporate Debtor to liquidate its debt, the NCLT is not denuded of the
power to defer the hearing of the petition under Section 7 of the IBC.
33. Mr. Gupta argued that the Appellant is in its current situation for
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35. In support of his aforesaid submission, Mr. Mehta cited Swiss
The relevant portion of the judgment relied upon by Mr. Mehta in this
36. Mr. Mehta argued that Section 7(5)(a) of the IBC cast a
37. Mr. Mehta argued that the application under Section 7 of the
IBC was ^led by the Respondent Financial Creditor before the NCLT,
Mumbai on 15th January 2020. The debt due from the Appellant to the
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38. Mr. Mehta argued that the Appellant Corporate Debtor has, on
that since the application under Section 7 of the IBC had been ^led in
e_ective hearing.
39. Mr. Mehta submitted that the application for stay ^led by the
Appellant was heard on 14th July 2020 and later re-heard on 29th
January 2021, on which date the application was rejected. Even after
application for stay, proceedings under Section 7 of the IBC have not
progressed at all.
40. Mr. Mehta emphatically argued that the object of the IBC was to
development.
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Financial Creditor under sub-section (3) of Section 7, within 14 days of
default, it is bound to record its reasons in writing for not doing so.
42. Mr. Mehta argued that in this case, there was no dispute that
that the object of the IBC was to provide a framework for expeditious
and time bound insolvency resolution. Section 7(5)(a) of the IBC had,
44. The IBC has been enacted for reasonably expeditious, time
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credit market.
45. As per the Statement of Objects and Reasons of the IBC, and its
inter alia, for maximization of the value of the assets of such persons,
incidental thereto.
46. Prior to enactment of the IBC, there was no single law in India
of Security Interest Act, 2002, and the Companies Act, 2013. These
Tribunal (DRT) and National Company Law Tribunal (NCLT) and their
47. The framework that had existed for insolvency and bankruptcy
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deliberation and discussion and pursuant to reports of various
Court speaking through Nariman J., referred to the Report of the BLRC
and observed:
….the recovery rates obtained in India are among the lowest in the
world. When default takes place, broadly speaking, lenders seem to
recover 20% of the value of debt, on an NPV basis.
When creditors know that they have weak rights resulting in a low
recovery rate, they are averse to lend....
Speed is of essence
Speed is of essence for the working of the bankruptcy code, for two
reasons. First, while the “calm period” can help keep an organisation
anoat, without the full clarity of ownership and control, signi^cant
decisions cannot be made. Without e_ective leadership, the ^rm will
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tend to atrophy and fail. The longer the delay, the more likely it is that
liquidation will be the only answer. Second, the liquidation value tends
to go down with time as many assets su_er from a high economic rate
of depreciation.
From the viewpoint of creditors, a good realisation can generally be
obtained if the ^rm is sold as a going concern. Hence, when delays
induce liquidation, there is value destruction. Further, even in
liquidation, the realisation is lower when there are delays. Hence,
delays cause value destruction. Thus, achieving a high recovery rate is
primarily about identifying and combating the sources of delay....
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V. The Code will respect the rights of all creditors equally.
(10) The law must be impartial to the type of creditor in counting their
weight in the vote on the ^nal solution in resolving insolvency.
VI. The Code must ensure that, when the negotiations fail to establish
viability, the outcome of bankruptcy must be binding.
(11) The law must order the liquidation of an enterprise which has been
found unviable. This outcome of the negotiations should be protected
against all appeals other than for very exceptional cases....”
enterprise.
50. Section 6 of the IBC provides that where any Corporate Debtor
Corporate Debtor.
51. Under Section 7(1) of the IBC, a Financial Creditor may, either
Debtor.
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required to furnish record of the defaults recorded with the
Financial Creditor under Section 7(2) of the IBC in the statutory form,
54. When an application is ^led under Section 7(2) of the IBC, the
application,
55. Section 7(5)(a) of the IBC, on which much emphasis has been
placed both by Mr. Gupta and Mr. Mehta, provides that where the
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Adjudicating Authority (NCLT) is satis^ed that a default has occurred
and the application under sub-Section (2) of the IBC is complete and
of the view that Section 7(5)(a) did not admit any other
required to see whether there had been a debt, and the Corporate
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this appeal is, whether Section 7(5)(a) is a mandatory or a
the case.
the red, indicated that no other extraneous matter should come in the
viability and overall ^nancial health of the Corporate Debtor are not
extraneous matters.
claimed that, in terms of the Award, a sum of Rs.1,730 crores, that is,
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an amount far exceeding the claim of the Financial Creditor, is
whether there had been a debt and the Corporate Debtor had
^nancial debt and default in payment thereof only gave the ^nancial
above and the over all ^nancial health and viability of the Corporate
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63. The meaning and intention of Section 7(5)(a) of the IBC is to be
the nature and design of the IBC. This Court would have to consider
discretionary.
it is well settled that the prima facie presumption about the provision
the scope of the enactment and the consequences nowing from the
construction.
Authority (NCLT).
held:-
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“22. … In construing a statutory provision, the ^rst and the
foremost rule of construction is the literary construction. All that
we have to see at the very outset is what does that provision say?
If the provision is unambiguous and if from that provision, the
legislative intent is clear, we need not call into aid the other rules
of construction of statutes. The other rules of construction of
statutes are called into aid only when the legislative intention is
not clear.”
“9. It may be mentioned in this connection that the ^rst and foremost
principle of interpretation of a statute in every system of interpretation
is the literal rule of interpretation. The other rules of interpretation e.g.
the mischief rule, purposive interpretation, etc. can only be resorted to
when the plain words of a statute are ambiguous or lead to no
intelligible results or if read literally would nullify the very object of the
statute. Where the words of a statute are absolutely clear and
unambiguous, recourse cannot be had to the principles of interpretation
other than the literal rule, vide Swedish Match AB v. SEBI [(2004) 11
SCC 641] .”
this Court construed the use of the word “shall” in section 154 (1) of
the Code of Criminal Procedure 1973 and held that Section 154(1)
69. As argued by Mr. Gupta, had it been the legislative intent that
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Legislature would have used the word ‘shall’ and not the word ‘may’.
literal construction.
After expiry of ten days from the date of delivery of the notice or
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receive payment from the Corporate Debtor or notice of dispute, the
(c) the invoice or notice for payment to the corporate debtor has
been delivered by the operational creditor;
(c) the creditor has not delivered the invoice or notice for payment to
the corporate debtor;
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74. Sub-section (5) of Section 9 of the IBC provides that the
75. Signi^cantly, Legislature has in its wisdom used the word ‘may’
Operational Creditor.
76. The fact that Legislature used ‘may’ in Section 7(5)(a) of the
IBC but a di_erent word, that is, ‘shall’ in the otherwise almost
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requisites of the IBC and the rules and regulations thereunder, there
of a Financial Creditor.
longer duration. Such credits, which are often long term credits, on
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that of an Operational Creditor, engaged in supply of goods and
creditor.
Creditor, whose dues are undisputed, are rigid and innexible. If dues
Debtor must pay the same. If it does not, CIRP must be commenced.
denuded of the right to apply afresh for initiation of CIRP, if its dues
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81. The title “Insolvency and Bankruptcy Code” makes it amply
clear that the statute deals with and/or tackles insolvency and
initiation of CIRP.
Moreover the timeline starts ticking only from the date of admission
of the application for initiation of CIRP and not from the date of ^ling
the same.
“43. A ^nancial creditor may trigger the Code either by itself or jointly
with other ^nancial creditors or such persons as may be noti^ed by the
Central Government when a ”default” occurs. The Explanation to
Section 7(1) also makes it clear that the Code may be triggered by such
persons in respect of a default made to any other ^nancial creditor of
the corporate debtor, making it clear that once triggered, the resolution
process under the Code is a collective proceeding in rem which seeks,
in the ^rst instance, to rehabilitate the corporate debtor. Under Section
7(4), the adjudicating authority shall, within the prescribed period,
ascertain the existence of a default on the basis of evidence furnished
by the ^nancial creditor; and under Section 7(5), the adjudicating
authority has to be satis^ed that a default has occurred, when it may,
by order, admit the application, or dismiss the application if such
default has not occurred. On the other hand, under Sections 8 and 9, an
operational creditor may, on the occurrence of a default, deliver a
demand notice which must then be replied to within the speci^ed
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period. What is important is that at this stage, if an application is ^led
before the adjudicating authority for initiating the corporate insolvency
resolution process, the corporate debtor can prove that the debt is
disputed. When the debt is so disputed, such application would be
rejected.”
does not consider the question of whether Section 7(5)(a) of the IBC
precedent for the question of law that is raised and decided. The
date of ^ling an application under Section 7 of the IBC and, the date
application for initiation of CIRP and not the date of ^ling thereof.
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87. Ordinarily, the Adjudicating Authority (NCLT) would have to
payment of the debt, unless there are good reasons not to admit the
petition.
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or between the Appellant and the Electricity Regulatory Commission
were inconsequential.
that once it was found that a debt existed and a Corporate Debtor
7 of the IBC.
91. For the reasons discussed above, the appeal is allowed. The
the Appellant are set aside. The NCLT shall re-consider the
.................................J
[ INDIRA BANERJEE ]
.................................J
[ J.K. MAHESHWARI ]
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