ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE INFRATECH LIMITED versus AXIS BANK LIMITED ETC. ETC.

Citation: [2020] 8 S.C.R. 291 · Decided: 26-02-2020 · Supreme Court of India · Bench: A.M. KHANWILKAR · Disposal: Appeal(s) allowed

Cited by 4 judgment(s) · cites 12 · see the full citation network in Lexace

Judgment (excerpt)

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ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR
JAYPEE INFRATECH LIMITED
v.
AXIS BANK LIMITED ETC. ETC.
(Civil Appeal Nos. 8512-8527 of 2019 Etc.)
FEBRUARY 26, 2020
[A. M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]
Insolvency and Bankruptcy Code, 2016:
Sections 5(7), 5(8), 7, 43, 45 and 66 – Corporate insolvency
resolution process against corporate-debtor company – The claim
of lenders of the holding Company of corporate-debtor for being
recognized as financial creditors of the corporate-debtor on the
strength of transactions whereby the corporate-debtor had
mortgaged its properties as collateral securities for the loan to the
holding company of the corporate-debtor – The claim rejected by
Interim Resolution Professional (IRP) – Application by IRP seeking
avoidance of the mortgage transactions as being preferential,
undervalued and fraudulent u/ss. 43, 45 and 46 – National Company
Law Tribunal (NCLT) allowed the application of IRP – Appellate
Tribunal (NCLAT) set aside the order of NCLT – Appeal to Supreme
Court – Held: If a transaction entered into by a corporate-debtor is
not falling in either of the exceptions provided in sub-section (3) of
s. 43, and satisfies the threefold requirements of sub-sections (2)
and (4) thereof, it would be deemed to be a preference during a
relevant time, whether or not, it were so and whether or not it were
intended or anticipated to be so – The transactions in question were
of deemed preference to related party during the look-back period
of two years – The transactions also cannot be said to have been
done in the ordinary course of business and hence are not excepted
transfers in terms of sub-section (3) – Thus, the transactions are hit
by s. 43 – The questions as to whether the transactions were
undervalued or fraudulent in terms of ss. 45 and 66, are left open –
For a debt to become ‘financial debt’, the basic elements are that it
ought to be a disbursal against the consideration for time value of
money – Therefore, for a person to be designated as ‘financial
creditor’ of the corporate-debtor, the corporate-debtor needs to owe
291
[2020] 8 S.C.R. 291
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SUPREME COURT REPORTS
[2020] 8 S.C.R.
a financial debt to such person – Thus, a third party to whom the
corporate-debtor does not owe a ‘financial debt’ cannot become its
‘financial creditor’ for the purpose of insolvency and liquidation
process of corporate persons – In the present case, the mortgage
transactions in questions since were neither towards any loan,
facility or advance to the corporate-debtor nor towards protecting
any facility or security of the corporate-debtor, the lenders of the
holding company of the corporate-debtor, may fall in the category
of ‘secured creditors’, but not in the category of ‘financial creditors’
within meaning of s. 5(8) – Therefore the claim of the lenders of
holding company rightly rejected by IRP.
Interpretation of Statutes:
Definition clause – Interpretation of – Where a word is defined
to ‘mean’ something, the definition is prima facie restrictive – Where
the word defined is declared to ‘include’ something more, the
definition is prima facie extensive.
Mortgage -
Re-mortgage – Legality of – Held: There is no concept of re-
mortgage – On release by mortgagee, a mortgage ceases to exist –
The so-called re-mortgage can only be regarded as fresh mortgage.
Judgment:
Observations in a judgment are required to be read in the
context in which they appear.
Words and Phrases:
Expressions ‘financial debt’ ‘financial creditors’, ‘operational
creditor’, ‘secured creditor’ and ‘unsecured creditor’ – Meaning of
in the context of Insolvency and Bankruptcy Code, 2016.
Allowing the appeals, the Court
HELD: 1.1. The Insolvency and Bankruptcy Code, 2016
came to be enacted to consolidate and amend the laws relating to
reorganisation and insolvency resolution of corporate persons
and even of partnership firms and individuals in a time bound
manner; the objectives, inter alia, being for maximisation of value
of assets of such persons and balance of interest of all the
stakeholders. [Para 16.1][356-C]
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Swiss Ribbons Private Limited and Anr. v. Union of India
and Ors.: (2019) 4 SCC 17 : [2019] 3 SCR 535 –
referred to.
1.2 Though the provisions relating to ‘preferential
transactions and relevant time’ (in Section 43 of the Code) occur
in Chapter III of Part II, relating to liquidation process, but such
provisions being for avoidance of certain transactions and havi

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