Axis Bank Limited Vs Vidarbha Industries Power Limited (Supreme Court of India)
Summary: The Supreme Court of India, in two connected decisions concerning Vidarbha Industries Power Limited and Axis Bank Limited, examined the scope of the National Company Law Tribunal’s powers under Section 7(5)(a) of the Insolvency and Bankruptcy Code, 2016. In its original judgment dated 12 July 2022, the Supreme Court allowed the appeal filed by Vidarbha Industries Power Limited against the refusal of the NCLT and NCLAT to stay insolvency proceedings initiated by Axis Bank. The corporate debtor contended that an order of the Appellate Tribunal for Electricity entitled it to recover approximately Rs.1,730 crore, substantially exceeding Axis Bank’s claim of approximately Rs.553 crore. However, realisation of that amount was affected by a pending appeal before the Supreme Court. The Court held that the expression “may” in Section 7(5)(a) conferred discretion upon the Adjudicating Authority and that the existence of financial debt and default did not necessarily compel admission without considering relevant circumstances. It observed that the NCLT should examine the financial health, viability and relevant facts of the corporate debtor, including the potentially recoverable amount under the electricity tribunal’s order. Consequently, the orders of the NCLT and NCLAT were set aside, and the matter was remitted for reconsideration of the stay application.
Subsequently, Axis Bank Limited filed Review Petition (Civil) No. 1043 of 2022, contending that the Supreme Court had overlooked its earlier decision in E.S. Krishnamurthy & Ors. Vs Bharath Hi-Tech Builders Pvt. Ltd., (2022) 3 SCC 161. The review petitioner relied on observations that the Adjudicating Authority, while dealing with an application under Section 7(5), must either admit or reject it and cannot compel unwilling parties to settle their dispute. The Supreme Court distinguished that precedent, explaining that the question of whether Section 7(5) was mandatory or discretionary had not arisen in that case. The issue there concerned the impermissibility of imposing a settlement upon unwilling parties.
By its order dated 22 September 2022, the Supreme Court rejected the apprehension that the original Vidarbha judgment would undermine the objectives of the IBC. It clarified that the observations in paragraph 90 and elsewhere in the original judgment were made in the factual context of the case. Judicial observations must not be read as statutory provisions or interpreted independently of their context. Finding no grounds for review, the Supreme Court disposed of the review petition without disturbing the original order. The subsequent decision in M. Suresh Kumar Reddy Vs Canara Bank further explained that Vidarbha Industries was confined to its particular facts and did not displace the established principles governing admission of financial creditors’ applications under Section 7 of the IBC.
Related Judgment: Supreme Court on Discretionary Power of Adjudicating Authority to Admit Financial Creditor’s CIRP Application.
Cases Discussed
1. E.S. Krishnamurthy & Ors. Vs Bharath Hi-Tech Builders Pvt. Ltd. — (2022) 3 SCC 161; Supreme Court; 14/12/2021. The NCLT cannot compel parties to settle a dispute instead of exercising its statutory jurisdiction to admit or reject an application under Section 7 of the IBC.
2. Surendra Trading Company Vs Juggilal Kamlapat Jute Mills Company Limited — (2017) 16 SCC 143; Supreme Court. Considered in relation to mandatory and directory procedural requirements under the IBC.
3. Swiss Ribbons Pvt. Ltd. Vs Union of India — (2019) 4 SCC 17; Supreme Court. Discussed the objectives of the IBC, timely insolvency resolution, determination of default and the distinction between financial and operational creditors.
4. Innoventive Industries Ltd. Vs ICICI Bank — (2018) 1 SCC 407; Supreme Court. Explained the statutory framework for initiating CIRP and the importance of establishing financial debt and default.
5. Lalita Kumari Vs Government of Uttar Pradesh — (2014) 2 SCC 1; Supreme Court. Relied upon for principles of statutory interpretation and the significance of mandatory legislative language.
6. Hiralal Rattanlal Vs State of Uttar Pradesh — (1973) 1 SCC 216; Supreme Court. Discussed the rule of literal construction of unambiguous statutory provisions.
7. B. Premanand Vs Mohan Koikal — (2011) 4 SCC 266; Supreme Court. Considered regarding the primacy of literal interpretation and the limited circumstances permitting other interpretative approaches.
8. Swedish Match AB Vs SEBI — (2004) 11 SCC 641; Supreme Court. Referred to in the discussion of literal statutory interpretation.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
This petition for review was listed for open Court hearing, since it was mentioned and submitted that this Court had overlooked the judgment of this Court in E.S. Krishnamurthy & Ors. vs. Bharath Hi-Tech Builders Pvt. Ltd. reported in (2022) 3 SCC 161, to which the attention of this Court had not been drawn. Our attention has been drawn to two paragraphs of the said judgment, which paragraphs are extracted hereinbelow for convenience.
“31. On a bare reading of the provision, it is clear that both, clauses (a) and (b) of sub-section (5) of Section 7, use the expression “it may, by order” while referring to the power of the adjudicating authority. In clause (a) of subsection (5), the adjudicating authority may, by order, admit the application or in clause (b) it may, by order, reject such an application. Thus, two courses of action are available to the adjudicating authority in a petition under Section 7. The adjudicating authority must either admit the application under clause (a) of sub-section (5) or it must reject the application under clause (b) of sub-section (5). The statute does not provide for the adjudicating authority to undertake any other action, but for the two choices available.
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34. The adjudicating authority has clearly acted outside the terms of its jurisdiction under Section 7(5) IBC. The adjudicating authority is empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the adjudicating authority must then either admit or reject an application, respectively. These are the only two courses of action which are open to the adjudicating authority in accordance with Section 7(5). The adjudicating authority cannot compel a party to the proceedings before it to settle a dispute.”
The learned Solicitor General has specifically emphasised on paragraph 34 which reads “Based upon its decision, the adjudicating authority must then either admit or reject an application, respectively. These are the only two courses of action which are open to the adjudicating authority in accordance with Section 7(5). The adjudicating authority cannot compel a party to the proceedings before it to settle a dispute.”
In paragraph 31, extracted hereinabove, to which reference has been made by the learned Solicitor General of India, this Court observed that two courses of action are available to the
adjudicating authority in a petition under Section 7. The adjudicating authority must either admit the application under clause (a) sub-section (5) or it must reject the application under clause (b) of sub-section (5). The statute does not provide for the adjudicating authority to undertake any other action, but for the two choices available.
The question of whether Section 7 sub-section (5) was mandatory or discretionary was not in issue in any of the judgments cited on behalf of the Review applicant. What was in issue in Krishnamurthy’s case (supra) was whether the adjudicating authority
could foist a settlement on unwilling parties. That issue was answered in the negative.
Learned Solicitor General of India submits that certain observations made by us in the judgment and order under review could be interpreted in a manner that might be contrary to the aims and objects of the IBC and render the law infructuous. The apprehension appears to be misconceived.
The elucidation in paragraph 90 and other paragraphs were made in the context of the case at hand. It is well settled that judgments and observations in judgments are not to be read as provisions of statute. Judicial utterances and/or pronouncements are in the setting of the facts of a particular case.
To interpret words and provisions of a statute, it may become necessary for the Judges to embark upon lengthy discussions. The words of Judges interpreting statutes a re not to be interpreted as statutes.
There are no grounds for review of the judgment and order. The Review Petition is, accordingly, disposed of.
Pending applications, if any, shall also stand disposed of.
Application for listing the review petition in open Court is allowed.
Application for intervention is allowed.
The review petition is disposed of in terms of the signed order.
Pending applications, if any, stand disposed of accordingly.
