TaxTMI 
TaxTMI 
2022 (7) TMI 581
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....RP) under Section 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 Ele....
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.... filed an appeal being Appeal No.192 of 2016 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 ou....
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.... financial debt owed not only to the applicant financial creditor but to any other financial 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) Wh....
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....ns v. Union of Indian: (2019) 4 SCC 17 have set the tone for the proceeding before the Adjudicating Authority in order to make all endeavour to dispose of the matter in a time bound manner. 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.....
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....essence has manifested in blocking the passing of order of admission of Application of Respondent under Section 7 of I&B Code. There is no merit in Appeal as we find no legal infirmity in the impugned order. The Adjudicating Authority is conscious of the mandate 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 d....
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....emonstrate that power under Section 7(5)(a) of the IBC to admit a CIRP application is discretionary and not mandatory, an analogy of that Section has been drawn to Section 10(4) of the IBC, which has been held by this Court to be discretionary and not mandatory, in Surendra Trading 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....
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....t the application under Section 7 of the IBC was filed by the Respondent Financial Creditor before the NCLT, Mumbai on 15th January 2020. The debt due from the Appellant to the Respondent Financial Creditor was approximately Rs.553 Crores. The total debt owed by the Appellant to the consortium of lenders 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 emphatical....
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....stakeholders and matters connected therewith or incidental thereto. 46. Prior to enactment of the IBC, there was no single law in India that dealt with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies could be found in the Sick Industrial Companies (Special Provisions) Act, 1985, 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 ins....
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....ing concern. Hence, when delays induce liquidation, there is value destruction. Further, even in liquidation, the realisation is lower when there are delays. Hence, delays cause value destruction. Thus, achieving a high recovery rate is primarily about identifying and combating the sources of delay.... The Committee set the following as objectives desired from implementing 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 b....
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....ial Creditor, an Operational Creditor or the Corporate Debtor itself may initiate the CIRP in respect of such Corporate Debtor. 51. Under Section 7(1) of the IBC, a Financial Creditor may, either by itself, or jointly with other financial creditors, file an application for initiating CIRP against a Corporate Debtor, before the Adjudicating Authority (NCLT) when a default has occurred. Default includes a default in respect of a financial debt owed not only by the applicant Financial Creditor but to any 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 statut....
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.... and the Corporate Debtor had defaulted in making the repayments. These two aspects, when satisfied, would trigger Corporate Insolvency. Since the Adjudicating Authority (NCLT) did not consider the merits of the contention of the Respondent Corporate Debtor, the only question in this appeal is, whether Section 7(5)(a) is a mandatory or a discretionary provision. In other words, is the expression 'may' to be construed as 'shall', having regard to the facts and circumstances of the case. 58. Referring to the judgment 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 Corp....
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....ement. The use of the word "shall" raises a presumption that a provision is imperative. However, it is well settled that 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. 65. It is well settled that the first and foremost principle of interpretation of a statute is the rule of literal interpretation, as held by this Court in Lalita Kumari v. Government of Uttar Pradesh and Ors. (2014) 2 SCC 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 a....
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..... Within ten days of receipt of the demand notice or copy of the invoice, the Corporate Debtor may respond by drawing the notice of the Operational Creditor to the existence of a dispute, in relation to the claim or to the payment of the unpaid operational debt. 72. Section 9 prescribes the mode and manner by which an Operational Creditor can make an application for initiation of CIRP. After expiry of ten days from the date of delivery of the notice or invoice demanding payment, if the operational creditor does not receive payment from the Corporate Debtor 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....
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....nd '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. 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 ....
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....ankruptcy. It is certainly not the object of the IBC to penalize solvent companies, temporarily defaulting in repayment of its financial debts, by initiation of CIRP. Section 7(5)(a) of the IBC, therefore, confers discretionary power on the Adjudicating Authority (NCLT) to admit an application of a Financial Creditor under Section 7 of the IBC for initiation of CIRP. 82. The Adjudicating Authority (NCLT) failed to appreciate that the question of time bound initiation and completion of CIRP could only arise if the companies were bankrupt or insolvent and not otherwise. Moreover the timeline starts ticking only from the date of admission of the application 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 cor....