VIDARBHA INDUSTRIES POWER LIMITEDversusAXIS BANK LIMITED

                        [2022] 12 S.C.R. 139                             139


          VIDARBHA INDUSTRIES POWER LIMITED                              A
                                  v.
                      AXIS BANK LIMITED
                   (Civil Appeal No. 4633 of 2021)
                           JULY 12, 2022                                 B
    [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
                                                                         C
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      D
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          E
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          F
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”           G
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
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                                 139
140            SUPREME COURT REPORTS                        [2022] 12 S.C.R.


A     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
B     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.
C           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
D     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,
E     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]

F            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
G     ‘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
H
 VIDARBHA INDUSTRIES POWER LIMITED v. AXIS BANK                      141
                    LIMITED

of an Operational Creditor for initiation of CIRP under Section      A
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
                                                                     B
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. [Paras 75 & 76][164-C-F]
      3. In the present case, the Adjudicating Authority (NCLT)
has simply brushed aside the case of the Appellant that an amount    C
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. The          D
Court was 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. The impugned order dated 29th January          E
2021 passed by the Adjudicating Authority (NCLT) and the
impugned order dated 2nd March 2021 passed by the Appellate
Authority (NCLAT) dismissing the appeal of the Appellant are
set aside. [Paras 89, 90, 91][167-G-H; 168-A-C]
     Swiss Ribbons Private Limited and Anr. v. Union of India        F
     and Ors. (2019) 4 SCC 17 : [2019] 3 SCR 535 –
     distinguished.
     Surendra Trading Company v. Juggilal Kamlapat Jute
     Mills Company Limited and Ors. (2017) 16 SCC 143 :
     [2017] 9 SCR 743; Innoventive Industries Ltd. v. ICICI          G
     Bank and Another (2018) 1 SCC 407 : [2017] 8
     SCR 33; Lalita Kumari v. Government of Uttar Pradesh
     and Ors. (2014) 2 SCC 1 : [2013] 14 SCR 713; Hiralal
     Rattanlal v. State of Uttar Pradesh (1973) 1 SCC 216 :
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142            SUPREME COURT REPORTS                          [2022] 12 S.C.R.


A           [1973] 2 SCR 502; B. Premanand v. Mohan Koikal
            (2011) 4 SCC 266 : [2011] 3 SCR 932 – referred to
                               Case Law Reference
      [2017] 9 SCR 743                 referred to              Para 31
B     [2019] 3 SCR 535                 distinguished            Para 35
      [2017] 8 SCR 33                  referred to              Para 43
      [2013] 14 SCR 713                referred to              Para 65
      [1973] 2 SCR 502                 referred to              Para 66
C     [2011] 3 SCR 932                 referred to              Para 67
            CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4633
      of 2021.
          From the Judgment and Order dated 02.03.2021 of the National
      Company Law Appellate Tribunal, Principal Bench, New Delhi in
D     Company Appeal (AT) (Insolvency) No. 117 of 2021.
           Jaideep Gupta, Sr. Adv., Mahesh Agarwal, Ms. Manali Singhal,
      Prateek Seksaria, Sri Venkatesh, Himanshu Satija, Divyang
      Chandiramani, Suhael Bhuttan, E. C. Agrawala, Advs. for the Appellant.

E           Dhruv Mehta, Sr. Adv., Syed Jafar Alam, Siddharth Ranade,
      Ms. Shivani Khandekar, Ms. Harneet Kaur, Arjun Agarwal, Ms. Samrudhi
      Chotani, Advs. for the Respondent.
            The Judgment of the Court was delivered by
            INDIRA BANERJEE, J.
F
             1. This appeal under Section 62 of the Insolvency and Bankruptcy
      Code 2016, hereinafter referred to as the ‘IBC’, is against a judgment
      and order dated 2nd March 2021 passed by the National Company Law
      Appellate Tribunal (NCLAT), New Delhi in Company Appeal (AT)
      (Insolvency) No.117 of 2021 whereby the learned Tribunal refused to
G     stay the proceedings initiated by the Respondent, Axis Bank Limited
      against the Appellant for initiation of the Corporate Insolvency Resolution
      Process (CIRP) 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
H     Coal-fired Thermal Power Plant comprising of two units each of 300
  VIDARBHA INDUSTRIES POWER LIMITED v. AXIS BANK                             143
           LIMITED [INDIRA BANERJEE, J.]

MW capacity, within the Butibori Industrial Area in the Nagpur District      A
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   B
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       C
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             D
Commission, hereinafter referred to as “MERC”, approved a Power
Procurement Agreement between the Appellant and Reliance Industries
Limited (RIL) subject to No Objection Certificate (NOC) of MIDC.
MIDC granted its NOC to the Power Project Agreement.
       6. On 21st June 2013, the Cabinet Committee on Economic Affairs       E
(CCEA) amended the New Coal Distribution Policy 2007, pursuant to
which the Ministry of Coal (MOC) issued an order on 17th July 2013
directing Coal India Limited (CIL) to sign Fuel Supply Agreements (FSA)
with Power Projects with an aggregate capacity of 78,000 MW.
      7. On 17th July 2013, the Ministry of Power issued a list of Power     F
Projects with an aggregate capacity of 78,000 MW that were eligible to
execute FSAs with CIL. The Appellant was not included in the list.
      8. On 19th July 2013, the MERC granted approval to RIL to procure
power from the Appellant’s Unit 1. Accordingly, a consolidated Power
Purchase Agreement was executed on 14th August 2013 between the
                                                                             G
Appellant and RIL under which the Appellant agreed to supply and RIL
agreed to purchase, power generated from both units of the Appellant’s
Power Plant.
      9. On 21st February 2014, the Standing Linkage Committee held a
meeting wherein the Appellant’s application for conversion of Unit 1
from GPP to IPP for the purpose of executing FSA was approved.               H
144            SUPREME COURT REPORTS                         [2022] 12 S.C.R.


A           10. On 1st April 2014, the Appellant commenced supply of power
      to RIL pursuant to the Power Purchase Agreement approved by MERC.
      By an order dated 9th March 2015, in Case No.115 of 2014, MERC
      approved the Final Tariff of the power plant of the Appellant for the
      Financial Years 2014-2015 and 2015-2016.
B            11. In January 2016, the Appellant filed an application being Case
      No.91 of 2015 before the MERC for the purpose of truing up the
      Aggregate Revenue Requirement and for determination of tariff in terms
      of MERC (Multi Year Tariff) Regulation 2011, in view of, inter alia, the
      increase in fuel costs, consequential to the rise in the cost of procuring
      coal for the purpose of running the power plant.
C
             12. By an order dated 20th June 2016, the MERC disposed of
      Case No.91 of 2015 disallowing a substantial portion of the actual fuel
      costs as claimed by the Appellant for the Financial Years 2014-2015 and
      2015-2016 and also capped the tariff for the Financial Years 2016-2017
      to 2019-2020.
D
            13. Being aggrieved, the Appellant 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.

E           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.
F
            15. On or about 8 th 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.
G
             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.
H
VIDARBHA INDUSTRIES POWER LIMITED v. AXIS BANK                         145
         LIMITED [INDIRA BANERJEE, J.]

   17. Sections 6 and 7 of the IBC provide:                            A
   “6. Persons who may initiate corporate insolvency resolution
   process.—Where any corporate debtor commits a default, a
   financial creditor, an operational creditor or the corporate
   debtor itself may initiate corporate insolvency resolution
   process in respect of such corporate debtor in the manner as        B
   provided under this Chapter.
   7. Initiation of corporate insolvency resolution process by
   financial creditor.—(1) A financial creditor either by itself or
   jointly with other financial creditors, or any other person on
   behalf of the financial creditor, as may be notified by the         C
   Central Government, may file an application for initiating
   corporate insolvency resolution process against a corporate
   debtor before the Adjudicating Authority when a default has
   occurred:
   Provided that for the financial creditors, referred to in clauses   D
   (a) and (b) of sub-section (6-A) of Section 21, an application
   for initiating corporate insolvency resolution process against
   the corporate debtor shall be filed jointly by not less than
   one hundred of such creditors in the same class or not less
   than ten per cent. of the total number of such creditors in the
   same class, whichever is less:                                      E

   Provided further that for financial creditors who are allottees
   under a real estate project, an application for initiating
   corporate insolvency resolution process against the corporate
   debtor shall be filed jointly by not less than one hundred of
   such allottees under the same real estate project or not less       F
   than ten per cent. of the total number of such allottees under
   the same real estate project, whichever is less:
   Provided also that where an application for initiating the
   corporate insolvency resolution process against a corporate
   debtor has been filed by a financial creditor referred to in        G
   the first and second provisos and has not been admitted by
   the Adjudicating Authority before the commencement of the
   Insolvency and Bankruptcy Code (Amendment) Act, 2020,
   such application shall be modified to comply with the
   requirements of the first or second proviso within thirty days
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146     SUPREME COURT REPORTS                       [2022] 12 S.C.R.


A     of the commencement of the said Act, failing which the
      application shall be deemed to be withdrawn before its
      admission.
      Explanation.—For the purposes of this sub-section, a default
      includes a default in respect of a financial debt owed not
B     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.
C     (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;
D
         (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
E     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
F     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-
G     section (2) is complete, and there is no disciplinary
      proceedings pending against the proposed resolution
      professional, it may, by order, admit such application; or
      (b) default has not occurred or the application under sub-
      section (2) is incomplete or any disciplinary proceeding is
H
  VIDARBHA INDUSTRIES POWER LIMITED v. AXIS BANK                              147
           LIMITED [INDIRA BANERJEE, J.]

      pending against the proposed resolution professional, it may,           A
      by order, reject such application:
      Provided that the Adjudicating Authority shall, before
      rejecting the application under clause (b) of sub-section (5),
      give a notice to the applicant to rectify the defect in his
      application within seven days of receipt of such notice from            B
      the Adjudicating Authority.
      (6) The corporate insolvency resolution process shall
      commence from the date of admission of the application under
      sub-section (5).
      (7) The Adjudicating Authority shall communicate—                       C

          (a) the order under clause (a) of sub-section (5) to the
          financial creditor and the corporate debtor;
          (b) the order under clause (b) of sub-section (5) to the
          financial creditor, within seven days of admission or               D
          rejection of such application, as the case may be.”
      18. On or about 15th January 2020, the Respondent, Axis Bank
Limited, as Financial Creditor of the Appellant, filed an application under
Section 7 (2) of the IBC being C.P. (IB) No.264 of 2020 before the
National Company Law Tribunal (NCLT), Mumbai for initiation of CIRP
                                                                              E
against the Appellant.
      19. The Appellant filed a Miscellaneous Application being M.A.
No.570 of 2020 in C.P. (IB) No.264 of 2020, sometime in February
2020, seeking stay of proceedings under Section 7 of the IBC in the
NCLT, as long as Civil Appeal No.372 of 2017 was pending in this Court.
                                                                              F
        20. By an order dated 29th January 2021, the Adjudicating Authority
(NCLT) dismissed the application being M.A. No.570 of 2020 filed by
the Appellant in C.P. No.264 of 2020 and refused to stay the CIRP
initiated against the Appellant.
      21. The Adjudicating Authority held:-                                   G
      “19. The Code is a special legislation. The chief object of
      which is to decide the Petition in a time bound manner and
      take adequate steps to see that the Corporate Debtor remains
      a going concern even during the process of CIRP.
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148     SUPREME COURT REPORTS                       [2022] 12 S.C.R.


A     20. The Hon’ble Apex Court in Swiss Ribbons 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
B        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
C        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
D        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
E
         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
F
      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 in servicing the debts
      or the reason for committing a default is alien to the scheme
      of the Code. The averments made in the instant Application
G     would indicate that various factors apparently hindered the
      Corporate Debtor from carrying on its business. There were
      disputes between the Corporate Debtor and the recipient of
      the energy as well as the change in supply chain management
      of the recipient of the energy may also have contributed to
      the lack of confidence between the entities. Be that as it may,
H
 VIDARBHA INDUSTRIES POWER LIMITED v. AXIS BANK                          149
          LIMITED [INDIRA BANERJEE, J.]

      the dispute of the Corporate Debtor with the Regulator or          A
      the recipient would be extraneous to the matters involved in
      the Company Petition. The decision in the matters pending
      before the Hon’ble Apex Court and other authorities would
      hardly have any bearing and impact on the issues involved in
      the present Company Petition under Section 7 of the Code.
                                                                         B
      22. This Authority is required only to see whether there has
      been a debt and the Corporate Debtor defaulted in making
      the repayments. These two aspects when satisfied would trigger
      Corporate Insolvency. Therefore, the decision of the
      Authorities as well as of the Hon’ble Apex Court would not
      affect the proceedings before this Authority one way or the        C
      other. Therefore, we are of the considered opinion that this
      Authority need not stay its hands from considering the
      Company Petition as prayed for. As it is, there has been a
      considerable delay in disposal of the Company Petition. It
      will accordingly be appropriate that the Company Petition is       D
      disposed of as expeditiously as possible. Hence ordered.
                             ORDER
      The Application be and the same is rejected on contest. There
      would however be no order as to costs.”
                                                                         E
       22. The Appellant filed an appeal before the NCLAT, against the
aforesaid order dated 29th January 2021. The said appeal has been
dismissed by the judgment and order dated 2nd March 2021 impugned in
this Appeal.
      23. By the judgment and order impugned, the NCLAT held:            F
      “On consideration of the issues raised in this Appeal we are
      of the considered opinion that the Appellant has no
      justification in stalling the process and seeking stay of CIRP,
      which in essence has manifested in blocking the passing of
      order of admission of Application of Respondent under Section
                                                                         G
      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
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150            SUPREME COURT REPORTS                          [2022] 12 S.C.R.


A           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
B     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
C     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
D     regulated by MERC and APTEL, the application under Section 7 of the
      IBC should not have been admitted against the Appellant.
              26. Mr. Gupta, referred to Section 7(5)(a) of the IBC which
      provides that where the Adjudicating Authority is satisfied that a default
      has occurred, and the application under sub-Section (2) is complete, and
E     there is no disciplinary proceeding pending against the proposed Resolution
      Professional, it may by order, admit such application.
            27. Mr. Gupta submitted that a bare perusal of the aforesaid
      provision shows that the word used in Section 7(5)(a) of the IBC is
      ‘may’, which must be interpreted to say that it is not mandatory for the
F     NCLT to admit an application in each and every case, where there is
      existence of a debt.
              28. Mr. Gupta argued that discretion conferred by Section 7(5)
      (a) of the IBC enables NCLT to reject an application, even if there is
      existence of debt, for any reason that the NCLT may deem fit, for meeting
G     the ends of justice and to achieve the overall objective of the IBC, which
      is revival of the company and value maximization. Mr. Gupta argued
      that if legislature had intended that an application must be admitted upon
      existence of a debt, then the terminology used in Section 7(5)(a) of IBC
      would have been ‘shall’ and not ‘may’.
H
    VIDARBHA INDUSTRIES POWER LIMITED v. AXIS BANK                               151
             LIMITED [INDIRA BANERJEE, J.]

      29. Mr. Gupta has also relied on Rule 11 of the National Company           A
Law Tribunal Rules, 2016, hereinafter referred to as the “Rules”, set out
hereinbelow:
         “11. Inherent Powers- Nothing in these rules shall be deemed
         to limit or otherwise affect the inherent powers of the Tribunal
         to make such orders as may be necessary for meeting the                 B
         ends of justice or to prevent abuse of the process of the
         Tribunal”
      30. Mr. Gupta submitted that a conjoint reading of Section 7(5)(a)
of the IBC with Rule 11 of the Rules makes it abundantly clear that
NCLT, on examining the existence of debt and its default, by a Corporate         C
Debtor, has the discretion to admit or not admit an application for initiation
of CIRP. It cannot be said that NCLT has no power, except to examine
whether a debt exists or not and accordingly accept or reject the
application under Section 7 of the IBC.
       31. To demonstrate that power under Section 7(5)(a) of the IBC            D
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.1, where this Court held:
                                                                                 E
         “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-          F
         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.”                  G
       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
1
    (2017) 16 SCC 143                                                            H
152                SUPREME COURT REPORTS                     [2022] 12 S.C.R.


A     argued that, where there are favourable orders in favour of the Corporate
      Debtor, implementation of which would enable the Corporate Debtor to
      liquidate its debt, the NCLT is not denuded of the power to defer the
      hearing of the petition under Section 7 of the IBC.
            33. Mr. Gupta argued that the Appellant is in its current situation
B     for no fault of its own, but due to the statutory authorities as noted by
      APTEL in Appeal No.192 of 2016. MERC has prevented the Appellant
      from availing the benefit of favourable orders passed by APTEL.
             34. Mr. Dhruv Mehta, Senior Advocate appearing on behalf of
      the Respondent Financial Creditor, has strenuously opposed this appeal,
C     emphasizing on the fact that the Appellant Corporate Debtor had
      admittedly defaulted in payment of its dues to the Respondent Financial
      Creditor. He submitted that the Appellant being in admitted default, the
      Adjudicating Authority (NCLT) rightly declined stay of proceedings
      initiated by the Respondent Financial Creditor under Section 7(5) of the
      IBC.
D
              35. In support of his aforesaid submission, Mr. Mehta cited Swiss
      Ribbons Private Limited and Anr. v. Union of India and Ors.2. The
      relevant portion of the judgment relied upon by Mr. Mehta in this context
      is set out hereinbelow:-

E               “64. The trigger for a financial creditor’s application is non-
                payment of dues when they arise under loan agreements. It is
                for this reason that Section 433(e) of the Companies Act, 1956
                has been repealed by the Code and a change in approach
                has been brought about. Legislative policy now is to move
                away from the concept of “inability to pay debts” to
F               “determination of default”. The said shift enables the
                financial creditor to prove, based upon solid documentary
                evidence, that there was an obligation to pay the debt and
                that the debtor has failed in such obligation.”
             36. Mr. Mehta argued that Section 7(5)(a) of the IBC cast a
G     mandatory obligation on the Adjudicating Authority to admit an application
      of the Financial Creditor, under Section 7(2), once it was found that a
      Corporate Debtor had committed default in repayment of its dues to the
      Financial Creditor. This is what the Adjudicating Authority (NCLT) has
      done.
      2
H         (2019) 4 SCC 17 (Para 64)
  VIDARBHA INDUSTRIES POWER LIMITED v. AXIS BANK                              153
           LIMITED [INDIRA BANERJEE, J.]

       37. Mr. Mehta argued that the application under Section 7 of the       A
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
                                                                              B
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     C
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,      D
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.         E

        41. Referring to sub-section (4) of Section 7 of the IBC,
Mr. Mehta argued that the Adjudicating Authority (NCLT) is mandatorily
required to ascertain existence of the default from the records of an
information utility or on the basis of other evidence furnished by the
Financial Creditor under sub-section (3) of Section 7, within 14 days of      F
receipt of an application under sub-section (2) of Section 7 of the IBC.
If the Adjudicating Authority does not ascertain the existence of default,
it is bound to record its reasons in writing for not doing so.
      42. Mr. Mehta argued that in this case, there was no dispute that
the Appellant had defaulted in payment of its dues to the Respondent          G
Financial Creditor. The Adjudicating Authority was obliged to admit the
application under Section 7 of the IBC in terms of Section 7(5)(a) of the
IBC. There are no grounds to interfere with the concurrent findings of
the NCLT and the NCLAT.
                                                                              H
154                SUPREME COURT REPORTS                      [2022] 12 S.C.R.


A            43. Mr. Mehta also relied on the judgment of this Court in
      Innoventive Industries Ltd. v. ICICI Bank and Another3 to argue
      that the object of the IBC was to provide a framework for expeditious
      and time bound insolvency resolution. Section 7(5)(a) of the IBC had,
      therefore, necessarily to be construed as mandatory in the light of the
      objects of the IBC.
B
             44. The IBC has been enacted for reasonably expeditious, time
      bound insolvency resolution of, inter alia, corporate bodies as observed
      by this Court in Swiss Ribbons (supra). As observed by this Court in
      Swiss Ribbons (supra) timely resolution of a Corporate Debtor, who is
      in the red, by an effective legal framework and process, would go a
C     long way to support the development of the credit market.
              45. As per the Statement of Objects and Reasons of the IBC, and
      its preamble, the objective of the IBC is to consolidate and amend the
      laws relating to reorganization and insolvency resolution of corporate
      persons, partnership firms and individuals, in a time bound manner, inter
D     alia, for maximization of the value of the assets of such persons, promoting
      entrepreneurship and availability of credit, balancing the interest of all
      the 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
E     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
F     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
G     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.

H     3
          (2018) 1 SCC 407
 VIDARBHA INDUSTRIES POWER LIMITED v. AXIS BANK                             155
          LIMITED [INDIRA BANERJEE, J.]

      48. In Innoventive Industries Ltd. v. ICICI Bank (supra), this        A
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, as these excerpts give            B
      us a good insight into why the Code was enacted and the
      purpose for which it was enacted:
         “...India is one of the youngest republics in the world, with
      a high concentration of the most dynamic entrepreneurs. Yet
      these game changers and growth drivers are crippled by an             C
      environment that takes some of the longest times and highest
      costs by world standards to resolve any problems that arise
      while repaying dues on debt.
      ….the recovery rates obtained in India are among the lowest
      in the world. When default takes place, broadly speaking,             D
      lenders seem to recover 20% of the value of debt, on an NPV
      basis.
      When creditors know that they have weak rights resulting in
      a low recovery rate, they are averse to lend....
      The key economic question in the bankruptcy process                   E
      When a firm (referred to as the corporate debtor in the draft
      law) defaults, the question arises about what is to be done.
      Many possibilities can be envisioned. One possibility is to
      take the firm into liquidation. Another possibility is to negotiate
      a debt restructuring, where the creditors accept a reduction          F
      of debt on an NPV basis, and hope that the negotiated value
      exceeds the liquidation value. Another possibility is to sell
      the firm as a going concern and use the proceeds to pay
      creditors. Many hybrid structures of these broad categories
      can be envisioned...
                                                                            G
      Speed is of essence
      Speed is of essence for the working of the bankruptcy code,
      for two reasons. First, while the “calm period” can help keep
      an organisation afloat, without the full clarity of ownership
                                                                            H
156      SUPREME COURT REPORTS                       [2022] 12 S.C.R.


A     and control, significant decisions cannot be made. Without
      effective leadership, the firm will tend to atrophy and fail.
      The longer the delay, the more likely it is that liquidation will
      be the only answer. Second, the liquidation value tends to go
      down with time as many assets suffer from a high economic
      rate of depreciation.
B
      From the viewpoint of creditors, a good realisation can
      generally be obtained if the firm is sold as a going 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
C     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:
D
         (1) Low time to resolution.
         (2) Low loss in recovery.
      (3) Higher levels of debt financing across a wide variety of
      debt instruments.
E
      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
F     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
G     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....
H
VIDARBHA INDUSTRIES POWER LIMITED v. AXIS BANK                         157
         LIMITED [INDIRA BANERJEE, J.]

        II. The Code will enable symmetry of information               A
   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 that access to this information      B
   is made available to all creditors to the enterprise, either
   directly or through the regulated professional.
         (7) The law must enable access to this information to
   third parties who can participate in the resolution process,
   through the regulated professional.                                 C
         III. The Code will ensure a time-bound process to better
   preserve economic value.
         (8) The law must ensure that time value of money is
   preserved, and that delaying tactics in these negotiations will
   not extend the time set for negotiations at the start.              D
         IV. The Code will ensure a collective process.
          (9) The law must ensure that all key stakeholders will
   participate to collectively assess viability. The law must ensure
   that all creditors who have the capability and the willingness
   to restructure their liabilities must be part of the negotiation    E
   process. The liabilities of all creditors who are not part of the
   negotiation process must also be met in any negotiated
   solution.
         V. The Code will respect the rights of all creditors
   equally.                                                            F
         (10) The law must be impartial to the type of creditor in
   counting their weight in the vote on the final solution in
   resolving insolvency.
          VI. The Code must ensure that, when the negotiations
   fail to establish viability, the outcome of bankruptcy must be      G
   binding.
         (11) The law must order the liquidation of an enterprise
   which has been found unviable. This outcome of the
   negotiations should be protected against all appeals other
   than for very exceptional cases....”                                H
158             SUPREME COURT REPORTS                          [2022] 12 S.C.R.


A           49. The new Insolvency and Bankruptcy framework has been
      designed, inter alia, to facilitate the assessment of viability of an
      enterprise at a very early stage, and to ensure a time bound Insolvency
      Resolution Process to preserve the economic value of the enterprise.
           50. Section 6 of the IBC provides that where any Corporate Debtor
B     commits a default, a Financial 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
C     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
D     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
E     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
F     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
G     Rs.11,21,68,673.81 towards penal interest. The principal outstanding
      amount was Rs.499,22,85,110.65.
            54. 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
H
  VIDARBHA INDUSTRIES POWER LIMITED v. AXIS BANK                                159
           LIMITED [INDIRA BANERJEE, J.]

Section 7 of the IBC, within 14 days of the date of receipt of the              A
application,
        55. Section 7(5)(a) of the IBC, on which much emphasis has
been placed both by Mr. Gupta and Mr. Mehta, provides that where the
Adjudicating Authority (NCLT) is satisfied that a default has occurred
and the application under sub-Section (2) of the IBC is complete and            B
there is no disciplinary proceeding against the proposed Resolution
Professional, it may by order, admit such application. If default has not
occurred, or the application is incomplete, or any disciplinary proceeding
is pending against the proposed Resolution Professional, the Adjudicating
Authority (NCLT) may reject such application in terms of Section 7(5)(a)
of the IBC, but after giving the applicant opportunity to rectify the defect.   C

       56. Both, the Adjudicating Authority (NCLT) and the Appellate
Tribunal (NCLAT) proceeded on the premises that an application must
necessarily be entertained under Section 7(5)(a) of the IBC, if a debt
existed and the Corporate Debtor was in default of payment of debt. In
other words, the Adjudicating Authority (NCLT) found Section 7(5)(a)            D
of the IBC to be mandatory. The Adjudicating Authority (NCLT) was of
the view that Section 7(5)(a) did not admit any other interpretation, with
which the Appellate Tribunal (NCLAT) agreed.
       57. The Appellate Tribunal (NCLAT) affirmed the finding of the
Adjudicating Authority (NCLT) that the Adjudicating Authority was only          E
required to see whether there had been a debt, 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       F
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         G
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.
                                                                                H
160             SUPREME COURT REPORTS                          [2022] 12 S.C.R.


A     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
B     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
C     the claim of the Financial Creditor, is realisable by the Corporate Debtor.
      The answer, in our view, is necessarily in the negative.
             61. In our view, 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
D     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
E     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.
             62. As pointed out by Mr. Gupta, Legislature has, in its wisdom,
F     chosen to use the expression “may” in Section 7(5)(a) of the IBC. When
      an Adjudicating Authority (NCLT) is satisfied that a default has occurred
      and the application of a Financial Creditor is complete and there are no
      disciplinary proceedings against proposed resolution professional, it may
      by order admit the application. Legislative intent is construed in accordance
      with the language used in the statute.
G
             63. The meaning and intention of Section 7(5)(a) of the IBC is to
      be ascertained from the phraseology of the provision in the context of
      the nature and design of the IBC. This Court would have to consider the
      effect of the provision being construed as directory or discretionary.

H
    VIDARBHA INDUSTRIES POWER LIMITED v. AXIS BANK                              161
             LIMITED [INDIRA BANERJEE, J.]

       64. Ordinarily the word “may” is directory. The expression ‘may          A
admit’ confers discretion to admit. In contrast, the use of the word “shall”
postulates a mandatory requirement. 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
                                                                                B
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.4 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).       C

         66. In Hiralal Rattanlal v. State of Uttar Pradesh5, this Court
held:-
         “22. … In construing a statutory provision, the first and the
         foremost rule of construction is the literary construction. All        D
         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.”                               E

         67. In B. Premanand v. Mohan Koikal6, 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     F
         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 literally would nullify the very object of the
         statute. Where the words of a statute are absolutely clear and
         unambiguous, recourse cannot be had to the principles of               G
         interpretation other than the literal rule, vide Swedish Match
         AB v. SEBI [(2004) 11 SCC 641] .”
4
  (2014) 2 SCC 1 (para 14)
5
  (1973) 1 SCC 216
6
  (2011) 4 SCC 266                                                              H
162             SUPREME COURT REPORTS                          [2022] 12 S.C.R.


A            68. In Lalita Kumari v. Government of Uttar Pradesh (supra),
      this Court construed the use of the word “shall” in section 154 (1) of the
      Code of Criminal Procedure 1973 and held that Section 154(1) postulates
      the mandatory registration of an FIR on receipt of information of a
      cognizable offence. If, however, the information given does not disclose
      a cognizance offence, a preliminary enquiry may be ordered, and if the
B
      enquiry discloses the commission of a cognizable offence, the FIR must
      be registered.
             69. As argued by Mr. Gupta, had it been the legislative intent that
      Section 7(5)(a) of the IBC should be a mandatory provision, Legislature
      would have used the word ‘shall’ and not the word ‘may’. There is no
C     ambiguity in Section 7(5)(a) of the IBC. 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. In this case, there is no cogent
      reason to depart from the rule of literal construction.
D           70. Section 8 of the IBC relates to the initiation of CIRP by an
      Operational Creditor. There are noticeable differences between the
      procedure by which a Financial Creditor may initiate CIRP and the
      procedure by which an Operational Creditor may apply for CIRP.
             71. The Operational Creditor is, on occurrence of a default,
E     required to serve on the Corporate Debtor, a demand notice of the unpaid
      Operational Debt, or a copy of an invoice demanding payment of the
      amount involved in the default of the Corporate Debtor. 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
F     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
G     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:-
H
 VIDARBHA INDUSTRIES POWER LIMITED v. AXIS BANK                         163
          LIMITED [INDIRA BANERJEE, J.]

     “9(5) The Adjudicating Authority shall, within fourteen days       A
     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

        (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   C
        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.                                                            D
     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;
                                                                        E
        (b) there has been payment of the unpaid operational debt;
        (c) the creditor has not delivered the invoice or notice for
        payment to the corporate debtor;
        (d) notice of dispute has been received by the operational
        creditor or there is a record of dispute in the information     F
        utility; or
        (e) any disciplinary proceeding is pending against any
        proposed resolution professional:
     Provided that Adjudicating Authority, shall before rejecting
                                                                        G
     an application under sub-clause (a) of clause (ii) give a notice
     to the applicant to rectify the defect in his application within
     seven days of the date of receipt of such notice from the
     Adjudicating Authority.”

                                                                        H
164             SUPREME COURT REPORTS                          [2022] 12 S.C.R.


A           74. Sub-section (5) of Section 9 of the IBC provides that the
      Adjudicating Authority (NCLT) shall, within 14 days of the receipt of an
      application of an operational creditor under sub-section (2) of Section 9,
      admit the application and communicate the decision to the Operational
      Creditor and the Corporate Debtor, provided, the conditions stipulated in
      clauses (a) to (e) of Section 9(5)(i) of the IBC are satisfied. The
B
      Adjudicating Authority (NCLT) must reject the application of the
      Operational Creditor in the circumstances specified in clauses (a) to (e)
      of Section 9(5)(ii) of the IBC.
             75. Significantly, 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
C     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.
             76. The fact that Legislature used ‘may’ in Section 7(5)(a) of the
D     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 of an
E     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
F     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
G     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.
H
  VIDARBHA INDUSTRIES POWER LIMITED v. AXIS BANK                                165
           LIMITED [INDIRA BANERJEE, J.]

       78. The Legislature has consciously differentiated between               A
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
                                                                                B
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 financial strength and nature of business of a
Financial Creditor cannot be compared with that of an Operational
Creditor, engaged in supply of goods and services. The impact of the
non-payment of admitted dues could be far more serious on an                    C
Operational Creditor than on a financial creditor.
        79. As observed above, the financial strength and nature of business
of Financial Creditors and Operational Creditors being different, as also
the tenor and terms of agreements/contracts with financial creditors
and operational creditors, the provisions in the IBC relating to                D
commencement of CIRP at the behest of an Operational Creditor, whose
dues are undisputed, are rigid and inflexible. If dues are admitted as
against the Operational Creditor, the Corporate Debtor must pay the
same. If it does not, CIRP must be commenced. In the case of a financial
debt, there is a little more flexibility. The Adjudicating Authority (NCLT)
has been conferred the discretion to admit the application of the Financial     E
Creditor. If facts and circumstances so warrant, the Adjudicating
Authority can keep the admission in abeyance or even reject the
application. Of course, in case of rejection of an application, the Financial
Creditor is not denuded of the right to apply afresh for initiation of CIRP,
if its dues continue to remain unpaid.                                          F
       80. The IBC, as observed above, is intended to consolidate and
amend the laws with a view to reorganize Corporate Debtors and resolve
insolvency in a time bound manner for maximization of the value of the
assets of the Corporate Debtor.
        81. The title “Insolvency and Bankruptcy Code” makes it amply           G
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
                                                                                H
166            SUPREME COURT REPORTS                         [2022] 12 S.C.R.


A     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.
B     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:-
C           “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
D           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
E           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
F           Sections 8 and 9, an operational creditor may, on the
            occurrence of a default, deliver a demand notice which must
            then be replied to within the specified period. What is
            important is that at this stage, if an application is filed before
            the adjudicating authority for initiating the corporate
            insolvency resolution process, the corporate debtor can prove
G           that the debt is disputed. When the debt is so disputed, such
            application would be rejected.”
            84. The judgment of this Court Swiss Ribbons (supra), which
      was rendered in the context of a challenge to the vires of the IBC, does
      not consider the question of whether Section 7(5)(a) of the IBC is
H
  VIDARBHA INDUSTRIES POWER LIMITED v. AXIS BANK                                167
           LIMITED [INDIRA BANERJEE, J.]

mandatory or discretionary. It is well settled that a judgment is a precedent   A
for the question of law that is raised and decided. The language used in
a judgment cannot be read like a statute. In any case, words and phrases
in the judgment cannot be construed in a truncated manner out of context.
      85. Legislature has, in its wisdom made a distinction between the
date of filing an application under Section 7 of the IBC and, the date of       B
admission of such application for the purpose of computation of timelines.
CIRP commences on the date of admission of the application for initiation
of CIRP and not the date of filing thereof. There is no fixed time limit
within which an application under Section 7 of the IBC has to be admitted.
       86. Even though Section 7 (5)(a) of the IBC may confer                   C
discretionary power on the Adjudicating Authority, such discretionary
power cannot be exercised arbitrarily or capriciously. If the facts and
circumstances warrant exercise of discretion in a particular manner,
discretion would have to be exercised in that manner.
        87. Ordinarily, the Adjudicating Authority (NCLT) would have to
                                                                                D
exercise its discretion to admit an application under Section 7 of the IBC
of the IBC and initiate CIRP on satisfaction of the existence of a financial
debt and default on the part of the Corporate Debtor in payment of the
debt, unless there are good reasons not to admit the petition.
      88. The Adjudicating Authority (NCLT) has to consider the grounds
made out by the Corporate Debtor against admission, on its own merits.          E
For example when admission is opposed on the ground of existence of
an award or a decree in favour of the Corporate Debtor, and the Awarded/
decretal amount exceeds the amount of the debt, the Adjudicating
Authority would have to exercise its discretion under Section 7(5)(a) of
the IBC to keep the admission of the application of the Financial Creditor      F
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            G
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.                                                                H
168             SUPREME COURT REPORTS                      [2022] 12 S.C.R.


A            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.
B
             91. For the reasons discussed above, the appeal is allowed. The
      impugned order dated 29th January 2021 passed by the Adjudicating
      Authority (NCLT) and the impugned order dated 2 nd March 2021 passed
      by the Appellate Authority (NCLAT) dismissing the appeal of the
      Appellant are set aside. The NCLT shall re-consider the application of
C     the Appellant for stay of further proceedings on merits in accordance
      with law.

      Devika Gujral                                             Appeal allowed.
      (Assisted by : Neha Sharma, LCRA)
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