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SUPREME COURT OF INDIA
INDIRA BANERJEE, J.K. MAHESHWARI, JJ.
Vidarbha Industries Power Limited – Appellant
Versus
Axis Bank Limited – Respondent
Civil Appeal No.4633 of 2021
Decided on : 12-07-2022
(A) Insolvency and Bankruptcy Code, 2016 – Sections 7 and 9 – Corporate Insolvency Resolution Process – Initiation of – Corporate Debtor who is in red should be resolved expeditiously, following timelines in IBC – No extraneous matter should come in the way – However, viability and overall financial health of Corporate Debtor are not extraneous matters – Existence of a financial debt and default in payment thereof only gave financial creditor right to apply for initiation of CIRP – Adjudicating Authority (NCLT) was require to apply its mind to relevant factors including feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, impact of MERC’s appeal pending in this Court, order of APTEL and overall financial health and viability of Corporate Debtor under its existing management – Financial strength and nature of business of Financial Creditors and Operational Creditors being different, as also tenor and terms of agreements/contracts with financial creditors and operational creditors, provisions in IBC relating to commencement of CIRP at the behest of an Operational Creditor, whose dues are undisputed, are rigid and inflexible – Timeline starts ticking only from date of admission of application for initiation of CIRP and not from date of filing the same – There is no fixed time limit within which application under Section 7 of IBC has to be admitted – Impugned orders passed NCLT and NCLAT dismissing appeal of Appellant set aside – NCLT shall re-consider application of Appellant for stay of further proceedings on merits in accordance with law. (Paras 59, 61, 79, 82, 85 and 91)
(B) Interpretation of Statute – Rule of Literal Interpretation – First and foremost principle of interpretation of a statute is rule of literal interpretation – Ordinarily, word “may” is directory – Expression ‘may admit’ confers discretion to admit – In contrast, use of word “shall” postulates a mandatory requirement – Use of word “shall” raises a presumption that a provision is imperative – However, prima facie presumption about provision being imperative may be rebutted by other considerations such as scope of enactment and consequences flowing from construction. (Paras 64 and 65)
(C) Precedent – A Judgment is a precedent for question of law that is raised and decided – Language used in a Judgment cannot be read like a statute – Words and phrases Judgment cannot be construed in a truncated manner out of context. (Para 84)
Facts of the case:
Present appeal under Section 62 of the Insolvency and Bankruptcy Code 2016, 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 Tribunal refused to stay the proceedings initiated by Respondent, Axis Bank Limited against the Appellant for initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC.
Findings of Court:
Adjudicating Authority (NCLT) as also 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 Adjudicating Authority (NCLT) but to admit petition under Section 7 of the IBC.
Result : Appeal allowed.
JUDGMENT :
Indira Banerjee, J.
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 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 Coal-fired Thermal Power Plant comprising of two units each of 300 MW capacity, within the Butibori Industrial Area in the Nagpur District 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 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 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 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 (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 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 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.
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.
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.
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
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