2022 (7) TMI 581 - SUPREME COURT

Refusal to stay the proceedings initiated by the Respondent, Axis Bank Limited against the Appellant - solvent companies, temporarily defaulting in repayment of its financial debts - initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC - HELD THAT:- 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.11,21,68,673.81 towards penal interest. The principal outstanding amount was Rs.499,22,85,110.65.

When an application is filed under Section 7(2) of the IBC, the Adjudicating Authority (NCLT) is required to ascertain the existence of a default from the records of the information utility or any other evidence furnished by the financial creditor under sub-section (3) of Section 7 of the IBC, within 14 days of the date of receipt of the application.

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.

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 VERSUS GOVT. OF UP. & ORS. [2013 (11) TMI 1520 - SUPREME COURT] 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).

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 - 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 shorter duration and of lesser amount.

The title “Insolvency and Bankruptcy Code” makes it amply clear that the statute deals with and/or tackles insolvency and bankruptcy. 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 - 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.

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 - Appeal allowed.