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TMI Blog2022 (7) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 of the IBC. 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 Coal-fired Thermal Power Plant comprising of two units each of 300 MW capacity, within the Butibori Industrial Area in the Nagpur District in Maharashtra. 3. Under the Electricity Act, 2003, and the Rules and Regulations framed thereunder, the business of Electricity Generating Companies is regulated and controlled by the State Electricity Regulatory Commission constituted under the said Act. Under Sections 61 to 63 of the Electricity Act, the State Electricity Regulatory Commission determines the tariff chargeable by Electricity Generating Companies. 4. Through an international competitive bidding process conducted by the Maharashtra Industrial Development Corporation (MIDC), the Appellant was awarded the contract for implementation of a Group Power Project (GPP). The GPP was later converted into an Independent Power Project (IPP). 5. The Appellant was later permitted to expand the capacity of its power plant by adding a second unit of 300 MW as an IPP. By an order dated 20th February 2013, the Maharashtra Electricity Regulatory Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 016 before the Appellate Tribunal for Electricity (APTEL), challenging disallowance of the actual fuel cost for the Financial Years 2014-2015 and 2015-2016. 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 executed in respect of Unit 1. The Appellant claims that a sum of Rs.1,730 Crores is due to the Appellant in terms of the said order of APTEL. 15. On or about 8th December 2016, the Appellant filed an application before the MERC for implementation of the directions contained in the order dated 3rd November 2016 of APTEL. MERC however filed Civil Appeal No.372 of 2017 in this Court, challenging the order of APTEL. The Appeal is pending. 16. In view of the pending appeal of MERC in this Court, the Appellant is unable to implement the directions of APTEL. The Appellant is, for the time being, short of funds. According to the Appellant, implementation of the orders of the APTEL would enable the Appellant to clear all its outstanding liabilities. 17. Sections 6 and 7 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial creditor of the corporate debtor. (2) The financial 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 financial 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 specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (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 financial 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 satisfied that- (a) a default has occurred and the application under sub-section (2) is com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The observation of the Hon'ble Court may profitably be quoted as under: "As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganization and insolvency resolution of corporate debtors. Unless such reorganization is effected in a time-bound manner, the value of the assets of such persons will deplete. xxx xxx xxx Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. xxx xxx xxx The timelines within which the resolution process is to take place again protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends." 21. The observation would indicate that no other extraneous matter should come in the way of expeditiously deciding a Petition either under Section 7 or under Section 9 of the Code. The inability of the Corporate Debtor i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of law and the course it has to take as per I&B provisions, which practically stands stalled. This is impermissible. The flow of legal process cannot be permitted to be thwarted on considerations which are anterior to the mandate of Section 7(4) & (5) of I&B Code. The Appeal being devoid of merit is dismissed. However, we do not propose to impose any costs." 24. Mr. Jaideep Gupta, Senior Advocate appearing on behalf of the Appellant submitted that the Appellant had applied for stay of the proceedings before NCLT, Mumbai in extraordinary circumstances, where the Appellant had not been able to pay the dues of the Respondent, only because an appeal filed by MERC, being Appeal No.372 of 2017, against an order dated 3rd November 2016 passed by APTEL in favour of the Appellant, was pending in this Court. Since the aforesaid appeal is pending in this Court, the Appellant is unable to realize a sum of Rs.1,730 Crores, which is due and payable to the Appellant, in terms of the order of APTEL. 25. Mr. Gupta submitted that considering the special nature of the business of the Appellant of production of electricity, tariff whereof is regulated by MERC and APTEL, the application under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company v. Juggilal Kamlapat Jute Mills Company Limited and Ors. (2017) 16 SCC 143, 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 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 first 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 argued that, where there are favourable orders in favour of the Corporate Debtor, implementation of which would enable the Corporate Debtor to liqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which the Respondent Financial Creditor is the lead bank was approximately Rs.2727 Crores. 38. Mr. Mehta argued that the Appellant Corporate Debtor has, on one pretext or the other, attempted to delay the insolvency proceedings, notwithstanding the concurrent findings of NCLT and NCLAT that occurrence of default is not disputed. Mr. Mehta submits that since the application under Section 7 of the IBC had been filed in the NCLT, it has been listed on innumerable occasions, without any effective hearing. 39. Mr. Mehta submitted that the application for stay filed 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 the order dated 29th January 2021, rejecting the Appellant's 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 set up an effective legal framework for resolution of insolvency and bankruptcy in a time bound manner, to encourage entrepreneurship and facilitate investment for higher economic growth and development. 41. Referring to sub-section (4) of Section 7 of the IBC, Mr. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the Companies Act, 2013. These statutes provided for creation of multiple fora such as Board of Industrial and Financial Reconstruction (BIFR), Debts Recovery Tribunal (DRT) and National Company Law Tribunal (NCLT) and their respective Appellate Tribunals. Liquidation of companies was handled by the High Courts. 47. The framework that had existed for insolvency and bankruptcy was inadequate, ineffective and resulted in undue delay. After a lot of deliberation and discussion and pursuant to reports of various committees including, in particular, the Bankruptcy Law Reforms Committee (BLRC), the IBC has been enacted to provide an effective legal framework for timely resolution of insolvency and bankruptcy. 48. In Innoventive Industries Ltd. v. ICICI Bank (supra), this Court speaking through Nariman J., referred to the Report of the BLRC and observed: "16. At this stage, it is important to set out the important paragraphs contained in the Report of the Bankruptcy Law Reforms Committee of November 2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a new Code to resolve insolvency and bankruptcy: (1) Low time to resolution. (2) Low loss in recovery. (3) Higher levels of debt financing across a wide variety of debt instruments. The performance of the new Code in implementation will be based on measures of the above outcomes. Principles driving the design The Committee chose the following principles to design the new insolvency and bankruptcy resolution framework: I. The Code will facilitate the assessment of viability of the enterprise at a very early stage. (1) The law must explicitly state that the viability of the enterprise is a matter of business, and that matters of business can only be negotiated between creditors and debtor. While viability is assessed as a negotiation between creditors and debtor, the final decision has to be an agreement among creditors who are the financiers willing to bear the loss in the insolvency.... II. The Code will enable symmetry of information between creditors and debtors. (5) The law must ensure that information that is essential for the insolvency and the bankruptcy resolution process is created and available when it is required. (6) The law must ensure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y other Financial Creditor of the Corporate Debtor. 52. Under Section 7(2) of the IBC, a financial creditor is required to make an application in the prescribed form and manner, along with the prescribed fee. Along with an application, the financial creditor is required to furnish record of the defaults recorded with the information utility or such other record or evidence of default as may be specified, the name of the Resolution Professional proposed to act as an Interim Resolution Professional and any other information as may be specified by the Board. 53. From a perusal of the application filed by the Respondent Financial Creditor under Section 7(2) of the IBC in the statutory form, a copy whereof is included in the Paper Book, it is apparent that the Respondent Financial Creditor filed the application in the NCLT for initiation of CIRP against the Appellant in its individual capacity and not as lead bank on behalf of the other creditors. The Respondent Financial Creditor claimed that a total amount of Rs.553,27,99,322.78 was due from the Appellant Corporate Debtor to the Respondent Financial Creditor, of which Rs.42,83,45,538.32 was on account of the interest and further Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of this Court in Swiss Ribbons (supra), the Adjudicating Authority (NCLT) held that the imperativeness of timely resolution of a Corporate Debtor, who was in the red, indicated that no other extraneous matter should come in the way of expeditiously deciding a petition under Section 7 or under Section 9 of the IBC. 59. There can be no doubt that a Corporate Debtor who is in the red should be resolved expeditiously, following the timelines in the IBC. No extraneous matter should come in the way. However, the viability and overall financial health of the Corporate Debtor are not extraneous matters. 60. The Adjudicating Authority (NCLT) found the dispute of the Corporate Debtor with the Electricity Regulator or the recipient of electricity would be extraneous to the matters involved in the petition. Disputes with the Electricity Regulator or the Recipient of Electricity may not be of much relevance. The question is whether an award of the APTEL in favour of the Corporate Debtor, can completely be disregarded by the Adjudicating Authority (NCLT), when it is claimed that, in terms of the Award, a sum of Rs.1,730 crores, that is, an amount far exceeding the claim of the Financial Cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CC 1 (para 14) If Section 7(5)(a) of the IBC is construed literally the provision must be held to confer a discretion on the Adjudicating Authority (NCLT). 66. In Hiralal Rattanlal v. State of Uttar Pradesh (1973) 1 SCC 216, this Court held:- "22. ... In construing a statutory provision, the first 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." 67. In B. Premanand v. Mohan Koikal (2011) 4 SCC 266, this Court held:- "9. It may be mentioned in this connection that the first 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 literal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor or notice of dispute, the Operational Creditor may file an application before the Adjudicating Authority (NCLT) for initiation of CIRP. 73. Sub-Section (5) of Section 9 of the IBC reads:- "9(5) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), by an order (i) admit the application and communicate such decision to the operational creditor and the corporate debtor if,-- (a) the application made under sub-section (2) is complete; (b) there is no payment of the unpaid operational debt; (c) the invoice or notice for payment to the corporate debtor has been delivered by the operational creditor; (d) no notice of dispute has been received by the operational creditor or there is no record of dispute in the information utility; and (e) there is no disciplinary proceeding pending against any resolution professional proposed under sub-section (4), if any. ii) reject the application and communicate such decision to the operational creditor and the corporate debtor, if-- (a) the application made under sub-section (2) is incomplete; (b) there has been payment of the unpaid operational debt; (c) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice 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. 77. On the other hand, in the case of an application by a Financial Creditor who might even initiate proceedings in a representative capacity on behalf of all financial creditors, the Adjudicating Authority might examine the expedience of initiation of CIRP, taking into account all relevant facts and circumstances, including the overall financial health and viability of the Corporate Debtor. The Adjudicating Authority may in its discretion not admit the application of a Financial Creditor. 78. The Legislature has consciously differentiated between Financial Creditors and Operational Creditors, as there is an innate difference between Financial Creditors, in the business of investment and financing, and Operational Creditors in the business of supply of goods and services. Financial credit is usually secured and of much longer duration. Such credits, which are often long term credits, on which the operation of the Corporate Debtor depends, cannot be equated to operational debts which are usually unsecured, of a sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for initiation of CIRP and not from the date of filing the same. 83. In Swiss Ribbons (supra) this Court considering the vires of the IBC observed as follows:- "43. A financial creditor may trigger the Code either by itself or jointly with other financial creditors or such persons as may be notified 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 financial 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 first 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 financial creditor; and under Section 7(5), the adjudicating authority has to be satisfied 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 occurren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 7(5)(a) of the IBC to keep the admission of the application of the Financial Creditor in abeyance, unless there is good reason not to do so. The Adjudicating Authority may, for example, admit the application of the Financial Creditor, notwithstanding any award or decree, if the Award/Decretal amount is incapable of realisation. The example is only illustrative. 89. In this 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. 90. We are clearly 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. 91. For the reasons discussed above, the appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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