M/S ORATOR MARKETING PVT. LTD. versus M/S SAMTEX DESINZ PVT. LTD.

Citation: [2021] 6 S.C.R. 742 · Decided: 26-07-2021 · Supreme Court of India · Bench: INDIRA BANERJEE · Disposal: Appeal(s) allowed

Cited by 1 judgment(s) · cites 5 · see the full citation network in Lexace

Judgment (excerpt)

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742
SUPREME COURT REPORTS
[2021] 6 S.C.R.
742
M/S ORATOR MARKETING PVT. LTD.
v.
M/S SAMTEX DESINZ PVT. LTD.
(Civil Appeal No. 2231 of 2021)
JULY 26, 2021
[INDIRA BANERJEE AND V. RAMASUBRAMANIAN, JJ.]
Insolvency and Bankruptcy Code, 2016:
ss. 5(8), 7, 62 – Financial debt – Construction of – Person
giving a term loan to a Corporate Person, free of interest, on account
of its working capital requirements– Non-payment of the same by
Corporate Debtor – Initiation of Corporate Insolvency Resolution
Process-CIRP u/s. 7 by the appellant-lender – Rejection of the
application by NCLT as also NCLAT holding that the claim cannot
be termed to be a ‘financial debt’ – On appeal, held: Initiation of
CIRP by a Financial Creditor u/s. 7 is the occurrence of a default
by the Corporate Debtor – ‘Default’ means non-payment of debt in
whole or part when the debt has become due and payable, and
includes financial debt and operational debt – ‘Financial debt’ u/s.
5(8) means outstanding principal due in respect of a loan and would
also include interest thereon, if any interest were payable thereon –
If there is no interest payable on the loan, only the outstanding
principal would qualify as a financial debt – Definition of ‘financial
debt’ in s. 5(8) does not expressly exclude an interest free loan –
‘Financial Debt’ would be construed to include interest free loans
advanced to finance the business operations of a corporate body –
On facts, both NCLAT and NCLT misconstrued the definition of
‘financial debt’ in s. 5(8), by reading the same in isolation and out
of context, thus, the order passed by the NCLAT and NCLT, set aside
– Application u/s. 7 of the IBC stands revived.
s. 5(8) – Financial debt – Expression ‘includes’ – Construction
of – Held: Legislature has the power to define a word in a statute –
Where the word is defined to include something, the definition is
prima facie extensive – Depending on the context in which the word
‘includes’ may have been used, and the objects and the scheme of
the enactment as a whole, the expression ‘includes’ may have to be
construed as restrictive and exhaustive – Words and phrases.
[2021] 6 S.C.R. 742
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Interpretation of statutes: Construction/interpretation of
statutory provision – Held: Legislative intent of the statute is to be
seen in the words used by the legislature itself – In case of doubt,
the object and purpose of the statute or the reason and spirit behind
it, is to be seen – When a question arises as to the meaning of a
certain provision in a statute, the provision has to be read in its
context – The Statute has to be read as a whole.
Allowing the appeal, the Court
HELD: 1.1 Both the NCLAT and NCLT have misconstrued
the definition of ‘financial debt’ in Section 5(8) of the Insolvency
and Bankruptcy Code, 2016, by reading the same in isolation
and out of context. The judgment and order of the NCLAT,
affirming the judgment and order of the Adjudicating Authority
(NCLT) and dismissing the appeal is patently flawed, and are set
aside. [Para 8, 32][753-G; 766-A]
1.2 In construing and/or interpreting any statutory
provision, one must look into the legislative intent of the statute.
The intention of the statute has to be found in the words used by
the legislature itself. In case of doubt, it is always safe to look
into the object and purpose of the statute or the reason and spirit
behind it. Each word, phrase or sentence has to be construed in
the light of the general purpose of the Act itself. The interpretative
effort “must be illumined by the goal, though guided by the
words”. When a question arises as to the meaning of a certain
provision in a statute, the provision has to be read in its context.
The statute has to be read as a whole. The previous state of the
law, the general scope and ambit of the statute and the mischief
that it was intended to remedy are relevant factors. [Para 9,
10][753-H; 754-A-C]
1.3 The definition of ‘financial debt’ in Section 5(8) of the
IBC cannot be read in isolation, without considering some other
relevant definitions, particularly, the definition of ‘claim’ in Section
3(6), ‘corporate debtor’ in Section 3(8), ‘creditor’ in Section 3(10),
‘debt’ in section 3(11), ‘default’ in Section 3(12), ‘financial
creditor’ in Section 5(7) as also the provisions, inter alia, of
Sections 6 and 7 of the IBC. The eligibility of a person, to initiate
the Corporate Insolvency Resolution Process, if questioned, has
M/S ORATOR MARKETING PVT. LTD. 

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