VIDARBHA INDUSTRIES POWER LIMITED versus AXIS BANK LIMITED

Citation: [2022] 12 S.C.R. 139 · Decided: 12-07-2022 · Supreme Court of India · Bench: INDIRA BANERJEE · Disposal: Appeal(s) allowed

Cited by 2 judgment(s) · cites 6 · see the full citation network in Lexace

Judgment (excerpt)

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VIDARBHA INDUSTRIES POWER LIMITED
v.
AXIS BANK LIMITED
(Civil Appeal No. 4633 of 2021)
JULY 12, 2022
[INDIRA BANERJEE AND J. K. MAHESHWARI, JJ.]
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
[2022] 12 S.C.R. 139
139
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SUPREME COURT REPORTS
[2022] 12 S.C.R.
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
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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

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