Insolvency and Bankruptcy Code 2016 – s.7(5)(a) – Interpretation of – Legislature has in its wisdom used the word ‘may’ in s.7(5)(a) of the Code in respect of an application for CIRP initiated by a financial creditor against a Corporate Debtor – It confers discretionary power on the Adjudicating Authority (NCLT) to admit an application of a Financial Creditor u/s.7 of the Code for initiation of CIRP – The existence of a financial debt and default in payment only give the financial creditor the right to apply for initiation of CIRP – NCLT is required to apply its mind to relevant factors – Electricity.
Insolvency and Bankruptcy Code, 2016: s.7(5)(a) – Whether discretionary or mandatory – Held: Is discretionary. Insolvency and Bankruptcy Code, 2016: Difference between s.7(5)(a) and s.9(5)(a) – Discussed – Legislature used ‘may’ in s.7(5)(a) of the IBC but a different word ‘shall’ in the otherwise almost identical provision of s.9(5)(a) shows that ‘may’ and ‘shall’ in the two provisions are intended to convey a different meaning – Legislature intended s.9(5)(a) of the IBC to be mandatory and s.7(5)(a) of the IBC to be discretionary – An application of an Operational Creditor for initiation of CIRP u/s.9(2) of the IBC is mandatorily required to be admitted if the application is complete in all respects and in compliance of the requisites of the IBC. Words and Phrases: May and Shall – Presumption of Fact and Presumption of Law – Discussed – Ordinarily the word “may” is directory – The expression ‘may admit’ confers discretion to admit – The use of the word “shall” postulates a mandatory requirement – The use of the word “shall” raises a presumption that a provision is imperative – The prima facie presumption about the provision being imperative may be rebutted by other considerations such as the scope of the enactment and the consequences flowing from the construction.
Interpretation of Statutes: Rules of interpretation – First and foremost principle of interpretation of a statute is the rule of literal interpretation – Purposive interpretation can only be resorted to when the plain words of a statute are ambiguous or if construed literally, the provision would nullify the object of the statute or otherwise lead to an absurd result.
Insolvency and Bankruptcy Code, 2016: Difference between Financial Creditors and Operational Creditors – Discussed.
Allowing the appeal, the Court
HELD : 1. The Appellate Authority (NCLAT) erred in holding that the Adjudicating Authority (NCLT) was only required to see whether there had been a debt and the Corporate Debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP. The existence of a financial debt and default in payment thereof only gave the financial creditor the right to apply for initiation of CIRP. The Adjudicating Authority (NCLT) was require to apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC’s appeal, pending in this Court, order of APTEL referred to above and the over all financial health and viability of the Corporate Debtor under its existing management. [Para 61][160-D-E]
2. Legislature has in its wisdom used the word ‘may’ in Section 7(5)(a) of the IBC in respect of an application for CIRP initiated by a financial creditor against a Corporate Debtor but has used the expression ‘shall’ in the otherwise almost identical provision of Section 9(5) of the IBC relating to the initiation of CIRP by an Operational Creditor. The fact that Legislature used ‘may’ in Section 7(5)(a) of the IBC but a different word, that is, ‘shall’ in the otherwise almost identical provision of Section 9(5)(a) shows that ‘may’ and ‘shall’ in the two provisions are intended to convey a different meaning. It is apparent that Legislature intended Section 9(5)(a) of the IBC to be mandatory and Section 7(5)(a) of the IBC to be discretionary. An application of an Operational Creditor for initiation of CIRP under Section 9(2) of the IBC is mandatorily required to be admitted if the application is complete in all respects and in compliance of the requisites of the IBC and the rules and regulations thereunder, there is no payment of the unpaid operational debt, if notices for payment or the invoice has been delivered to the Corporate Debtor by the Operational Creditor and no notice of dispute has been received by the Operational Creditor. The IBC does not countenance dishonesty or deliberate failure to repay the dues of an operational creditor. [Paras 75 & 76][164-C-F]
3. In the present case, the Adjudicating Authority (NCLT) has simply brushed aside the case of the Appellant that an amount of Rs.1,730 Crores was realizable by the Appellant in terms of the order passed by APTEL in favour of the Appellant, with the cursory observation that disputes if any between the Appellant and the recipient of electricity or between the Appellant and the Electricity Regulatory Commission were inconsequential. The Court was of the view that the Adjudicating Authority (NCLT) as also the Appellate Tribunal (NCLAT) fell in error in holding that once it was found that a debt existed and a Corporate Debtor was in default in payment of the debt there would be no option to the Adjudicating Authority (NCLT) but to admit the petition under Section 7 of the IBC. The impugned order dated 29th January 2021 passed by the Adjudicating Authority (NCLT) and the impugned order dated 2nd March 2021 passed by the Appellate Authority (NCLAT) dismissing the appeal of the Appellant are set aside. [Paras 89, 90, 91][167-G-H; 168-A-C] Swiss Ribbons Private Limited and Anr. v. Union of India and Ors. (2019) 4 SCC 17 : [2019] 3 SCR 535 –
distinguished.
Surendra Trading Company v. Juggilal Kamlapat Jute Mills Company Limited and Ors. (2017) 16 SCC 143 : [2017] 9 SCR 743; Innoventive Industries Ltd. v. ICICI Bank and Another (2018) 1 SCC 407 : [2017] 8
SCR 33; Lalita Kumari v. Government of Uttar Pradesh and Ors. (2014) 2 SCC 1 : [2013] 14 SCR 713; Hiralal Rattanlal v. State of Uttar Pradesh (1973) 1 SCC 216 : [1973] 2 SCR 502; B. Premanand v. Mohan Koikal (2011) 4 SCC 266 : [2011] 3 SCR 932 – referred to
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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