Insolvency and Bankruptcy Code, 2016 has been emerged as a dynamic law and has made tremendous changes in insolvency proceedings. The code has various terminologies which have specific meaning although the definitions are mentioned in the Code but like all other legislations there is a need of interpretation. Therefore the Tribunal/Court from time to time has been given its interpretation through various jugdements. Terms like financial creditor, dispute and other procedural expressions can be understood with the help of below mentioned judgements.

In case of Nikhil Mehta & Sons (HUF) & ors Vs M/s AMR Infrastructures Ltd. the application was filed by the four applicants to initiate the insolvency proceedings against the respondent under section 7 of Insolvency and Bankruptcy Code, 2016 read with Rule 4 and Rule 9(1) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The applicants entered into agreements to purchase property with respondent company. They have signed Mous in pursuant to the agreements according to which the respondent has agreed to pay “Assured Returns” every month to the applicants till the delivery of possession of the property. But the respondent started committing defaults in payment and after giving so many notices also he didn’t deposited the amount of Assured Returns in the account of applicants.

But for initiating Bankruptcy proceeding under section 7 of IBC the applicant must be a Financial Creditor and debt must be a Financial debt in terms of Section 5(7) &(8) of the code. The meaning of “financial creditor” means any person who owns a financial debt and includes a person to whom such debt is legally assigned or transferred and financial debt means a debt along with interest and disbursed against the consideration for the time value of money.

The tribunal has interpreted the term financial debt that it includes the financial instruments which have time value of money, in which sum of money paid today against which single or series of payments will be made in future. But here the Assured Return which is payable by the respondent is merely under a agreement to sale and by merely assuring an amount paid in future it does not acquire the status of financial debt. As it has no time value of money essential requirement of section 5(8) has not been fulfilled. So applicants cannot initiate bankruptcy proceedings.

This landmark judgment is referred by the bench in Dr. B.V.S. Lakshmi  Vs  Geometrix Laser Solutions Private Limited where the Appellant was claiming herself as a ‘Financial Creditor’ to initiate Corporate Insolvency Resolution Process against the Respondent. The loan was given by the Appellant for repayment of loans and interest and payment of salary and business dues and court categorically stated that for falling under the category of ‘Financial Debt’ the Appellant is required to show that (i) there is a debt along with interest which has been disbursed and (ii) such disbursement has been made against the ‘consideration for the time value of money’ but the in the present case the Appellant failed to bring any evidence that she disbursed the money against ‘consideration for the time value of money’. So the loan cannot be considered as a ‘Financial Debt’.

In case of Uttam Galva Steels Limited vs. DF Deutsche Forfait AG & Anr following issues were involved-

  1. Whether a joint application by two or more operational creditors under Sec. 9 of the IBC is maintainable or not?
  2. Whether it is mandatory to file certificate of recognised financial institution along with an application under Sec. 9 of the IBC?
  3. Whether the demand notice with invoice under Section 8 of the IBC can be issued by anyone as lawyer of operational creditor on behalf of an Operational Creditor? And
  4. Whether there is an existence of dispute in the present case?

While deciding the first issue the tribunal has referred sec. 8 of IBC under which the Appellant need to serve notice of payment to corporate debtor and if operational creditor does not receive payment then he can file the application for insolvency. The time limit for making payment after receiving demand notice is of 10 days mentioned under sec 9 of IBC. There are practical difficulties in filing joint application under Sec. 9 because the notice need to be served individually under Form 3 or Form 4 and also the Date and claim will be different for each individual, expiry of the period also will be different for each individual. Therefore, the petition will contain separate data and joint application is not maintainable under Sec. 9 of the Code.

In second issue the tribunal has referred the case of Smart Timing Steel Ltd. Vs National Steel and Agro Industries Ltd. in which the petitioner has filed application under Sec 9 of the code without filing certificate from financial institution maintaining accounts of the operational creditor to ensure that there is no payment of this unpaid debt by the operational debtor as set out in section 9(2)(c) of the code. The bench has given time to the applicant but he failed to furnish the certificate. The counsel on behalf of the petitioner submitted that it is impossible to file copy of certificate because financial institution is situated outside India so this requirement should be exempted but the bench did not accept this contention and reject the petition, so it is mandatory to file a copy of certificate from financial institution.

In present case the certificate is issued by a foreign bank which is not recognised as a financial institution rather it is a collecting agency which cannot be verified by the authority so in absence of certificate from financial institution the application is incomplete.

With respect to third issue the bench has made distinction between Lawyer’s notice and notice which is served by the Operational Creditor or a person authorised to act on behalf of him under Sec. 8 of the Code. If the person is serving notice on behalf of operational creditor he has to show his position or relation with operational creditor. The bench after going through the provisions of the Code decided that Lawyers, Company Secretaries, Chartered Accountants except the authority of Board of directors hold no relation with Operational Creditor. In present case no evidence on record to show that the lawyer holds any position or relation with the Operational Creditor. So the notice served by the Lawyer cannot be treated as demand notice under Sec 8 of IBC.

On the issue of existence of dispute the tribunal referred the case of Kirusa Software Private Ltd. Vs Mobilox Innovations Private Ltd. In which the Appellate Tribunal conferred meaning of Dispute and Existence of Dispute and interpreted that the definition of Dispute is inclusive not exhaustive and gave ordinary and simple meaning that dispute means ‘dispute related to any existence of the amount of the debt, quality of good or service or breach of a representation or warranty’. But if the Operational Creditor satisfies the authority that there is a debt and default is made by the corporate debtor then the illusionary dispute raised first time after giving notice under Sec 8 of the Code cannot be a ground for rejection of application under Sec. 9 of the Code. But if corporate debtor raised dispute and brought this into notice of the operational creditor prior to giving notice under Sec 8(1) of the Code then we can say there is a dispute pending about the debt.

In present case also the notice of winding up was issued by the Respondent  much prior to the demand notice under Sec 8(1) of IBC by Appellant’s lawyer so the tribunal considered that an Existing Dispute hence insolvency application under Sec 9 became non maintainable.

In case of M/s. Innoventive Industries Limited Vs ICICI Bank & Anr where the Appellant has taken loan from the Respondent bank and made defaults in repayment as result of which the Respondent invoked bankruptcy proceeding against the Appellant under Sec 7 of IBC. The Appellant contented that bankruptcy proceedings cannot be initiated against him because his debts were suspended under Maharashtra Relief Undertaking (Special Provisions) Act. The Respondent undertaking to which subsidy was provided by government of Maharashtra should be considered as an incentive for preventing unemployment for one year and any remedy for enforcement should remain suspended and all proceedings pending before any court, tribunal, officer or authority should be stayed. Further the Respondent submitted that the Non-Obstante clause under section 4 of MRU which has given immunity to the Appellant has overriding effect over Non-Obstante clause in Section 238 because its object is more laudable i.e. to prevent unemployment in the industry.

In appeal court dealt with following issues

  1. If notice is required to be given to the Corporate Debtor for initiation of Corporate Insolvency Resolution Process under IBC then it should be given at what stage and for what purpose?
  2. Whether Maharashtra Relief Undertaking Act shall prevail over IBC?
  3. Where Joint Lender Forum (JLF) have reached to an agreement and granted permission to the Corporate Debtor prior consent of JLF is required by financial creditor, before filing of an application under Section 7 of IBC?

Court while deciding first issue discussed Audi Alteram Partem (Right to be heard) and Rules of natural justice by referring Supreme Court’s decision in Maneka Gandhi v Union of India & Anr in which it was held that these rules are flexible and amenable under different circumstances and may suffer situational modifications. Now if we take into consideration IBC according to Sec 60 the NCLT is the Adjudicating Authority to entertain and dispose the petition and according to Sec 424 of Companies Act 2013 NCLT and NCLAT is required to adhere to the principals of natural justice. Calcutta High Court in case of Sree Metaliks Limited And Anr Vs Union Of India And Anr held that NCLT may after recording the reasons for granting such order and why it has chosen not to adhere to the principles of natural justice may avoid the application of these principles. According to Sec 8 and Sec 9 of the Code where application is filed by Operational Creditor the demand notice is served and the debtor within ten days has to give notice of dispute but while the application is filed by Financial Creditor under Sec 7 of the Code there is no such requirement and the Adjudicating Authority has to ascertain the existence of default on the basis of evidence submitted by financial creditor. So for deciding whether there is a dispute raised or the default made by the corporate debtor this is necessary to give him an opportunity to being heard.

In present case although no notice was given to the Appellant but he has intervened and his all objections were noticed and discussed by the Authority. So merely on the ground that notice was not given, the order cannot be set aside and it will be a futile exercise to follow unconditionally the principals of natural justice.

Dealing with the second issue the tribunal has rejected the argument made by Appellant on the ground that the IB code has come into existence subsequent to MRU Act and Section 238 of the Code clearly mandates that the provisions of the IBC shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Therefore non obstante clause of IB will prevail over MRU Act and the tribunal further clarify that the object of MRU Act and IBC is different, former prevents the interest of employees while later is for preventing interest of creditors who provides  fuel to the owner. MRU Act is a temporary provision made by state government to provide financial assistance and loan to the industrial undertakings to prevent unemployment while IBC is made for maximization of value of assets of debtor, to promote entrepreneurship, availability of credit and balance the interest of all the stakeholders including alteration in the order of priority of payments of Government dues, therefore object of IBC is more specific.

At last the Tribunal emphasized that Adjudicating Authority is required to be satisfied by submitting the documents mentioned under section 7 beyond that the Adjudicating Authority need not look into any other matter that whether the permission from any other authority like JLF has been obtained or not.

The appeal was rejected and order passed by NCLT for recovery under SARFASI Act 2002 and appointment of interim resolution professional to carry the functions under code was held valid.

In the case of Neelkanth Township & Construction Pvt Ltd V. Urban Infrastructure Trustees Ltd  the Respondent had subscribed the optionally convertible debentures (OCDs) issued by the Appellant which were going to be matured in the year 2011, 2012 and 2013. The Respondent made the application for insolvency under Sec 7 of the Code after expiry of the period of 3 years from the date of maturity of OCDs. NCLT admitted the application stating that the debtor had accepted the default so the debt is not time barred. Against this order the appeal is filed and following issues were raised

  • The insolvency resolution process is barred by limitation. The cause of action had arisen in the years 2011, 2012 and 2013 respectively and the appellant had not enforced the debt within statutory period of 3 years so the proceedings cannot be initiated under IBC.
  • The Respondent is an investor and not a “financial creditor”, as defined under IBC.
  • The application was not complete as it was not accompanying the documents prescribed under Sec 7(3)(a) of IBC.

The Tribunal rejected the first issue on the ground that Limitation Act is not applicable to the IBC and council for Appellant had not mentioned any provision of IBC that Limitation Act is applicable. The IBC is not made for recovery of money but it is a law for initiation of insolvency resolution process. So if there is a debt and default of debt then insolvency application cannot be rejected on the ground of limitation.

The tribunal moving to the second issue interpreted the meaning of ‘Financial Creditor’ defined under Sec 5(7) of the Code according to which Financial Creditor means a person who owed financial debt. And financial debt as defined under Sec 5(8) of the Code  means a debt which is disbursed against the consideration for time value of money and carries interest. As per Sec 5(8)(c) any amount raised pursuant to any note purchase facility or issue of bonds, notes, debentures, loan stock or any similar instrument will also be considered as financial debt. So the Respondent is a financial creditor and it is apparent from the facts that the Appellant has defaulted in payment from the date of maturity. The Adjudicating Authority also admitted the application being complete. So the appeal was rejected.

The appeal against the decision of NCLAT was made to the Supreme Court. The Supreme Court rejected the appeal but question of applicability of Limitation Act to the proceedings under IBC was kept open as question of law.

After this judgment in the case of M/s Deem Rolltech Ltd Vs. M/s R.L. Steel & Energy Ltd where the application was made by an operational creditor, NCLT principal bench held that the Limitation Act would be applicable to the proceedings under IBC because according to Sec 433 of Companies Act 2013 the Limitation Act is applicable to NCLT and NCLAT and there is no specific provision under IBC which specifically bar the applicability of the Limitation Act so the Legislature was not intent to make Limitation Act inapplicable. Hence the claim of the petitioner is barred by limitation.

The earlier judgment given in the case of Neelkanth Township & Construction Pvt Ltd was considered to be an incorrect interpretation of law.

In the case of M/s. Kirusa Software Pvt. Ltd. Vs M/s. Mobilox Innovations Pvt. Ltd. the Petitioner company filed petition stating that the debtor company has failed to pay 20,08,202 along with interest. The debtor had issued Purchase Orders in pursuance of which services were rendered. The petitioner raised monthly invoices on corporate debtor and the debt is payable according to those invoices. The petitioner filed all invoices and notice served to the debtor but notice of dispute raised by respondent side has not been annexed. The bench directed to furnish the documents as per section 9 of the code and in compliance the petitioner filed the notice of dispute issued by the corporate debtor disclosing the corporate debtor disputing the claim made by the petitioner which make it evident that notice of dispute was received by the creditor so the application is hit by section 9(5)(ii)(d) hence rejected.

The appeal is filed before NCLAT on the ground that merely by disputing a claim of default the application cannot be rejected under Sec 9 of the Code, the corporate debtor has to refer the dispute pending. So the question arises what is the meaning of dispute or existence of dispute for the purpose of Sec 9 of the Code.

Under Sec 8 and 9 of the Code the Adjudicating Authority would examine whether notice of dispute in fact raises the dispute and that too within the parameters of two definitions ‘debt’ and ‘default’. ‘Debt’ as per Sec 3(11) of the Code is “the liability or obligation in respect of a claim which is due from any person” and ‘Claim’ is defined under Sec 3(6) of the Code means “a right to payment and included within its ambit disputed and undisputed, legal, equitable, secured, including arising out of breach of contract.” Another term is ‘Default’ which is defined under Sec 3(12) as “non -payment of debt.” Basic requirement is that there must be a debt which is due and payable and non-payment of that debt. The tribunal has elaborated the term ‘Dispute’. Sec 5(6) of the Code defines ‘dispute’ to include, unless the context otherwise requires, a dispute pending in any suit or arbitration proceedings relating to (a) existence of amount of the debt; (b) quality of good or service; (c) breach of a representation or warranty. The definition of dispute is inclusive not exhaustive. Because the word ‘includes’ is used so intention of legislature is to cover all the dispute on debt and default otherwise they could have simple wrote that dispute means dispute pending in any suit or arbitration proceeding. Then the Tribunal referred the judgment of Supreme Court in case of P. Kasilingam Vs PSB College of Technology where the definition of word ‘collage’ was under question. The court has distinguished the intention of the legislature when the word used in the definition is ‘means’ when the word used is ‘includes’. The court observed that when ‘means’ is used, it shows that the definition is hard core and no other meaning can be given except the one which is put down in the definition, no other expression can be assigned. Contrary to this when ‘includes’ is used, meaning of definition is being enlarged and it indicates the expressions which are included in the definition and what are the things which can be included.

Under Sec 5(6) of the Code the language used is ‘dispute includes a suit or arbitration proceedings’ and if we read Sec 8(2) of the Code it used the words ‘existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings’. The intention of legislature is to avoid the multiplicity of proceedings. The dispute of any kind, filed by the Operational Creditor before High Court as writ petition where the debtor is government or any public sector undertaking or any proceeding before labour court, consumer forum, mediation, conciliation, about existence of debt will be considered an existing dispute. The adjudicating authority does not have discretion to decide validity of the dispute.

But in present case the Respondent not raised dispute within the meaning of Sec 5(6) r/w Sec 8(2) of the Code because he merely disputed the amount to pay and his claim was vague and just to evade the liability. So the application was forwarded to the adjudicating authority for admission if found complete.

In the case of Schweitzer Systemtek India Pvt. Ltd. Vs. Phoenix ARC Pvt. Ltd. & Ors the Appellant filed application under Sec 10 of the Code which was admitted, authority appointed resolution professional and declared moratorium period. The appellant objected attachment of the property of guarantor under resolution process. The tribunal carefully examined Sec 14 of the Code which prohibits any action to recover or enforce any security interest created by the Corporate Debtor in respect of “its” property during moratorium period. While interpreting the section tribunal applied doctrine of Noscitur a Sociis’  according to which associated words take meaning from one another and these words are suppose to be read together in cognate sense. Under Section 10 of the Code corporate debtor need to furnish his books of accounts so the meaning of the property is confined to the property stated in the books of accounts of corporate debtor. Hence “its” denotes property of corporate debtor. Doctrine of Ejusdem Generis says that while interpreting a general term court can assume the other things of same nature or kind, means while interpreting the statute court applies the general statements to all things of same kind. But court has no authority to expand or delete the word written by the legislature while enacting the law. So “its” cannot be expanded to that extend of including the property of guarantor.

Court referred the judgment given in the case of  Alpha & Omega Diagnostics (India) Ltd. V. Asset Reconstruction Company of India Ltd. & Ors where appellant contented that the Moratorium should take into recourse only the subject matters and assets relating to matters pending before the Debt Recovery Tribunal (DRT) and SARFAESI Act, 2000 but court rejected this contention and held that “its” own insolvency proceeding includes property and assets of corporate debtor as well as property of directors and others but court did not give any opinion on ‘guarantor’ and considered him distinct from the principal debtor who has taken loan.

The tribunal has interpreted Sec 60 of the Code, as per subsection (2) if any person wants to initiate resolution process against the guarantor he needs to file it before the same bench where corporate resolution is pending against the principal debtor. As per subsection (3) if any proceeding of insolvency or liquidation against the guarantor is pending before DRT or any other court that need to be transferred to the same authority where the proceeding against the corporate debtor is initiated. So the appeal is rejected by the tribunal.

These are the few judgements where the court/tribunal has given the interpretation to the important terms like financial creditors, dispute etc used in the code so that the real object of revising and making the legislation can be achieved.

Insolvency and Bankruptcy Code, 2016 has been emerged as a dynamic law and has made tremendous changes in insolvency proceedings. The code has various terminologies which has specific meaning although the definitions are mentioned in the Code but like all other legislations there is a need of interpretation. Therefore the Tribunal/Court from time to time has been given its interpretation through various jugdements. Few terms like financial creditor, dispute and other procedural expressions can be understood with the help of below mentioned judgements.

In case of Nikhil Mehta & Sons (HUF) & ors Vs M/s AMR Infrastructures Ltd. the application was filed by the four applicants to initiate the insolvency proceedings against the respondent under section 7 of Insolvency and Bankruptcy Code, 2016 read with Rule 4 and Rule 9(1) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The applicants entered into agreements to purchase property with respondent company. They have signed Mous in pursuant to the agreements according to which the respondent has agreed to pay “Assured Returns” every month to the applicants till the delivery of possession of the property. But the respondent started committing defaults in payment and after giving so many notices also he didn’t deposited the amount of Assured Returns in the account of applicants.

But for initiating Bankruptcy proceeding under section 7 of IBC the applicant must be a Financial Creditor and debt must be a Financial debt in terms of Section 5(7) &(8) of the code. The meaning of “financial creditor” means any person who owns a financial debt and includes a person to whom such debt is legally assigned or transferred and financial debt means a debt along with interest and disbursed against the consideration for the time value of money.

The tribunal has interpreted the term financial debt that it includes the financial instruments which have time value of money, in which sum of money paid today against which single or series of payments will be made in future. But here the Assured Return which is payable by the respondent is merely under a agreement to sale and by merely assuring an amount paid in future it does not acquire the status of financial debt. As it has no time value of money essential requirement of section 5(8) has not been fulfilled. So applicants cannot initiate bankruptcy proceedings.

This landmark judgment is referred by the bench in Dr. B.V.S. Lakshmi  Vs  Geometrix Laser Solutions Private Limited where the Appellant was claiming herself as a ‘Financial Creditor’ to initiate Corporate Insolvency Resolution Process against the Respondent. The loan was given by the Appellant for repayment of loans and interest and payment of salary and business dues and court categorically stated that for falling under the category of ‘Financial Debt’ the Appellant is required to show that (i) there is a debt along with interest which has been disbursed and (ii) such disbursement has been made against the ‘consideration for the time value of money’ but the in the present case the Appellant failed to bring any evidence that she disbursed the money against ‘consideration for the time value of money’. So the loan cannot be considered as a ‘Financial Debt’.

In case of Uttam Galva Steels Limited vs. DF Deutsche Forfait AG & Anr following issues were involved-

  1. Whether a joint application by two or more operational creditors under Sec. 9 of the IBC is maintainable or not?
  2. Whether it is mandatory to file certificate of recognised financial institution along with an application under Sec. 9 of the IBC?
  3. Whether the demand notice with invoice under Section 8 of the IBC can be issued by anyone as lawyer of operational creditor on behalf of an Operational Creditor? And
  4. Whether there is an existence of dispute in the present case?

While deciding the first issue the tribunal has referred sec. 8 of IBC under which the Appellant need to serve notice of payment to corporate debtor and if operational creditor does not receive payment then he can file the application for insolvency. The time limit for making payment after receiving demand notice is of 10 days mentioned under sec 9 of IBC. There are practical difficulties in filing joint application under Sec. 9 because the notice need to be served individually under Form 3 or Form 4 and also the Date and claim will be different for each individual, expiry of the period also will be different for each individual. Therefore, the petition will contain separate data and joint application is not maintainable under Sec. 9 of the Code.

In second issue the tribunal has referred the case of Smart Timing Steel Ltd. Vs National Steel and Agro Industries Ltd. in which the petitioner has filed application under Sec 9 of the code without filing certificate from financial institution maintaining accounts of the operational creditor to ensure that there is no payment of this unpaid debt by the operational debtor as set out in section 9(2)(c) of the code. The bench has given time to the applicant but he failed to furnish the certificate. The counsel on behalf of the petitioner submitted that it is impossible to file copy of certificate because financial institution is situated outside India so this requirement should be exempted but the bench did not accept this contention and reject the petition, so it is mandatory to file a copy of certificate from financial institution.

In present case the certificate is issued by a foreign bank which is not recognised as a financial institution rather it is a collecting agency which cannot be verified by the authority so in absence of certificate from financial institution the application is incomplete.

With respect to third issue the bench has made distinction between Lawyer’s notice and notice which is served by the Operational Creditor or a person authorised to act on behalf of him under Sec. 8 of the Code. If the person is serving notice on behalf of operational creditor he has to show his position or relation with operational creditor. The bench after going through the provisions of the Code decided that Lawyers, Company Secretaries, Chartered Accountants except the authority of Board of directors hold no relation with Operational Creditor. In present case no evidence on record to show that the lawyer holds any position or relation with the Operational Creditor. So the notice served by the Lawyer cannot be treated as demand notice under Sec 8 of IBC.

On the issue of existence of dispute the tribunal referred the case of Kirusa Software Private Ltd. Vs Mobilox Innovations Private Ltd. In which the Appellate Tribunal conferred meaning of Dispute and Existence of Dispute and interpreted that the definition of Dispute is inclusive not exhaustive and gave ordinary and simple meaning that dispute means ‘dispute related to any existence of the amount of the debt, quality of good or service or breach of a representation or warranty’. But if the Operational Creditor satisfies the authority that there is a debt and default is made by the corporate debtor then the illusionary dispute raised first time after giving notice under Sec 8 of the Code cannot be a ground for rejection of application under Sec. 9 of the Code. But if corporate debtor raised dispute and brought this into notice of the operational creditor prior to giving notice under Sec 8(1) of the Code then we can say there is a dispute pending about the debt.

In present case also the notice of winding up was issued by the Respondent  much prior to the demand notice under Sec 8(1) of IBC by Appellant’s lawyer so the tribunal considered that an Existing Dispute hence insolvency application under Sec 9 became non maintainable.

In case of M/s. Innoventive Industries Limited Vs ICICI Bank & Anr where the Appellant has taken loan from the Respondent bank and made defaults in repayment as result of which the Respondent invoked bankruptcy proceeding against the Appellant under Sec 7 of IBC. The Appellant contented that bankruptcy proceedings cannot be initiated against him because his debts were suspended under Maharashtra Relief Undertaking (Special Provisions) Act. The Respondent undertaking to which subsidy was provided by government of Maharashtra should be considered as an incentive for preventing unemployment for one year and any remedy for enforcement should remain suspended and all proceedings pending before any court, tribunal, officer or authority should be stayed. Further the Respondent submitted that the Non-Obstante clause under section 4 of MRU which has given immunity to the Appellant has overriding effect over Non-Obstante clause in Section 238 because its object is more laudable i.e. to prevent unemployment in the industry.

In appeal court dealt with following issues

  1. If notice is required to be given to the Corporate Debtor for initiation of Corporate Insolvency Resolution Process under IBC then it should be given at what stage and for what purpose?
  2. Whether Maharashtra Relief Undertaking Act shall prevail over IBC?
  3. Where Joint Lender Forum (JLF) have reached to an agreement and granted permission to the Corporate Debtor prior consent of JLF is required by financial creditor, before filing of an application under Section 7 of IBC?

Court while deciding first issue discussed Audi Alteram Partem (Right to be heard) and Rules of natural justice by referring Supreme Court’s decision in Maneka Gandhi v Union of India & Anr in which it was held that these rules are flexible and amenable under different circumstances and may suffer situational modifications. Now if we take into consideration IBC according to Sec 60 the NCLT is the Adjudicating Authority to entertain and dispose the petition and according to Sec 424 of Companies Act 2013 NCLT and NCLAT is required to adhere to the principals of natural justice. Calcutta High Court in case of Sree Metaliks Limited And Anr Vs Union Of India And Anr held that NCLT may after recording the reasons for granting such order and why it has chosen not to adhere to the principles of natural justice may avoid the application of these principles. According to Sec 8 and Sec 9 of the Code where application is filed by Operational Creditor the demand notice is served and the debtor within ten days has to give notice of dispute but while the application is filed by Financial Creditor under Sec 7 of the Code there is no such requirement and the Adjudicating Authority has to ascertain the existence of default on the basis of evidence submitted by financial creditor. So for deciding whether there is a dispute raised or the default made by the corporate debtor this is necessary to give him an opportunity to being heard.

In present case although no notice was given to the Appellant but he has intervened and his all objections were noticed and discussed by the Authority. So merely on the ground that notice was not given, the order cannot be set aside and it will be a futile exercise to follow unconditionally the principals of natural justice.

Dealing with the second issue the tribunal has rejected the argument made by Appellant on the ground that the IB code has come into existence subsequent to MRU Act and Section 238 of the Code clearly mandates that the provisions of the IBC shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Therefore non obstante clause of IB will prevail over MRU Act and the tribunal further clarify that the object of MRU Act and IBC is different, former prevents the interest of employees while later is for preventing interest of creditors who provides  fuel to the owner. MRU Act is a temporary provision made by state government to provide financial assistance and loan to the industrial undertakings to prevent unemployment while IBC is made for maximization of value of assets of debtor, to promote entrepreneurship, availability of credit and balance the interest of all the stakeholders including alteration in the order of priority of payments of Government dues, therefore object of IBC is more specific.

At last the Tribunal emphasized that Adjudicating Authority is required to be satisfied by submitting the documents mentioned under section 7 beyond that the Adjudicating Authority need not look into any other matter that whether the permission from any other authority like JLF has been obtained or not.

The appeal was rejected and order passed by NCLT for recovery under SARFASI Act 2002 and appointment of interim resolution professional to carry the functions under code was held valid.

In the case of Neelkanth Township & Construction Pvt Ltd V. Urban Infrastructure Trustees Ltd  the Respondent had subscribed the optionally convertible debentures (OCDs) issued by the Appellant which were going to be matured in the year 2011, 2012 and 2013. The Respondent made the application for insolvency under Sec 7 of the Code after expiry of the period of 3 years from the date of maturity of OCDs. NCLT admitted the application stating that the debtor had accepted the default so the debt is not time barred. Against this order the appeal is filed and following issues were raised

  • The insolvency resolution process is barred by limitation. The cause of action had arisen in the years 2011, 2012 and 2013 respectively and the appellant had not enforced the debt within statutory period of 3 years so the proceedings cannot be initiated under IBC.
  • The Respondent is an investor and not a “financial creditor”, as defined under IBC.
  • The application was not complete as it was not accompanying the documents prescribed under Sec 7(3)(a) of IBC.

The Tribunal rejected the first issue on the ground that Limitation Act is not applicable to the IBC and council for Appellant had not mentioned any provision of IBC that Limitation Act is applicable. The IBC is not made for recovery of money but it is a law for initiation of insolvency resolution process. So if there is a debt and default of debt then insolvency application cannot be rejected on the ground of limitation.

The tribunal moving to the second issue interpreted the meaning of ‘Financial Creditor’ defined under Sec 5(7) of the Code according to which Financial Creditor means a person who owed financial debt. And financial debt as defined under Sec 5(8) of the Code  means a debt which is disbursed against the consideration for time value of money and carries interest. As per Sec 5(8)(c) any amount raised pursuant to any note purchase facility or issue of bonds, notes, debentures, loan stock or any similar instrument will also be considered as financial debt. So the Respondent is a financial creditor and it is apparent from the facts that the Appellant has defaulted in payment from the date of maturity. The Adjudicating Authority also admitted the application being complete. So the appeal was rejected.

The appeal against the decision of NCLAT was made to the Supreme Court. The Supreme Court rejected the appeal but question of applicability of Limitation Act to the proceedings under IBC was kept open as question of law.

After this judgment in the case of M/s Deem Rolltech Ltd Vs. M/s R.L. Steel & Energy Ltd where the application was made by an operational creditor, NCLT principal bench held that the Limitation Act would be applicable to the proceedings under IBC because according to Sec 433 of Companies Act 2013 the Limitation Act is applicable to NCLT and NCLAT and there is no specific provision under IBC which specifically bar the applicability of the Limitation Act so the Legislature was not intent to make Limitation Act inapplicable. Hence the claim of the petitioner is barred by limitation.

The earlier judgment given in the case of Neelkanth Township & Construction Pvt Ltd was considered to be an incorrect interpretation of law.

In the case of M/s. Kirusa Software Pvt. Ltd. Vs M/s. Mobilox Innovations Pvt. Ltd. the Petitioner company filed petition stating that the debtor company has failed to pay 20,08,202 along with interest. The debtor had issued Purchase Orders in pursuance of which services were rendered. The petitioner raised monthly invoices on corporate debtor and the debt is payable according to those invoices. The petitioner filed all invoices and notice served to the debtor but notice of dispute raised by respondent side has not been annexed. The bench directed to furnish the documents as per section 9 of the code and in compliance the petitioner filed the notice of dispute issued by the corporate debtor disclosing the corporate debtor disputing the claim made by the petitioner which make it evident that notice of dispute was received by the creditor so the application is hit by section 9(5)(ii)(d) hence rejected.

The appeal is filed before NCLAT on the ground that merely by disputing a claim of default the application cannot be rejected under Sec 9 of the Code, the corporate debtor has to refer the dispute pending. So the question arises what is the meaning of dispute or existence of dispute for the purpose of Sec 9 of the Code.

Under Sec 8 and 9 of the Code the Adjudicating Authority would examine whether notice of dispute in fact raises the dispute and that too within the parameters of two definitions ‘debt’ and ‘default’. ‘Debt’ as per Sec 3(11) of the Code is “the liability or obligation in respect of a claim which is due from any person” and ‘Claim’ is defined under Sec 3(6) of the Code means “a right to payment and included within its ambit disputed and undisputed, legal, equitable, secured, including arising out of breach of contract.” Another term is ‘Default’ which is defined under Sec 3(12) as “non -payment of debt.” Basic requirement is that there must be a debt which is due and payable and non-payment of that debt. The tribunal has elaborated the term ‘Dispute’. Sec 5(6) of the Code defines ‘dispute’ to include, unless the context otherwise requires, a dispute pending in any suit or arbitration proceedings relating to (a) existence of amount of the debt; (b) quality of good or service; (c) breach of a representation or warranty. The definition of dispute is inclusive not exhaustive. Because the word ‘includes’ is used so intention of legislature is to cover all the dispute on debt and default otherwise they could have simple wrote that dispute means dispute pending in any suit or arbitration proceeding. Then the Tribunal referred the judgment of Supreme Court in case of P. Kasilingam Vs PSB College of Technology where the definition of word ‘collage’ was under question. The court has distinguished the intention of the legislature when the word used in the definition is ‘means’ when the word used is ‘includes’. The court observed that when ‘means’ is used, it shows that the definition is hard core and no other meaning can be given except the one which is put down in the definition, no other expression can be assigned. Contrary to this when ‘includes’ is used, meaning of definition is being enlarged and it indicates the expressions which are included in the definition and what are the things which can be included.

Under Sec 5(6) of the Code the language used is ‘dispute includes a suit or arbitration proceedings’ and if we read Sec 8(2) of the Code it used the words ‘existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings’. The intention of legislature is to avoid the multiplicity of proceedings. The dispute of any kind, filed by the Operational Creditor before High Court as writ petition where the debtor is government or any public sector undertaking or any proceeding before labour court, consumer forum, mediation, conciliation, about existence of debt will be considered an existing dispute. The adjudicating authority does not have discretion to decide validity of the dispute.

But in present case the Respondent not raised dispute within the meaning of Sec 5(6) r/w Sec 8(2) of the Code because he merely disputed the amount to pay and his claim was vague and just to evade the liability. So the application was forwarded to the adjudicating authority for admission if found complete.

In the case of Schweitzer Systemtek India Pvt. Ltd. Vs. Phoenix ARC Pvt. Ltd. & Ors the Appellant filed application under Sec 10 of the Code which was admitted, authority appointed resolution professional and declared moratorium period. The appellant objected attachment of the property of guarantor under resolution process. The tribunal carefully examined Sec 14 of the Code which prohibits any action to recover or enforce any security interest created by the Corporate Debtor in respect of “its” property during moratorium period. While interpreting the section tribunal applied doctrine of Noscitur a Sociis’  according to which associated words take meaning from one another and these words are suppose to be read together in cognate sense. Under Section 10 of the Code corporate debtor need to furnish his books of accounts so the meaning of the property is confined to the property stated in the books of accounts of corporate debtor. Hence “its” denotes property of corporate debtor. Doctrine of Ejusdem Generis says that while interpreting a general term court can assume the other things of same nature or kind, means while interpreting the statute court applies the general statements to all things of same kind. But court has no authority to expand or delete the word written by the legislature while enacting the law. So “its” cannot be expanded to that extend of including the property of guarantor.

Court referred the judgment given in the case of  Alpha & Omega Diagnostics (India) Ltd. V. Asset Reconstruction Company of India Ltd. & Ors where appellant contented that the Moratorium should take into recourse only the subject matters and assets relating to matters pending before the Debt Recovery Tribunal (DRT) and SARFAESI Act, 2000 but court rejected this contention and held that “its” own insolvency proceeding includes property and assets of corporate debtor as well as property of directors and others but court did not give any opinion on ‘guarantor’ and considered him distinct from the principal debtor who has taken loan.

The tribunal has interpreted Sec 60 of the Code, as per subsection (2) if any person wants to initiate resolution process against the guarantor he needs to file it before the same bench where corporate resolution is pending against the principal debtor. As per subsection (3) if any proceeding of insolvency or liquidation against the guarantor is pending before DRT or any other court that need to be transferred to the same authority where the proceeding against the corporate debtor is initiated. So the appeal is rejected by the tribunal.

These are the few judgements where the court/tribunal has given the interpretation to the important terms like financial creditors, dispute etc used in the code so that the real object of revising and making the legislation can be achieved.

Insolvency and Bankruptcy Code, 2016 has been emerged as a dynamic law and has made tremendous changes in insolvency proceedings. The code has various terminologies which has specific meaning although the definitions are mentioned in the Code but like all other legislations there is a need of interpretation. Therefore the Tribunal/Court from time to time has been given its interpretation through various jugdements. Few terms like financial creditor, dispute and other procedural expressions can be understood with the help of below mentioned judgements.

In case of Nikhil Mehta & Sons (HUF) & ors Vs M/s AMR Infrastructures Ltd. the application was filed by the four applicants to initiate the insolvency proceedings against the respondent under section 7 of Insolvency and Bankruptcy Code, 2016 read with Rule 4 and Rule 9(1) of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. The applicants entered into agreements to purchase property with respondent company. They have signed Mous in pursuant to the agreements according to which the respondent has agreed to pay “Assured Returns” every month to the applicants till the delivery of possession of the property. But the respondent started committing defaults in payment and after giving so many notices also he didn’t deposited the amount of Assured Returns in the account of applicants.

But for initiating Bankruptcy proceeding under section 7 of IBC the applicant must be a Financial Creditor and debt must be a Financial debt in terms of Section 5(7) &(8) of the code. The meaning of “financial creditor” means any person who owns a financial debt and includes a person to whom such debt is legally assigned or transferred and financial debt means a debt along with interest and disbursed against the consideration for the time value of money.

The tribunal has interpreted the term financial debt that it includes the financial instruments which have time value of money, in which sum of money paid today against which single or series of payments will be made in future. But here the Assured Return which is payable by the respondent is merely under a agreement to sale and by merely assuring an amount paid in future it does not acquire the status of financial debt. As it has no time value of money essential requirement of section 5(8) has not been fulfilled. So applicants cannot initiate bankruptcy proceedings.

This landmark judgment is referred by the bench in Dr. B.V.S. Lakshmi  Vs  Geometrix Laser Solutions Private Limited where the Appellant was claiming herself as a ‘Financial Creditor’ to initiate Corporate Insolvency Resolution Process against the Respondent. The loan was given by the Appellant for repayment of loans and interest and payment of salary and business dues and court categorically stated that for falling under the category of ‘Financial Debt’ the Appellant is required to show that (i) there is a debt along with interest which has been disbursed and (ii) such disbursement has been made against the ‘consideration for the time value of money’ but the in the present case the Appellant failed to bring any evidence that she disbursed the money against ‘consideration for the time value of money’. So the loan cannot be considered as a ‘Financial Debt’.

In case of Uttam Galva Steels Limited vs. DF Deutsche Forfait AG & Anr following issues were involved-

  1. Whether a joint application by two or more operational creditors under Sec. 9 of the IBC is maintainable or not?
  2. Whether it is mandatory to file certificate of recognised financial institution along with an application under Sec. 9 of the IBC?
  3. Whether the demand notice with invoice under Section 8 of the IBC can be issued by anyone as lawyer of operational creditor on behalf of an Operational Creditor? And
  4. Whether there is an existence of dispute in the present case?

While deciding the first issue the tribunal has referred sec. 8 of IBC under which the Appellant need to serve notice of payment to corporate debtor and if operational creditor does not receive payment then he can file the application for insolvency. The time limit for making payment after receiving demand notice is of 10 days mentioned under sec 9 of IBC. There are practical difficulties in filing joint application under Sec. 9 because the notice need to be served individually under Form 3 or Form 4 and also the Date and claim will be different for each individual, expiry of the period also will be different for each individual. Therefore, the petition will contain separate data and joint application is not maintainable under Sec. 9 of the Code.

In second issue the tribunal has referred the case of Smart Timing Steel Ltd. Vs National Steel and Agro Industries Ltd. in which the petitioner has filed application under Sec 9 of the code without filing certificate from financial institution maintaining accounts of the operational creditor to ensure that there is no payment of this unpaid debt by the operational debtor as set out in section 9(2)(c) of the code. The bench has given time to the applicant but he failed to furnish the certificate. The counsel on behalf of the petitioner submitted that it is impossible to file copy of certificate because financial institution is situated outside India so this requirement should be exempted but the bench did not accept this contention and reject the petition, so it is mandatory to file a copy of certificate from financial institution.

In present case the certificate is issued by a foreign bank which is not recognised as a financial institution rather it is a collecting agency which cannot be verified by the authority so in absence of certificate from financial institution the application is incomplete.

With respect to third issue the bench has made distinction between Lawyer’s notice and notice which is served by the Operational Creditor or a person authorised to act on behalf of him under Sec. 8 of the Code. If the person is serving notice on behalf of operational creditor he has to show his position or relation with operational creditor. The bench after going through the provisions of the Code decided that Lawyers, Company Secretaries, Chartered Accountants except the authority of Board of directors hold no relation with Operational Creditor. In present case no evidence on record to show that the lawyer holds any position or relation with the Operational Creditor. So the notice served by the Lawyer cannot be treated as demand notice under Sec 8 of IBC.

On the issue of existence of dispute the tribunal referred the case of Kirusa Software Private Ltd. Vs Mobilox Innovations Private Ltd. In which the Appellate Tribunal conferred meaning of Dispute and Existence of Dispute and interpreted that the definition of Dispute is inclusive not exhaustive and gave ordinary and simple meaning that dispute means ‘dispute related to any existence of the amount of the debt, quality of good or service or breach of a representation or warranty’. But if the Operational Creditor satisfies the authority that there is a debt and default is made by the corporate debtor then the illusionary dispute raised first time after giving notice under Sec 8 of the Code cannot be a ground for rejection of application under Sec. 9 of the Code. But if corporate debtor raised dispute and brought this into notice of the operational creditor prior to giving notice under Sec 8(1) of the Code then we can say there is a dispute pending about the debt.

In present case also the notice of winding up was issued by the Respondent  much prior to the demand notice under Sec 8(1) of IBC by Appellant’s lawyer so the tribunal considered that an Existing Dispute hence insolvency application under Sec 9 became non maintainable.

In case of M/s. Innoventive Industries Limited Vs ICICI Bank & Anr where the Appellant has taken loan from the Respondent bank and made defaults in repayment as result of which the Respondent invoked bankruptcy proceeding against the Appellant under Sec 7 of IBC. The Appellant contented that bankruptcy proceedings cannot be initiated against him because his debts were suspended under Maharashtra Relief Undertaking (Special Provisions) Act. The Respondent undertaking to which subsidy was provided by government of Maharashtra should be considered as an incentive for preventing unemployment for one year and any remedy for enforcement should remain suspended and all proceedings pending before any court, tribunal, officer or authority should be stayed. Further the Respondent submitted that the Non-Obstante clause under section 4 of MRU which has given immunity to the Appellant has overriding effect over Non-Obstante clause in Section 238 because its object is more laudable i.e. to prevent unemployment in the industry.

In appeal court dealt with following issues

  1. If notice is required to be given to the Corporate Debtor for initiation of Corporate Insolvency Resolution Process under IBC then it should be given at what stage and for what purpose?
  2. Whether Maharashtra Relief Undertaking Act shall prevail over IBC?
  3. Where Joint Lender Forum (JLF) have reached to an agreement and granted permission to the Corporate Debtor prior consent of JLF is required by financial creditor, before filing of an application under Section 7 of IBC?

Court while deciding first issue discussed Audi Alteram Partem (Right to be heard) and Rules of natural justice by referring Supreme Court’s decision in Maneka Gandhi v Union of India & Anr in which it was held that these rules are flexible and amenable under different circumstances and may suffer situational modifications. Now if we take into consideration IBC according to Sec 60 the NCLT is the Adjudicating Authority to entertain and dispose the petition and according to Sec 424 of Companies Act 2013 NCLT and NCLAT is required to adhere to the principals of natural justice. Calcutta High Court in case of Sree Metaliks Limited And Anr Vs Union Of India And Anr held that NCLT may after recording the reasons for granting such order and why it has chosen not to adhere to the principles of natural justice may avoid the application of these principles. According to Sec 8 and Sec 9 of the Code where application is filed by Operational Creditor the demand notice is served and the debtor within ten days has to give notice of dispute but while the application is filed by Financial Creditor under Sec 7 of the Code there is no such requirement and the Adjudicating Authority has to ascertain the existence of default on the basis of evidence submitted by financial creditor. So for deciding whether there is a dispute raised or the default made by the corporate debtor this is necessary to give him an opportunity to being heard.

In present case although no notice was given to the Appellant but he has intervened and his all objections were noticed and discussed by the Authority. So merely on the ground that notice was not given, the order cannot be set aside and it will be a futile exercise to follow unconditionally the principals of natural justice.

Dealing with the second issue the tribunal has rejected the argument made by Appellant on the ground that the IB code has come into existence subsequent to MRU Act and Section 238 of the Code clearly mandates that the provisions of the IBC shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Therefore non obstante clause of IB will prevail over MRU Act and the tribunal further clarify that the object of MRU Act and IBC is different, former prevents the interest of employees while later is for preventing interest of creditors who provides  fuel to the owner. MRU Act is a temporary provision made by state government to provide financial assistance and loan to the industrial undertakings to prevent unemployment while IBC is made for maximization of value of assets of debtor, to promote entrepreneurship, availability of credit and balance the interest of all the stakeholders including alteration in the order of priority of payments of Government dues, therefore object of IBC is more specific.

At last the Tribunal emphasized that Adjudicating Authority is required to be satisfied by submitting the documents mentioned under section 7 beyond that the Adjudicating Authority need not look into any other matter that whether the permission from any other authority like JLF has been obtained or not.

The appeal was rejected and order passed by NCLT for recovery under SARFASI Act 2002 and appointment of interim resolution professional to carry the functions under code was held valid.

In the case of Neelkanth Township & Construction Pvt Ltd V. Urban Infrastructure Trustees Ltd  the Respondent had subscribed the optionally convertible debentures (OCDs) issued by the Appellant which were going to be matured in the year 2011, 2012 and 2013. The Respondent made the application for insolvency under Sec 7 of the Code after expiry of the period of 3 years from the date of maturity of OCDs. NCLT admitted the application stating that the debtor had accepted the default so the debt is not time barred. Against this order the appeal is filed and following issues were raised

  • The insolvency resolution process is barred by limitation. The cause of action had arisen in the years 2011, 2012 and 2013 respectively and the appellant had not enforced the debt within statutory period of 3 years so the proceedings cannot be initiated under IBC.
  • The Respondent is an investor and not a “financial creditor”, as defined under IBC.
  • The application was not complete as it was not accompanying the documents prescribed under Sec 7(3)(a) of IBC.

The Tribunal rejected the first issue on the ground that Limitation Act is not applicable to the IBC and council for Appellant had not mentioned any provision of IBC that Limitation Act is applicable. The IBC is not made for recovery of money but it is a law for initiation of insolvency resolution process. So if there is a debt and default of debt then insolvency application cannot be rejected on the ground of limitation.

The tribunal moving to the second issue interpreted the meaning of ‘Financial Creditor’ defined under Sec 5(7) of the Code according to which Financial Creditor means a person who owed financial debt. And financial debt as defined under Sec 5(8) of the Code  means a debt which is disbursed against the consideration for time value of money and carries interest. As per Sec 5(8)(c) any amount raised pursuant to any note purchase facility or issue of bonds, notes, debentures, loan stock or any similar instrument will also be considered as financial debt. So the Respondent is a financial creditor and it is apparent from the facts that the Appellant has defaulted in payment from the date of maturity. The Adjudicating Authority also admitted the application being complete. So the appeal was rejected.

The appeal against the decision of NCLAT was made to the Supreme Court. The Supreme Court rejected the appeal but question of applicability of Limitation Act to the proceedings under IBC was kept open as question of law.

After this judgment in the case of M/s Deem Rolltech Ltd Vs. M/s R.L. Steel & Energy Ltd where the application was made by an operational creditor, NCLT principal bench held that the Limitation Act would be applicable to the proceedings under IBC because according to Sec 433 of Companies Act 2013 the Limitation Act is applicable to NCLT and NCLAT and there is no specific provision under IBC which specifically bar the applicability of the Limitation Act so the Legislature was not intent to make Limitation Act inapplicable. Hence the claim of the petitioner is barred by limitation.

The earlier judgment given in the case of Neelkanth Township & Construction Pvt Ltd was considered to be an incorrect interpretation of law.

In the case of M/s. Kirusa Software Pvt. Ltd. Vs M/s. Mobilox Innovations Pvt. Ltd. the Petitioner company filed petition stating that the debtor company has failed to pay 20,08,202 along with interest. The debtor had issued Purchase Orders in pursuance of which services were rendered. The petitioner raised monthly invoices on corporate debtor and the debt is payable according to those invoices. The petitioner filed all invoices and notice served to the debtor but notice of dispute raised by respondent side has not been annexed. The bench directed to furnish the documents as per section 9 of the code and in compliance the petitioner filed the notice of dispute issued by the corporate debtor disclosing the corporate debtor disputing the claim made by the petitioner which make it evident that notice of dispute was received by the creditor so the application is hit by section 9(5)(ii)(d) hence rejected.

The appeal is filed before NCLAT on the ground that merely by disputing a claim of default the application cannot be rejected under Sec 9 of the Code, the corporate debtor has to refer the dispute pending. So the question arises what is the meaning of dispute or existence of dispute for the purpose of Sec 9 of the Code.

Under Sec 8 and 9 of the Code the Adjudicating Authority would examine whether notice of dispute in fact raises the dispute and that too within the parameters of two definitions ‘debt’ and ‘default’. ‘Debt’ as per Sec 3(11) of the Code is “the liability or obligation in respect of a claim which is due from any person” and ‘Claim’ is defined under Sec 3(6) of the Code means “a right to payment and included within its ambit disputed and undisputed, legal, equitable, secured, including arising out of breach of contract.” Another term is ‘Default’ which is defined under Sec 3(12) as “non -payment of debt.” Basic requirement is that there must be a debt which is due and payable and non-payment of that debt. The tribunal has elaborated the term ‘Dispute’. Sec 5(6) of the Code defines ‘dispute’ to include, unless the context otherwise requires, a dispute pending in any suit or arbitration proceedings relating to (a) existence of amount of the debt; (b) quality of good or service; (c) breach of a representation or warranty. The definition of dispute is inclusive not exhaustive. Because the word ‘includes’ is used so intention of legislature is to cover all the dispute on debt and default otherwise they could have simple wrote that dispute means dispute pending in any suit or arbitration proceeding. Then the Tribunal referred the judgment of Supreme Court in case of P. Kasilingam Vs PSB College of Technology where the definition of word ‘collage’ was under question. The court has distinguished the intention of the legislature when the word used in the definition is ‘means’ when the word used is ‘includes’. The court observed that when ‘means’ is used, it shows that the definition is hard core and no other meaning can be given except the one which is put down in the definition, no other expression can be assigned. Contrary to this when ‘includes’ is used, meaning of definition is being enlarged and it indicates the expressions which are included in the definition and what are the things which can be included.

Under Sec 5(6) of the Code the language used is ‘dispute includes a suit or arbitration proceedings’ and if we read Sec 8(2) of the Code it used the words ‘existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings’. The intention of legislature is to avoid the multiplicity of proceedings. The dispute of any kind, filed by the Operational Creditor before High Court as writ petition where the debtor is government or any public sector undertaking or any proceeding before labour court, consumer forum, mediation, conciliation, about existence of debt will be considered an existing dispute. The adjudicating authority does not have discretion to decide validity of the dispute.

But in present case the Respondent not raised dispute within the meaning of Sec 5(6) r/w Sec 8(2) of the Code because he merely disputed the amount to pay and his claim was vague and just to evade the liability. So the application was forwarded to the adjudicating authority for admission if found complete.

In the case of Schweitzer Systemtek India Pvt. Ltd. Vs. Phoenix ARC Pvt. Ltd. & Ors the Appellant filed application under Sec 10 of the Code which was admitted, authority appointed resolution professional and declared moratorium period. The appellant objected attachment of the property of guarantor under resolution process. The tribunal carefully examined Sec 14 of the Code which prohibits any action to recover or enforce any security interest created by the Corporate Debtor in respect of “its” property during moratorium period. While interpreting the section tribunal applied doctrine of Noscitur a Sociis’  according to which associated words take meaning from one another and these words are suppose to be read together in cognate sense. Under Section 10 of the Code corporate debtor need to furnish his books of accounts so the meaning of the property is confined to the property stated in the books of accounts of corporate debtor. Hence “its” denotes property of corporate debtor. Doctrine of Ejusdem Generis says that while interpreting a general term court can assume the other things of same nature or kind, means while interpreting the statute court applies the general statements to all things of same kind. But court has no authority to expand or delete the word written by the legislature while enacting the law. So “its” cannot be expanded to that extend of including the property of guarantor.

Court referred the judgment given in the case of  Alpha & Omega Diagnostics (India) Ltd. V. Asset Reconstruction Company of India Ltd. & Ors where appellant contented that the Moratorium should take into recourse only the subject matters and assets relating to matters pending before the Debt Recovery Tribunal (DRT) and SARFAESI Act, 2000 but court rejected this contention and held that “its” own insolvency proceeding includes property and assets of corporate debtor as well as property of directors and others but court did not give any opinion on ‘guarantor’ and considered him distinct from the principal debtor who has taken loan.

The tribunal has interpreted Sec 60 of the Code, as per subsection (2) if any person wants to initiate resolution process against the guarantor he needs to file it before the same bench where corporate resolution is pending against the principal debtor. As per subsection (3) if any proceeding of insolvency or liquidation against the guarantor is pending before DRT or any other court that need to be transferred to the same authority where the proceeding against the corporate debtor is initiated. So the appeal is rejected by the tribunal.

These are the few judgements where the court/tribunal has given the interpretation to the important terms like financial creditors, dispute etc used in the code so that the real object of revising and making the legislation can be achieved.

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