VIDARBHA INDUSTRIES POWER LIMITED versus AXIS BANK LIMITED

VIDARBHA INDUSTRIES POWER LIMITED versus AXIS BANK LIMITED

Section 7(5)(a) of the IBC, by using the word 'may', confers discretion on the Adjudicating Authority (NCLT) to admit an application by a financial creditor; the existence of financial debt and default only gives the financial creditor the right to apply but does not mandate admission. NCLT must consider relevant factors (including viability, regulatory context, pending appeals and enforceability/realizability of favourable awards) before admitting a Section 7 application. Section 9(5)(a) is distinguishable and is mandatory where its conditions are met. The NCLT and NCLAT erred in treating Section 7(5)(a) as mandatory; their orders are set aside and NCLT is directed to reconsider the stay...

Parties
Appellant / Corporate Debtor: Vidarbha Industries Power Limited; Respondent / Financial Creditor: Axis Bank Limited
Jurisdiction
India
Judgment Date
12 July 2022
Procedural Posture
Civil Appeal Under Section 62 of the Insolvency and Bankruptcy Code, 2016 / Judgment on Appeal Against NCLAT Order Refusing Stay of Section 7 Proceedings (final Decision)
Outcome
Appeal allowed
Legal Topics
Interpretation of Section 7(5)(a) IBC, Corporate Insolvency Resolution Process (cirp), Financial Creditor V. Operational Creditor, 'may' Versus 'shall' (directory V. Mandatory), Adjudicating Authority Discretion and Timelines
Insolvency and Bankruptcy Law Statutory Interpretation Electricity Law Interpretation of Section 7(5)(a) IBC Corporate Insolvency Resolution Process (cirp) Financial Creditor V. Operational Creditor 'may' Versus 'shall' (directory V. Mandatory) Adjudicating Authority Discretion and Timelines

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Parties

Vidarbha Industries Power Limited

Appellant / Corporate Debtor

Axis Bank Limited

Respondent / Financial Creditor

Procedural Posture

Civil Appeal Under Section 62 of the Insolvency and Bankruptcy Code, 2016 / Judgment on Appeal Against NCLAT Order Refusing Stay of Section 7 Proceedings (final Decision)

Legal Issues

  1. 1 Whether Section 7(5)(a) of the IBC is discretionary or mandatory
  2. 2 Whether the NCLT is obliged to admit an application under Section 7 once existence of financial debt and default are established
  3. 3 Difference in legal effect between Section 7(5)(a) and Section 9(5)(a) of the IBC

Ratio Decidendi

Section 7(5)(a) of the IBC, by using the word 'may', confers discretion on the Adjudicating Authority (NCLT) to admit an application by a financial creditor; the existence of financial debt and default only gives the financial creditor the right to apply but does not mandate admission. NCLT must consider relevant factors (including viability, regulatory context, pending appeals and enforceability/realizability of favourable awards) before admitting a Section 7 application. Section 9(5)(a) is distinguishable and is mandatory where its conditions are met. The NCLT and NCLAT erred in treating Section 7(5)(a) as mandatory; their orders are set aside and NCLT is directed to reconsider the stay...

Court Disposition

Appeal allowed

Orders

  • Impugned NCLT order dated 29 January 2021 set aside
  • Impugned NCLAT order dated 2 March 2021 set aside