2020 Supreme(SC) 191

SUPREME COURT OF INDIA
A.M.Khanwilkar, Dinesh Maheshwari, JJ.
ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE INFRATECH LIMITED – Appellant(s)
Versus
AXIS BANK LIMITED ETC. ETC. – Respondent(s)
CIVIL APPEAL NOS. 8512-8527 OF 2019 WITH CIVIL APPEAL NOS. 6777-6797 OF 2019 CIVIL APPEAL NOS. 9357-77 OF 2019 (ARISING OUT OF DIARY NO. 32881 OF 2019)
Decided On : 26-02-2020

IMPORTANT POINTS
Insolvency and Bankruptcy Code, 2016 is a beneficial legislation to put the corporate debtor on its feet. It is not mere recovery legislation for creditors.
Section 43 relating to liquidation process equally operates over corporate insolvency resolution process.
For invoking section 43, transaction must be preference transaction and made as relevant time.
Purpose of a deeming provision is to deem what may or may not be in reality, thereby requiring the subject-matter to be treated as if real.
Every re-mortgage is a new mortgage.
Exhaustive definition is exhaustive only for the purposes of interpretation of a statute by the Courts. Legislature are not precluded from inserting words into even an exhaustive definition by way of amendment.
Inclusive part of the definition cannot prevent the main provision from receiving its natural meaning.
A financial creditor is akin to guardian of corporate debtor.
Property mortgaged by corporate debtor to secure debts of third party may be a debt but not its financial debt.

Headnote:

(a) Insolvency and Bankruptcy Code, 2016 - A beneficial legislation to put the corporate debtor on its feet - Not a mere recovery legislation for creditors. (Para 16)

(b) Insolvency and Bankruptcy Code, 2016 - Sections 43 - Provisions relating to ‘preferential transactions and relevant time’ occurring in Chapter III of Part II, relating to liquidation process - The provisions meant for avoidance of certain transactions having bearing on the resolution process too - Equally operate over corporate insolvency resolution process - Resolution professional is obligated, therefore, to file application for avoidance of stated transactions - Thus section 43 comes into full effect in CIRP too. (Para 16)

(c) Companies Act, 2013 - Sections 328 and 329 - ‘Fraudulent preference’- Means parting with assets of the corporate person in favour of one or a few of its creditors, having the effect of defeating claim of other creditors. (Para 17)

(d) Companies Act, 2013 - Section 328 - A company giving preference to one of its creditors or a surety or a guarantor for any of the debts or other liabilities putting that person in a better position in the event of company going into liquidation prior to six months of making winding up application - Tribunal may order for restoring the position to what it would have been if the preference had not been given - In case of preferential transfer of property made six months before winding up application, the Tribunal may declare such transaction invalid and restore the position. (Para 17)

(e) Companies Act, 2013 - Section 329 - Any transfer of property by a company, other than that in the ordinary course of business, made within a period of one year before presentation of a petition for winding up and not in good faith and for valuable consideration - Regarded as void against the liquidator. (Para 17)

(f) Companies Act, 2013 - Section 328 and 329; and sections 49 and 66 Insolvency and Bankruptcy Code, 2016 - Preferential transfer - Distinction - In the Act, section 328 deals with fraudulent preference and Section 329 deals with transfers not in good faith - On the other hand section 66 of Code contains provisions as regards the transactions intended at defrauding the creditors whereas Section 66 deals with fraudulent trading or wrongful trading.

(g) Insolvency and Bankruptcy Code, 2016 - Section 43 - Transactions falling within parameters of section 43 shall be deemed to be a preference given at a relevant time - Such transactions with certain exceptions shall not be countenanced. (Para 17, 18)

(h) Insolvency and Bankruptcy Code, 2016 - Section 43 and 44 - To be construed strictly - Without losing sight of the underlying principles and the object of the Code. (Para 18)

(i) Insolvency and Bankruptcy Code, 2016 - Section 43 - Relevant time - Two years preceding insolvency commencement in case of related person - One year in case of a third party. (Para 18, 19)

(j) Interpretation of statute - Deeming provision - Purpose - To deem what may or may not be in reality, thereby requiring the subject-matter to be treated as if real. (Para 19)

(k) Insolvency and Bankruptcy Code, 2016 - Section 43(4) - Relevant period - Look-back period - Two/one year preceding commencement of proceeding - Does not make the provision retrospective. (Para 23)

(l) Insolvency and Bankruptcy Code, 2016 - Section 43(4) - Preference given to a related party - Look-back period two years preceding 09.08.2017 - Transactions between 10.08.2015 and 09.08.2017 would be hit by section 43(4)(a) - Contention that mortgage of most of the properties are re-mortgages and thus not new liabilities and therefore not covered by section 43(4)(a) rejected - Release concludes a mortgage - Every re-mortgage is a new mortgage - Thus preference was given to a related party during a relevant time. (Para 24)

(m) Insolvency and Bankruptcy Code, 2016 - Section 43(3) - Ordinary course of business or financial affairs - Business - An activity in a course of dealings with a profit motive - Falling in place as part of common flow of business done and not arising out of ‘any special or particular situation’ - Impugned transactions not falling within ordinary course of business of corporate debtor JIL - Impugned transactions not of excepted transfers in terms of section 43(3). (Para 25)

(n) Insolvency and Bankruptcy Code, 2016 - Section 43 - Disclosed of securities created, otherwise of a preference at a relevant time, in the Annual Reports or none of the creditors expressing dissent - Do not operate as estoppel against anybody - Would not take the transaction out of purview of legal fiction predicated in section 43. (Para 25)

(o) Insolvency and Bankruptcy Code, 2016 - Sections 43, 45 and 66 - IRP moving a composite application under all the three sections alleging that the transactions in question were preferential (section 43) as also undervalued (section 45) and fraudulent (section 66) - Parameters and requisite enquiries as also the consequences in relation to these aspects being explicitly different, composite application not appropriate course. (Para 29)

(p) Interpretation of statute - Exhaustive definition - Exhaustive only for the purposes of interpretation of a statute by the Courts - Legislature not precluded from inserting words into even an exhaustive definition by way of amendment. (Para 41)

(q) Interpretation of judgment - Observations of the Court in a judgment - Always required to be read in the context in which they appear. (Para 41)

(r) Words and phrases - Means and includes - Definition clauses - ‘Means’ makes the definition restrictive and exhaustive - Gives natural meaning to the word - ‘Includes’ makes it extensive - Inclusive part of the definition cannot prevent the main provision from receiving its natural meaning. (Para 42)

(s) Insolvency and Bankruptcy Code, 2016 - Section 5(7) and (8) - Financial creditor - A person having direct engagement in functioning of corporate debtor; being involved from beginning; would engage in restructuring of loan as well as in reorganisation of corporate debtor’s business in event of financial stress - Akin to guardian of corporate debtor. (Para 47)

(t) Insolvency and Bankruptcy Code, 2016 - Section 5(8) - Financial debt - Property mortgaged by corporate debtor to secure debts of third party - May be a debt but not its financial debt - Instantly JIL mortgaging properties for securing debt of JAL - Such mortgagees are not financial creditors of JIL. (Para 47, 48)

Facts of the case:

These appeals are essentially directed against the common order dated 01.08.2019 as passed by the National Company Law Appellate Tribunal, New Delhi in a batch of appeals preferred by various banks and financial institutions whereby, the Appellate Tribunal set aside the order dated 16.05.2018, passed by the Adjudicating Authority, the National Company Law Tribunal, Allahabad Bench on the application moved by the Interim Resolution Professional in the Corporate Insolvency Resolution Process concerning the Corporate Debtor Company viz., Jaypee Infratech Limited seeking avoidance of certain transactions, whereby the corporate debtor had mortgaged its properties as collateral securities for the loans and advances made by the lender banks and financial institutions to Jaiprakash Associates Limited, the holding company of JIL, as being preferential, undervalued and fraudulent, in terms of Sections 43, 45 and 66 of the Insolvency and Bankruptcy Code, 2016.

Finding of the Court:

Transactions in question are hit by Section 43 of the Code and the Adjudicating Authority, having rightly held so, had been justified in issuing necessary directions in terms of Section 44 of the Code in relation to the transactions concerning Property Nos. 1 to 6. NCLAT had not been right in interfering with the well-considered and justified order passed by NCLT in this regard.

Result: Appeal allowed