Judgment · Supreme Court
Case at a glance
Outcome
Disposed of
The appeal stands disposed of
Provisions considered
Key paragraphs
- Para 1818. The resolution professional, the Respondent No.2 filed a reportdated 12.02.2018 for recording the increase in voting share up to 78.50%together with the resolution plan stating that it was accordingly passed. Only on the aforesaid factual setting the pending appeal before theappellate tribunal was withdrawn…
- Para 4949. The Court held that “Section 29-A has been enacted in thelarger public interest and to facilitate effective corporategovernance”. The Court further observed that “Parliamentrectified a loophole in the Act which allowed backdoor entry toerstwhile managements in CIRP.xxx xxx xxx52. While adverting to the earlier…
- Para 5858. Admittedly, the Respondent No.3 has executed personalguarantees which were invoked by three of the financial creditors evenprior to the application filed. The rigor of Section 29A(h) of the Codeobviously gets attracted. The eligibility can never be restricted to theaforesaid three creditors, but also to…
Judgment
ABCDEFGH763extinguished – It cannot be said that what is good today cannot beapplied merely because an applicant was eligible to submit aresolution plan at an earlier point of time– It is only a part ofprocedural law. Insolvency and Bankruptcy Code, 2016 – s.12(3) – Held: There is a marked difference between extension and exclusion –Exclusion would come into play when the decision is challengedbefore a higher forum – Extension is one which is to be exercisedby the authority constituted. Swiss Ribbons (P) Ltd. v. Union of India (2019) 4 SCC17; K.N. Rajkumar v. V.N. Nagarajan 2021 SCC OnLine732; Arcellor Mittal India Pvt. Ltd. v. Satish KumarGupta (2019) 2 SCC 1 : [2018] 12 SCR 362; Committeeof Creditors, Essar Steel India Ltd. v. Satish KumarGupta (2020) 8 SCC 531 : [2019] 16 SCR 275; ApolloJoti LLC & Ors. v. Jyoti Structures Ltd. (CompanyAppeal (AT) (Insolvency) No. 548 of 2018; DBS BankLtd. v. Sharad Sanghi (Civil Appeal No.
3434-3436 of2019); Ebix Singapore Pvt. Ltd. v. COC of EducompSolutions Ltd. 2021 SCC OnLine SC 707; National SpotExchange v. Anil Kohli 2021 SCC OnLine SC 716;Reserve Bank of India v. Peerless General Finance and Investment Company Limited, (1987) 1 SCC 424 : [1987]2 SCR 1; Union of India v. Elphinstone Spg. and Wvg. Co. Ltd., (2001) 4 SCC 139 : [2001] 1 SCR 221;Phoenix Arc (P) Ltd. v. Spade Financial Services Ltd.,(2021) 3 SCC 475; Arun Kumar Jagatramka v. JindalSteel & Power Limited, (2021) 7 SCC 474 : SwissRibbons (P) Ltd. v. Union of India, (2019) 4 SCC 17 :[2019] 3 SCR 535; Chitra Sharma & Ors. v. Union of India, (2018) 18 SCC 575 : [2018] 12 SCR 1044 –referred to. Maxwell On Interpretation Of Statues, 11th Edition; Craies In Statute Law, 7th Edition, Pg. 262; A Driedger, Construction Of Statute, 2nd Edition, 1983, Pg. 37 –referred to. Seaford Court Estates Ltd. v. Asher, (1949) 2 KB 481 –referred to.BANK OF BARODA & ANR. v.
MBL INFRASTRUCTURESLIMITED & ORS. ABCDEFGH764SUPREME COURT REPORTS[2022] 12 S.C.R.Case Law Reference(2019) 4 SCC 17referred to Para 33[2018] 12 SCR 362 referred to Para 33[2019] 16 SCR 275referred to Para 33[1987] 2 SCR 1 referred to Para 40[2001] 1 SCR 221referred to Para 41(2019) 2 SCC 1referred to Para 42(2021) 3 SCC 475referred to Para 42(2021) 7 SCC 474referred to Para 42[2019] 3 SCR 535referred to Para 43[2018] 12 SCR 1044referred to Para 48CIVIL APPELLATE JURISDICTION : Civil Appeal No.8411 of2019.From the Judgment and Order dated 16.08.2019 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal (AT)(Insolvency) No.225 of 2018.Tushar Mehta, SG, M/s Cyril Amarchand Mangaldas, Advs. forthe Appellants. Ranjit Kumar, Parag Tripathi, Sr. Advs., Ms. Anusuya Salwan, Ms. S. Janani, Abhishek Pundir, Bankim Garg, Ms. Mishika Bajpai, Chaitanya Bansal, Dr. Sudhir Bisla, Ms. Sumitra Bisla, Satyendra Kumar, Sanjay Kapur, Ms.
Megha Karnwal, Arjun Bhatia, Mrs. Shubhra Kapur, Lalit Rajput, Ankur Mittal, Ms. Meera Morali, Ms. Aishwarya Pandey, Atul Kumar, Abhimanyu Sharma, Ms. Deepali, Karunakar Rath, TarunGupta, Ms. Archana Pathak Dave, Mithilesh Kumar Pandey, Amit Singh, Rakesh Kumar-I, Sataroop Das, Nikhil Kohli, Ms. Isha Singh, RahulSinha, Ms. Shivee Pandey, Dr. (Mrs.) Vipin Gupta, Advs. for the Respondents. The Judgment of the Court was delivered byM. M. SUNDRESH, J.
A judicial interpretation of Section 29A(h) of the Insolvencyand Bankruptcy Code, 2016 (hereinafter referred to as “the Code”), asamended by the Act 26 of 2018 is sought from us. ABCDEFGH7652. We have heard Shri. Tushar Mehta, learned Solicitor Generaland Mr. Bishwajit Dubey, learned counsel appearing for the Appe1llant, and Shri. Ranjit Kumar and Shri. Parag P. Tripathi, learned senior counselson behalf of Respondent Nos. 1 and 3, respectively. Perused thedocuments filed by both sides, and additionally, we had the benefit ofgoing through the written arguments placed on record.A BRIEF JOURNEY:
M/s. MBL Infrastructures Limited (Respondent No.1) was setup by one, Mr. Anjanee Kumar Lakhotiya (Respondent No. 3) in theearly 1990s. Loans/ credit facilities were obtained by the RespondentNo.1 from the consortium of banks (State Bank of Mysore now StateBank of India as lead bank), some of who are also arrayed as respondentsapart from the appellant. On the failure of the Respondent No.1 to act intune with the terms of repayment, some of the respondents were forcedto invoke the personal guarantees extended by the Respondent No.3 forthe credit facilities availed by the Respondent No.1.
M/s. RBL Bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcementof Security Interest Act, 2002 (‘SARFAESI Act’ for short), after dulyinvoking the personal guarantee of the Respondent No.3. This wasfollowed by a similar action at the hands of Respondent No.8 (M/sAllahabad Bank) and M/s. State Bank of Bikaner and Jaipur. We aregiven to understand that M/s. State Bank of Bikaner and Jaipur gotmerged with State Bank of India. The aforesaid two proceedings invokingSection 13(2) of the SARFAESI Act were initiated in the month of February and March, 2013, respectively.
On the aforesaid factual setting, M/s. RBL Bank filed anapplication bearing No. (IB)-170/KB/2017 under Section 7 of the Codebefore the National Company Law Tribunal, Kolkata (hereinafterreferred to as “adjudicating authority”) to initiate corporate insolvencyresolution process (CIRP) against Respondent No.1. It was admittedvide order dated 30.03.2017, appointing an Interim ResolutionProfessional, leading to imposition of moratorium in terms of Section 14of the Code. After the expiry of the initial period of CIRP, an applicationwas filed by the Resolution Professional for extending the duration ofCIRP by an additional 90 days, which was duly granted.
Two resolution plans were received by the ResolutionProfessional (Respondent No.2 herein) as he then was, of which, oneBANK OF BARODA & ANR. v. MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH766SUPREME COURT REPORTS[2022] 12 S.C.R.was authored by Respondent No.3 on 29.06.2017. This was done priorto the introduction of Section 29A of the Code.
A series of meetings took place with the active participation ofthe Committee of Creditors (CoC) on the resolution plan submitted bythe Respondent No.3 between October 16, 2017 to November 17, 2017.A decision was made in the 9th meeting of the CoC held on 18.11.2017seeking an appropriate resolution plan at the hands of Respondent No.3.In tune with the aforesaid directive, the Respondent No.3 submitted amodified resolution plan on 22.11.2017.
Thereafter, by way of the Insolvency and Bankruptcy Code(Amendment) Ordinance, 2017, Section 29A was introduced to the Codewith which we are concerned in the present lis, specifically 29A(c) and(h). The same are reproduced as under:
Section 29 A – Persons not eligible to be resolutionapplicant – A person shall not be eligible to submit a resolutionplan, if such person or any other person acting jointly with suchperson or any other person who is a promoter or in the managementor control of such person, -xxxxxx xxx(c) has an account, or an account of a corporate debtorunder the management or control of such person or of whomsuch person is a promoter, classified as non-performing assetin accordance with the guidelines of the Reserve Bank of Indiaissued under the Banking Regulation Act, 1949 and at least aperiod of one year has lapsed from the date of such classificationtill the date of commencement of the corporate insolvencyresolution process of the corporate debtor: Provided that the person shall be eligible to submit aresolution plan if such person makes payment of all overdueamounts with interest thereon and charges relating to non-performing asset accounts before submission of resolution plan; xxxxxx xxx(h) has executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor under insolvency resolution processor liquidation under this code.
ABCDEFGH7679. The CoC held its meeting on 01.12.2017 to deliberate upon theimpact of the amendment qua the eligibility of the Respondent No.3 insubmitting a resolution plan in the CIRP proceedings. In view of thelingering doubt expressed, the Respondent No.3 filed an applicationbearing CA(IB) No.543/KB/2017 praying for a declaration that he wasnot disqualified from submitting a resolution plan under sub-section (c)and (h) of Section 29A of the Code.
The adjudicating authority, vide its order dated 18.12.2017held that the Respondent No.3 was eligible to submit a resolution plan, notwithstanding the fact that he did extend his personal guarantees onbehalf of the Respondent No.1 which were duly invoked by some of thecreditors, as aforesaid. This issue was never placed and raised beforethe adjudicating authority. Though the adjudicating authority took note of Section 29A(c) of the Code, it did not give any specific findings on it. However, it ruled that inasmuch as the personal guarantee having notbeen invoked and the Respondent No.3 merely having extended hispersonal guarantee, as such there is no disqualification per se under Section 29A(h) of the Code as the liability under a guarantee arises onlyupon its invocation. Thus, only those guarantors who had antecedentswhich might adversely impact the credibility of the process are alone tobe excluded. As debt payable by Respondent No.3 was not crystalized, he could not be construed as a defaulter for breach of the guarantee. Incidentally, a finding has been given that the Respondent No.3 did notcommit any default. With the aforesaid clarification, the application filedwas allowed by taking into consideration the amendment made on23.11.2017, introducing Section 29A to the Code.
The aforesaid order was assailed by the Punjab National Bank(Respondent No.10) before the National Company Law AppellateTribunal (hereinafter referred to as “appellate tribunal”) in CompanyAppeal (AT) (Insolvency) No. 330 of 2017. Upon hearing the RespondentNo.10, the following interim order was passed on 21.12.2017:
Let notice be issued to respondents by speed post. Requisites bynext dated. Dasti service permitted. Copy of this order may also be forwarded to the respondents. The appellant will file the certified copy of the impugned order by5th January, 2018. Post the matter on 11th January, 2018.In the meantime, if the 2nd Respondent filed any Resolution Plan, the Resolution Professional and the Committee of Creditors mayBANK OF BARODA & ANR. v. MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH768SUPREME COURT REPORTS[2022] 12 S.C.R.go through the same but the Adjudicating Authority will not acceptor reject the resolution plan or pass any order in lower courtwithout prior approval of this Appellant Tribunal.
On the very same day, the resolution plan submitted by the Respondent No.3 was put to vote by the Respondent No.2 in the 12thmeeting of the CoC by way of e-voting, and the process was completedthe next day. The plan received 68.50% vote share of the CoC. Sixfinancial creditors voted against the plan, including Respondent No.10(PNB) and RBL Bank. The extended 270 day period of CIRP expiredon 25.12.2017.
RBL Bank filed an appeal against the order dated 18.12.2017being Company Appeal (AT) (Insolvency) No.1 of 2018 wherein anorder was passed upon hearing the parties on 11.01.2018 facilitating theadjudicating authority to proceed further but not to accept the resolutionplan, without its prior approval.
The Respondent No.3 filed an application on 12.01.2018invoking Section 60 of the Code bearing CA No.(IB) 50/KB/2018 seekingan appropriate direction to the dissenting and abstaining creditors tofacilitate a possible change of mind by supporting the resolution plan, asmodified. Thereafter, Bank of Maharashtra (Respondent No. 11), sinceimpleaded by the order of this court dated 26.10.2021, sent a letter to Respondent No.2 dated 31.01.2018 setting forth its conditions for itsapproval of the resolution plan. Further, Indian Overseas Bank waspleased to give its approval to the resolution plan. As such, the resolutionplan gathered 78.50% vote share.
In the meanwhile, Section 29A(h) went through a furtheramendment which came into effect from 18.01.2018:
Section 29 A – Persons not eligible to be resolutionapplicant – A person shall not be eligible to submit a resolutionplan, if such person or any other person acting jointly or in concertwith such person –xxxxxx xxx(h) has executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor against which an application forinsolvency resolution made by such creditor has been admittedunder this code.
ABCDEFGH76916. On 23.03.2018, the appellate tribunal passed the followingorder in the appeals filed by Respondent No.10 and RBL Bank:
When the matter was taken up learned counsel appearing onbehalf of the Appellant – ‘Punjab National Bank’ sought permissionto withdraw the appeal. One of the learned counsel appearing onbehalf of the Respondent opposed the prayer. However, we arenot inclined to the ground of opposition as made by the Respondent. Bank intends to withdraw the appeal, without any liberty. In thisbackground, without taking into consideration the grounds shownin the affidavit for withdrawal, we allow the Appellant to withdrawthe Appeal without any liberty to challenge the same very impugnedorder. The appeal is dismissed as withdrawn. I.A. No.311 of 2018stands disposed of. The ‘question of law’ may be decided in someother case. No cost. The interim order passed by this Appellant Tribunal on 21stDecember, 2017 stands vacated.
The above order was passed while permitting the appellantsto withdraw the appeals against the order of eligibility of RespondentNo.3, in view of the resolution plan having reached the mandatoryrequirement of 75% as warranted under Section 30(4) of the Code. Thus, it is clear that those appellants did not have any grievance on theplan as accepted by the majority of the CoC. However, the requestmade by the present appellant who filed I.A. No. 311 of 2018 before theappellate tribunal, seeking to be impleaded as a party to the aforesaidproceedings to continue the lis was not favourably considered though noreason was assigned in the aforesaid order. We may also note that theappellant before us who incidentally filed the aforesaid application wasnot heard before the adjudicating authority. Suffice it is to state that theappellant did raise its objection to the withdrawal of appeal, presumablyon the premise that it wanted to continue by substituting itself in place ofthe original appellants.
The resolution professional, the Respondent No.2 filed a reportdated 12.02.2018 for recording the increase in voting share up to 78.50%together with the resolution plan stating that it was accordingly passed. Only on the aforesaid factual setting the pending appeal before theappellate tribunal was withdrawn on 27.02.2018. The adjudicatingauthority approved the resolution plan submitted by its order dated18.04.2018 inter alia holding that there is a marked difference betweenBANK OF BARODA & ANR. v. MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH770SUPREME COURT REPORTS[2022] 12 S.C.R.extension and exclusion and therefore, the rigor of Section 12(1) of the Code would not get attracted on the facts of the case particularly whenthere were pending proceedings with interim orders. It was further heldthat the issue qua the eligibility under Section 29A(h) decided already, coupled with the resolution plan crossing the requisite threshold ofapproval by the CoC, i.e. 75% vote share, having considered the techno-economic viability and feasibility of the plan, the application filed forapproval of the resolution plan submitted by the Respondent No.3 wasliable to be allowed. A direction was accordingly given, holding that theapproved resolution plan shall come into force with immediate effect.
The appellant before us put into challenge, the aforesaid orderpassed by the adjudicating authority in Company Appeal (AT)(Insolvency)No. 194 of 2018.
In the meanwhile, Section 29A(h) went through a furtherchange by way of ordinance dated 06.06.2018, which subsequentlybecame an Act with effect from the same date through the Act 26 of2018:
Section 29 A- Persons not eligible to be resolutionapplicant – A person shall not be eligible to submit a resolutionplan, if such person or any other person acting jointly or in concertwith such person –xxxxxx xxx(h) has executed a guarantee in favour of a creditor, inrespect of a corporate debtor against which an application forinsolvency resolution made by such creditor has been admittedunder this code and such guarantee has been invoked by the creditand remains unpaid if full or part.
The appellate tribunal did explore other possibilities during thependency of the appeal. It also directed the Respondent No.3 to submita revised resolution plan. After hearing the parties, the order passed bythe adjudicating authority was confirmed, dismissing the appeal filed bythe appellant while approving the revised resolution plan submitted bythe Respondent No.3 before it. After the disposal of the appeals filedincluding that of the appellant along with the others who have notchallenged the same before us, the shareholders of the Respondent No.1approved the fund raising of Rs.300 crores in the Annual General Meeting. ABCDEFGH77122. The appeals including that of the appellant were dismissed onthe ground that the resolution plan was approved with 78.50% of thevoting share of the CoC, and it was backed by the techno-economicreport qua the viability and feasibility. The earlier decision of theadjudicating authority dated 18.12.2017 has attained finality qua the issueof eligibility of the Respondent No.3 under Section 29A of the Code tosubmit a resolution plan, and it cannot sit in appeal over the decision ofthe adjudicating authority or the CoC in the absence of any apparentdiscrimination. It is this decision of the appellate authority confirming theorder passed by the adjudicating authority, which is tested before us.
Before we proceed with the submissions made at the Bar, wehave to record one more fact, namely, Section 30 of the Code alsounderwent a change by the introduction of amendment dated 06.06.2018by way of an ordinance followed by an Act through which the percentagerequired for approval of a resolution plan by the CoC has been broughtdown from 75% to 66% of the voting share of the CoC.SUBMISSIONS OF THE APPELLANT:
We will collectively consider the submissions of the learnedcounsel appearing for the appellant and the Respondent No.7, thoughthe said respondent did not choose to file any appeal before us.
Section 29A has to be given a holistic interpretation as theobjective is to weed out undesirable persons with the intention of promotingprimacy of debt by disqualifying guarantors who have not fulfilled theirco-extensive liability with the insolvent corporate debtor. The RespondentNo.3 (who is a promoter of the corporate debtor) was ineligible to submita resolution plan under Section 29A(h) of the Code, as several personalguarantees executed by the Respondent No.3 in favour of variouscreditors of the Respondent No.1 stood invoked, prior commencementof CIRP. There is a clear suppression on the part of Respondent No.3,which was not taken note of by the adjudicating authority on both theoccasions. Even the Respondent No.2 failed to bring the said fact beforethe adjudicating authority. Therefore, the premise on which theadjudicating held the Respondent No.3 eligible to submit a resolutionplan is ex facie false.
The law which was prevailing on the date of the applicationhas to be seen, therefore, the disqualification gets attracted on the dateof filing of the application and on the same analogy not only SectionBANK OF BARODA & ANR. v. MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH772SUPREME COURT REPORTS[2022] 12 S.C.R.29A(h) but also Section 30(4) has to be interpreted. As fraud vitiates allsolemn acts, the appeal deserves to be allowed. A legal ineligibility cannotbe done away with by alleged estoppel, such ineligibility is a matter offact to be considered by Courts irrespective of any waiver by any partyor creditor. The approval of the resolution plan was made after themandatory period of 270 days, i.e. after the expiry of the CIRP period. Since there is clear infraction of Section 12, the orders passed are liableto be interfered with. The learned Solicitor General has sought to placereliance on the judgment of this Court in K. Shashidhar vs. Union of India (Order dated 05.02.2019 in Civil Appeal 10673 of 2018). The revisedplan before the appellate tribunal was never approved by the adjudicatingauthority, including the conditional assent given by the Respondent No.11,which were erroneously accepted.
There is no bar in law for questioning the eligibility before theadjudicating authority as the appellant was neither a party before it onearlier occasion nor an adjudication was made on the merits by theappellate tribunal. Therefore, the order passed by the appellate tribunalconfirming that of the adjudicating authority requires to be set aside.SUBMISSIONS OF THE RESPONDENT:
A decision made by the CoC in its commercial wisdom onbeing satisfied with the report of the expert on the viability and feasibilityof the resolution plan, is not required to be interfered with by this Courtby substituting its views. The revised plan as accepted by the appellatetribunal is an improvement to the earlier one submitted by the RespondentNo.3 and, therefore, there cannot be any grievance on that count.
The object of the Code has to be read with Section 29A(h).The appellant being aware of the decision of the adjudicating authorityin the first instance ought to have taken it further, as such the appellantis estopped from questioning the eligibility of the Respondent No.3 tosubmit a resolution plan under Section 29A(h) of the Code. The provisionhas to be literally interpreted to the extent that a personal guarantor isbarred from submitting a resolution plan only when the creditor invokingthe jurisdiction of the adjudicating authority has invoked a personalguarantee executed in favour of said creditor by the resolution applicant.
No personal guarantee stood invoked by RBL Bank at thetime of application to the adjudicating authority under Section 7 of the Code. It is further submitted that the invocation of the consortium ABCDEFGH773guarantee by Allahabad Bank and State Bank of Bikaner and Jaipurunder Section 13(2) of the SARFAESI Act, 2002 is ex facie illegal interms of the inter-se agreement executed between the members of theconsortium of banks. Even otherwise the same is not relevant as neitherAllahabad Bank nor State Bank of Bikaner and Jaipur filed an applicationbefore the adjudicating authority.
The first respondent is an on-going concern as of now and theresolution plan is under implementation since 18.04.2018. The object ofthe Code is revival of the Corporate Debtor and liquidation is the lastresort. Any interference at this stage will have an adverse effect andmilitate against the very object of the Code. The Respondent No.3 hasinfused over Rs. 63 crores since the resolution plan has been in operationand has further received approval of the shareholders to raise Rs. 300crores to revive the Respondent No.1. Since the approval of the resolutionplan submitted by the Respondent No.3, several projects of nationalimportance have been completed and various others are under execution. Further, all workmen have also been paid in full, and all current employees, operational creditors and statutory dues are being regularly paid.
Both the forums have rightly construed the issue qua extensionand exclusion. Admittedly, there were earlier rounds of litigation andproceedings were pending against the interim orders. This issue has alsobeen concluded finally by this Court inter alia holding that in such ascenario exclusion has to be granted, in light of the time spent in litigation.
Buttressing the aforesaid submissions, the counsels for the Respondents have sought to place reliance on the following decisions:•Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17•K.N. Rajkumar v. V.N. Nagarajan 2021 SCC OnLine 732•Arcellor Mittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019)2 SCC 1•Committee of Creditors, Essar Steel India Ltd. v. SatishKumar Gupta (2020) 8 SCC 531.•Apollo Joti LLC & Ors. v. Jyoti Structures Ltd. (CompanyAppeal (AT) (Insolvency) No. 548 of 2018.•DBS Bank Ltd. vs. Sharad Sanghi (Civil Appeal No. 3434-3436 of 2019)BANK OF BARODA & ANR. v. MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH774SUPREME COURT REPORTS[2022] 12 S.C.R.•Ebix Singapore Pvt. Ltd. vs. COC of Educomp SolutionsLtd. 2021 SCC OnLine SC 707•National Spot Exchange v. Anil Kohli 2021 SCC OnLineSC 716STATUTORY INTERPRETATION:
The principle governing statutory interpretation has beenrepeated with regularity by this Court on quite a few occasions. Whileconstruing the said principle adequate thought will have to be given tothe nature of the statute and the provisions contained thereunder. Thefocus is on avoiding any interpretation which might cause an injury ordestroy the intent behind the legislation.
Lord Denning in Seaford Court Estates Ltd. v. Asher, (1949)2 KB 481 deals with the role required to be played by the Court evenwhen there is a possible defect:
When a defect appears a Judge cannot simply fold his hands andblame the draftsman. He must set to work on the constructivetask of finding the intention of Parliament and then he mustsupplement the written word so as to give ‘force and life’ to theintention of the legislature. A Judge should ask himself the questionhow, if the makers of the Act had themselves come across thisruck in the texture of it, they would have straightened it out? Hemust then do as they would have done. A Judge must not alter thematerial of which the Act is woven, but he can and should iron outthe creases.
MAXWELL ON INTERPRETATION OF STATUES, 11thEdition
It is said to be the duty of the judge to make such construction ofa statute as shall suppress the mischief and advance the remedy. Even where the usual meaning of the language falls short of wholeobject of the legislature, a more extended meaning may beattributed to the words, if they are fairly susceptible of it. Theconstruction must not, of course, be strained to include cases plainlyomitted from the natural meaning of the words.
(Pg. 66)
…In determining either the general object of the legislature, orthe meaning of its language in any particular passage, it is obviousthat the intention which appears to be most in accord with ABCDEFGH775convenience, reason, justice or legal principles, should, in all casesof doubtful significance, be presumed to be the true one.
(Pg.183)
CRAIES IN STATUTE LAW, 7th Edition, Pg. 262:
… It is the duty of Courts of justice to try to get at the realintention of the legislature by carefully attending to the whole scopeof the statute to be construed’ .. that in each case you must lookto the subject-matter, consider the importance of the provisionand the relation of that provision to the general object intended tobe secured by the Act, and upon a review of the case in thataspect decide whether the enactment is what is called imperativeor only directory.
A DRIEDGER, CONSTRUCTION OF STATUTE, 2nd Edition,1983, Pg. 37:
Today there is only one principle or approach, namely, the wordsof an Act are to be read in their entire context and in theirgrammatical and ordinary sense harmoniously with the Schemeof the Act, the object of the Act, and the intention of Parliament.
As repeated on various other occasions by this Court, judginga statute through ‘Literal to Heydon’s Golden rule’ has gone through acomplete circle. Thus, we have come to a stage of applying a reasonable, creative and fair construction principle.
The often quoted words of Justice Chinnappa Reddy in thecelebrated judgment in the Reserve Bank of India v. Peerless GeneralFinance and Investment Company Limited, (1987) 1 SCC 424 holds thefield even today:
33. Interpretation must depend on the text and the context. Theyare the bases of interpretation. One may well say if the text is thetexture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes thetextual interpretation match the contextual. A statute is bestinterpreted when we know why it was enacted. With thisknowledge, the statute must be read, first as a whole and thensection by section, clause by clause, phrase by phrase and wordby word. If a statute is looked at, in the context of its enactment, with the glasses of the statute-maker, provided by such context, BANK OF BARODA & ANR. v. MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH776SUPREME COURT REPORTS[2022] 12 S.C.R.its scheme, the sections, clauses, phrases and words may takecolour and appear different than when the statute is looked atwithout the glasses provided by the context. With these glasseswe must look at the Act as a whole and discover what eachsection, each clause, each phrase and each word is meant anddesigned to say as to fit into the scheme of the entire Act. No partof a statute and no word of a statute can be construed in isolation. Statutes have to be construed so that every word has a place andeverything is in its place….
Apropos the passage in the case of Union of India v. ElphinstoneSpg. and Wvg. Co. Ltd., (2001) 4 SCC 139:
While examining a particular statute for finding out the legislativeintent it is the attitude of Judges in arriving at a solution by strikinga balance between the letter and spirit of the statute withoutacknowledging that they have in any way supplemented the statutewould be the proper criterion. The duty of Judges is to expoundand not to legislate is a fundamental rule. There is no doubt amarginal area in which the courts mould or creatively interpretlegislation and they are thus finishers, refiners and polishers oflegislation which comes to them in a state requiring varying degreesof further processing. (See: Corocraft Ltd. v. Pan AmericanAirways Inc. [(1968) 3 WLR 714 : (1968) 2 All ER 1059 : (1969)1 QB 616] WLR, p. 732 and State of Haryana v. SampuranSingh [(1975) 2 SCC 810] .) But by no stretch of imagination aJudge is entitled to add something more than what is there in thestatute by way of a supposed intention of the legislature. It is, therefore, a cardinal principle of construction of statutes that thetrue or legal meaning of an enactment is derived by consideringthe meaning of the words used in the enactment in the light of anydiscernible purpose or object which comprehends the mischiefand its remedy to which the enactment is directed.
Touching upon the very interpretation of the Code, this Courton more than one occasion has adopted the very same approach in Arcellor Mittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1,Phoenix Arc (P) Ltd. v. Spade Financial Services Ltd., (2021) 3 SCC475 and Arun Kumar Jagatramka v. Jindal Steel & Power Limited, (2021)7 SCC 474. ABCDEFGH777INSOLVENCY AND BANKRUPTCY CODE, 2016:
The Code has got its laudable object. The idea is to facilitatea process of rehabilitation and revival of the corporate debtor with theactive participation of the creditors. Thus, there are two principal actorsin the entire process, viz., (i)the committee of creditors and, (ii) thecorporate debtor. The others are mere facilitators. There can never beany other interest than that of the committee of creditors and the corporatedebtor. We do not wish to multiply the rationale behind the enactmentexcept by quoting the decision of this Court in the case of Swiss Ribbons(P) Ltd. v. Union of India, (2019) 4 SCC 17, which has also foundacceptance by the subsequent decision in the case of ArunKumar(supra):“27. As is discernible, the Preamble gives an insight into what issought to be achieved by the Code. The Code is first and foremost,a Code for reorganisation and insolvency resolution of corporatedebtors.
Unless such reorganisation is effected in a time-boundmanner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons sothat they are efficiently run as going concerns is another veryimportant objective of the Code. This, in turn, will promoteentrepreneurship as the persons in management of the corporatedebtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor isbrought back into the economic mainstream, it is able to repay itsdebts, which, in turn, enhances the viability of credit in the handsof banks and financial institutions. Above all, ultimately, theinterests of all stakeholders are looked after as the corporate debtoritself becomes a beneficiary of the resolution scheme—workersare paid, the creditors in the long run will be repaid in full, andshareholders/investors are able to maximise their investment.
Timely resolution of a corporate debtor who is in the red, by aneffective legal framework, would go a long way to support thedevelopment of credit markets. Since more investment can bemade with funds that have come back into the economy, businessthen eases up, which leads, overall, to higher economic growthand development of the Indian economy. What is interesting tonote is that the Preamble does not, in any manner, refer toliquidation, which is only availed of as a last resort if there isBANK OF BARODA & ANR. v. MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH778SUPREME COURT REPORTS[2022] 12 S.C.R.either no resolution plan or the resolution plans submitted are notup to the mark. Even in liquidation, the liquidator can sell thebusiness of the corporate debtor as a going concern.28. It can thus be seen that the primary focus of the legislation isto ensure revival and continuation of the corporate debtor byprotecting the corporate debtor from its own management andfrom a corporate death by liquidation.
The Code is thus a beneficiallegislation which puts the corporate debtor back on its feet, notbeing a mere recovery legislation for creditors. The interests ofthe corporate debtor have, therefore, been bifurcated andseparated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporatedebtor but, in fact, protective of its interests. The moratoriumimposed by Section 14 is in the interest of the corporate debtoritself, thereby preserving the assets of the corporate debtor duringthe resolution process. The timelines within which the resolutionprocess is to take place again protects the corporate debtor’sassets from further dilution, and also protects all its creditors andworkers by seeing that the resolution process goes through asfast as possible so that another management can, through itsentrepreneurial skills, resuscitate the corporate debtor to achieveall these ends.” ON SECTION 29A AND ITS PURPOSIVEINTERPRETATION:
Section 29A of the Code has also come up for considerationbefore this Court on earlier occasions, though, the provision with whichwe are concerned, i.e. Section 29A(h), was not specifically considered. We do not wish to go into Section 29A(c) since no issue has been raisedbefore us in these proceedings.
As stated, Section 29A is a facet of the Code, and therefore, this provision has to be read with the main objective enshrined thereunder. The objective behind Section 29A of the Code is to avoid unwarrantedand unscrupulous elements to get into the resolution process whilepreventing their personal interests to step in. Secondly, it consciouslyseeks to prevent certain categories of persons who may not be in aposition to lend credence to the resolution process by virtue of theirdisqualification. ABCDEFGH77946. The then Hon’ble Minister of Finance and Corporate Affairsmade this statement before Parliament on 29.12.2017 while moving the Insolvency and Bankruptcy Code (Amendment) Bill, 2017, whichintroduced Section 29A to the Code:
The core and soul of this new Ordinance is really Clause 5,which is Section 29-A of the original Bill. I may just explain thatonce a company goes into the resolution process, then applicationswould be invited with regard to the potential resolution proposalsas far as the company is concerned or the enterprise is concerned. Now a number of ineligibility clauses were not there in the originalAct and, therefore, Section 29-A introduces those who are noteligible to apply. For instance there is a clause with regard to anundischarged insolvent who is not eligible to apply; a person whohas been disqualified under the Companies Act as a Director cannotapply and a person who is prohibited under the SEBI Act cannotapply. So these are statutory disqualifications. And there is also adisqualification in clause (c) with regard to those who are corporatedebtors and who as on the date of the application making a bid donot operationalise the account by paying the interest itself i.e. youcannot say that I have an NPA. I am not making the accountoperational. The accounts will continue to be NPAs and yet I amgoing to apply for this. Effectively this clause will mean that thosewho are in management and on account of whom this insolvent ornon-performing asset has arisen will now try and say, I do notdischarge any of the outstanding debts in terms of making theaccounts operational and yet I would like to apply and set theenterprise back at a discount value, for this is not the object of thisparticular Act. So Clause 5 has been brought in with that purposein mind.
The Statement of Objects and Reasons of the aforesaid Bill isas follows:
2. The provisions for insolvency resolution and liquidation of acorporate person in the Code did not restrict or bar any personfrom submitting a resolution plan or participating in the acquisitionprocess of the assets of the company at the time of liquidation. Concerns have been raised that persons who, with their misconductcontributed to defaults of companies or are otherwise undesirable, may misuse this situation due to lack of prohibition or restrictionsBANK OF BARODA & ANR. v. MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH780SUPREME COURT REPORTS[2022] 12 S.C.R.to participate in the resolution or liquidation process, and gain orregain control of the corporate debtor. This may undermine theprocesses laid down in the Code as the unscrupulous person wouldbe seen to be rewarded at the expense of the creditors. In addition, in order to check that the undesirable persons who may havesubmitted their resolution plans in the absence of such a provision, responsibility is also being entrusted on the committee of creditorsto give a reasonable period to repay overdue amounts and becomeeligible.
The aforesaid was taken note of by this Court in Chitra Sharma& Ors. v. Union of India, (2018) 18 SCC 575 and followed in ArunKumar(supra), wherein this Court considered the need for adopting apurposive interpretation with the primary aim to revive and restart thecorporate debtor, with liquidation of the corporate debtor being the lastresort: “41. The enactment of the IBC has marked a quantum change incorporate governance and the rule of law. First and foremost, theIBC perceives good corporate governance, respect for andadherence to the rule of law as central to the resolution ofcorporate insolvencies. Second, the IBC perceives corporateinsolvency not as an isolated problem faced by individual businessentities but places it in the context of a framework which is foundedon public interest in facilitating economic growth by balancingdiverse stakeholder interests. Third, the IBC attributes a primacyto the business decisions taken by creditors acting as a collectivebody, on the premise that the timely resolution of corporateinsolvency is necessary to ensure the growth of credit marketsand encourage investment.
Fourth, in its diverse provisions, theIBC ensures that the interests of corporate enterprises are notconflated with the interests of their promoters; the economic valueof corporate structures is broader in content than the partisaninterests of their managements. These salutary objectives of theIBC can be achieved if the integrity of the resolution process isplaced at the forefront. Primarily, the IBC is a legislation aimed atreorganisation and resolution of insolvencies. Liquidation is a matterof last resort. These objectives can be achieved only through apurposive interpretation which requires courts, while infusingmeaning and content to its provisions, to ensure that the problems ABCDEFGH781which beset the earlier regime do not enter through the backdoorthrough disingenuous stratagems.xxx xxx xxx48. The underlying purpose of introducing Section 29-A wasadverted to in a judgment of this Court in Chitra Sharma v.
Unionof India (2018) 18 SCC 575 (hereinafter referred to as “ChitraSharma”). One of us (D.Y. Chandrachud, J.) speaking for a Benchof three learned Judges took note of the Statement of Objectsand Reasons accompanying the Bill and emphasised the purposeof Section 29-A thus: “38. Parliament has introduced Section 29-A into IBC witha specific purpose. The provisions of Section 29-A areintended to ensure that among others, persons responsiblefor insolvency of the corporate debtor do not participate inthe resolution process. The Statement of Objects and Reasons appended to the Insolvency and Bankruptcy Code(Amendment) Bill, 2017, which was ultimately enacted as Act 8 of 2018, states thus:‘2. The provisions for insolvency resolution and liquidationof a corporate person in the Code did not restrict or barany person from submitting a resolution plan orparticipating in the acquisition process of the assets of acompany at the time of liquidation.
Concerns have beenraised that persons who, with their misconductcontributed to defaults of companies or are otherwiseundesirable, may misuse this situation due to lack ofprohibition or restrictions to participate in the resolutionor liquidation process, and gain or regain control of thecorporate debtor. This may undermine the processes laiddown in the Code as the unscrupulous person would beseen to be rewarded at the expense of creditors. Inaddition, in order to check that the undesirable personswho may have submitted their resolution plans in theabsence of such a provision, responsibility is also beingentrusted on the committee of creditors to give areasonable period to repay overdue amounts and becomeeligible.’BANK OF BARODA & ANR. v. MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH782SUPREME COURT REPORTS[2022] 12 S.C.R.Parliament was evidently concerned over the fact that personswhose misconduct has contributed to defaults on the part of debtorcompanies misuse the absence of a bar on their participation inthe resolution process to gain an entry.
Parliament was of theview that to allow such persons to participate in the resolutionprocess would undermine the salutary object and purpose of the Act. It was in this background that Section 29-A has now specifieda list of persons who are not eligible to be resolution applicants.”(emphasis in original and supplied)
The Court held that “Section 29-A has been enacted in thelarger public interest and to facilitate effective corporategovernance”. The Court further observed that “Parliamentrectified a loophole in the Act which allowed backdoor entry toerstwhile managements in CIRP.xxx xxx xxx52. While adverting to the earlier decision in ChitraSharma [Chitra Sharma v. Union of India, (2018) 18 SCC 575]and ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. SatishKumar Gupta, (2019) 2 SCC 1] , which had elucidated the objectunderlying Section 29-A, this Court in Swiss Ribbons [SwissRibbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] held thatthe norm underlying Section 29-A “continues to permeate” Section35(1)(f) “when it applies not merely to resolution applicants, butto liquidation also”. Rejecting the plea that Section 35(1)(f) is ultravires, this Court held : (Swiss Ribbons case [Swiss Ribbons (P)Ltd. v. Union of India, (2019) 4 SCC 17] ,“102.
According to the learned counsel for the petitioners, when immovable and movable property is sold in liquidation, it ought to be sold to any person, including persons who arenot eligible to be resolution applicants as, often, it is theerstwhile promoter who alone may purchase such propertiespiecemeal by public auction or by private contract. The samerationale that has been provided earlier in this judgment willapply to this proviso as well — there is no vested right in anerstwhile promoter of a corporate debtor to bid for theimmovable and movable property of the corporate debtorin liquidation. Further, given the categories of persons who ABCDEFGH783are ineligible under Section 29-A, which includes personswho are malfeasant, or persons who have fallen foul of thelaw in some way, and persons who are unable to pay theirdebts in the grace period allowed, are further, by this proviso, interdicted from purchasing assets of the corporate debtorwhose debts they have either wilfully not paid or have beenunable to pay.
The legislative purpose which permeatesSection 29-A continues to permeate the section when itapplies not merely to resolution applicants, but to liquidationalso. Consequently, this plea is also rejected.” A purposive interpretation53. This line of decisions, beginning with Chitra Sharma [ChitraSharma v. Union of India, (2018) 18 SCC 575] and continuingto ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish KumarGupta, (2019) 2 SCC 1] and Swiss Ribbons [Swiss Ribbons (P)Ltd. v. Union of India, (2019) 4 SCC 17] is significant in adoptinga purposive interpretation of Section 29-A. Section 29-A has beenconstrued to be a crucial link in ensuring that the objects of theIBC are not defeated by allowing “ineligible persons”, includingbut not confined to those in the management who have run thecompany aground, to return in the new avatar of resolutionapplicants. Section 35(1)(f) is placed in the same continuum whenthe Court observes that the erstwhile promoters of a corporatedebtor have no vested right to bid for the property of the corporatedebtor in liquidation.
The values which animate Section 29-Acontinue to provide sustenance to the rationale underlying theexclusion of the same category of persons from the process ofliquidation involving the sale of assets, by virtue of the provisionsof Section 35(1)(f). More recent precedents of this Court continueto adopt a purposive interpretation of the provisions of the IBC.[See in this context the judgments in Phoenix ARC (P)Ltd. v. Spade Financial Services Ltd. [Phoenix ARC (P)Ltd. v. Spade Financial Services Ltd., (2021) 3 SCC 475 : (2021)2 SCC (Civ) 1 at paras 103-104] , Ramesh Kymal v. SiemensGamesa Renewable Power (P) Ltd. [Ramesh Kymal v. SiemensGamesa Renewable Power (P) Ltd., (2021) 3 SCC 224 : (2021) 2SCC (Civ) 65 at paras 23 and 25] and Jaypee Infratech Ltd. v. AxisBank Ltd. [Jaypee Infratech Ltd. v. Axis Bank Ltd., (2020) 8 SCC401 : (2021) 2 SCC (Civ) 334 at paras 28.4 and 28.5] ]BANK OF BARODA & ANR. v.
MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH784SUPREME COURT REPORTS[2022] 12 S.C.R.Sustainable revival54. The purpose of the ineligibility under Section 29-A is to achievea sustainable revival and to ensure that a person who is the causeof the problem either by a design or a default cannot be a part ofthe process of solution. Section 29-A, it must be noted, encompasses not only conduct in relation to the corporate debtorbut in relation to other companies as well. This is evident fromclause (c) (“an account of a corporate debtor under themanagement or control of such person or of whom such person isa promoter, classified as a non-performing asset”), and clauses(e), (f), (g), (h) and (i) which have widened the net beyond theconduct in relation to the corporate debtor.” 49. In Phoenix Arc (P) Ltd. (supra) case, this Court consideredthe principle of purposive and creative interpretation while approvingthe interpretation given and approach taken by this Court in the earlierdecision in Arcellor Mittal(supra):“89.
In Arcelor Mittal (India) (P) Ltd. v. Satish Kumar Gupta[(2019) 2 SCC 1], the issue was whether ineligibility of theresolution applicant under Section 29-A(c) of the Code attachedto an applicant at the date of commencement of the CIRP or atthe time when the resolution plan is submitted by the resolutionapplicant. Speaking for this Court, Rohinton F. Nariman, J.interpreted the pre-2018 Amendment, framing of Section 29-A(c),in the following terms: (SCC pp. 61-62, para 46)“46. According to us, it is clear that the opening words of Section29-A furnish a clue as to the time at which clause (c) is tooperate. The opening words of Section 29-A state:‘a personshall not be eligible to submit a resolution plan…’. It is cleartherefore that the stage of ineligibility attaches when theresolution plan is submitted by a resolution applicant. Thecontrary view expressed by Shri Rohatgi is obviously incorrect, as the date of commencement of the corporate insolvencyresolution process is only relevant for the purpose of calculatingwhether one year has lapsed from the date of classification ofa person as a non-performing asset.
Further, the expressionused is “has”, which as Dr Singhvi has correctly argued, is inpraesenti. This is to be contrasted with the expression “has ABCDEFGH785been”, which is used in clauses (d) and (g), which refers to ananterior point of time. Consequently, the amendment of 2018introducing the words ‘at the time of submission of the resolutionplan’ is clarificatory, as this was always the correct interpretationas to the point of time at which the disqualification in clause(c) of Section 29-A will attach.” xxx xxx xxx91. However, it is relevant to examine whether the object andpurpose for which the proviso was enacted, are fulfilled by theliteral interpretation of the first proviso. Justice G.P. Singh in hisauthoritative commentary on the interpretation of statutes, Principles of Statutory Interpretation [(1st Edn., Lexis Nexis 2015)],has stated that: “The intention of the legislature thus assimilates two aspects: In one aspect it carries the concept of “meaning” i.e. what thewords mean and in another aspect, it conveys the concept of“purpose and object” or the “reason and spirit” pervadingthrough the statute.
The process of construction, therefore, combines both literal and purposive approaches. In other wordsthe legislative intention i.e. the true or legal meaning of anenactment is derived by considering the meaning of the wordsused in the enactment in the light of any discernible purpose orobject which comprehends the mischief and its remedy to whichthe enactment is directed. This formulation later received theapproval of the Supreme Court and was called the “cardinalprinciple of construction”.92. Justice G.P. Singh notes that certain enactments require aliberal construction to give effect to its objects and purpose: “A bare mechanical interpretation of the words and applicationof a legislative intent devoid of concept of purpose will reducemost of the remedial and beneficent legislation to futility. Asstated by Iyer, J. “to be literal in meaning is to see the skin andmiss the soul. The judicial key to construction is the compositeperception of the deha and the dehi of the provision.” Even inconstruing enactments such as those prescribing a period oflimitation for initiation of proceedings where the purpose isonly to intimate the people that after lapse of a certain timeBANK OF BARODA & ANR. v.
MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH786SUPREME COURT REPORTS[2022] 12 S.C.R.from a certain event a proceeding will not be entertained andwhere a strict grammatical construction is normally the onlysafe guide, a literal and mechanical construction may have tobe disregarded if it conflicts with some essential requirementof fair play and natural justice which the legislature neverintended to throw overboard. Similarly, in a taxing statuteprovisions enacted to prevent tax evasion are given a liberalconstruction to effectuate the purpose of suppressing taxevasion although provisions imposing a charge are construedstrictly there being no a priori liability to pay a tax and thepurpose of a charging section being only to levy a charge onpersons and activities brought within its clear terms. For thesame reason, in a legislation relating to defence services
theconsiderations of the security of the State and enforcement ofhigh degree of discipline additionally intervene and have to beassigned weightage while dealing with any expression needingto be defined or any provision needing to be interpreted.
93.
Similar words used in different parts of the enactment canhave different meanings. As Justice G.P. Singh notes: “The rule is of general application as even plainest terms maybe controlled by the context, and “it is conceivable,” as LordWatson said, ‘that the legislature whilst enacting one clause inplain terms, might introduce into the same statute otherenactments which to some extent qualify or neutralise itseffect’. The same word may mean one thing in one contextand another in a different context. For this reason the sameword used in different sections of a statute or even when usedat different places in the same clause or section of a statutemay bear different meanings. The conclusion that the languageused by the legislature is plain or ambiguous can only be trulyarrived at by studying the statute as a whole. How far and towhat extent each component part of the statute influences themeaning of the other part would be different in each givencase.
But the effect of the application of the rule to a particularcase, should not be confounded with the legitimacy of applyingit.”(emphasis supplied) ABCDEFGH78794. In this context, it would be useful to refer to an earlier decisionof this Court in Abhay Singh Chautala v. CBI [(2011) 7 SCC 141],where the Court did not interpret the word “is” in praesenti becausethat would lead to an absurd result, defeating the purpose of theprovision concerned. In that case this Court had to interpret Section19(1) of the Prevention of Corruption Act, 1988, which provided:
19. Previous sanction necessary for prosecution.—(1) Nocourt shall take cognizance of an offence punishable under Sections 7, 10, 11, 13 and 15 alleged to have been committedby a public servant, except with the previous sanction—(a) in the case of a person who is employed in connectionwith the affairs of the Union and is not removable from hisoffice save by or with the sanction of the CentralGovernment, of that Government; (b) in the case of a person who is employed in connectionwith the affairs of a State and is not removable from hisoffice save by or with the sanction of the State Government, of that Government; (c) in the case of any other person, of the authority competentto remove him from his office.
95.
It was argued before this Court that a literal interpretationshould be given to Section 19(1). Since the word “is” has beenused in sub-sections (a), (b) and (c), it was urged that this wouldexclude a public servant who had abused office at an earlier pointin time and has now ceased to occupy that office. This Courtspeaking through Sirpurkar, J. rejected the argument and held: (Abhay Singh Chautala case(supra), SCC p.163, para 44)“44. … we reject the argument based on the word “is” inclauses (a), (b) and (c). It is true that the section operates inpraesenti; however, the section contemplates a person whocontinues to be a public servant on the date of takingcognizance. However, as per the interpretation, it excludes aperson who has abused some other office than the one whichhe is holding on the date of taking cognizance, by necessaryimplication. Once that is clear, the necessity of the literalinterpretation would not be there in the present case.
Therefore, while we agree with the principles laid down in Robert WigramBANK OF BARODA & ANR. v. MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH788SUPREME COURT REPORTS[2022] 12 S.C.R.Crawford v. Richard Spooner; Bidie [(1846 SCC OnLine PC7)], In re [1949 Ch 121(CA)] and Bourne (Inspector of Taxes)v. Norwich Crematorium Ltd. [(1967) 1 WLR 691], wespecifically hold that giving the literal interpretation to the sectionwould lead to absurdity and some unwanted results, as hadalready been pointed out in Antulay[(1984) 2 SCC 183].” 96. This Court relied on the judgment in R.S. Nayak v. A.R.Antulay(supra) to fortify its interpretation of Section 19(1) of the Prevention of Corruption Act, 1947: (Abhay Singh Chautalacase(supra),)“22. … ‘24. … An illustration was posed to the learned counselthat a Minister who is indisputably a public servant greased hispalms by abusing his office as Minister, and then ceased tohold the office before the court was called upon to takecognizance of the offence against him and therefore, sanctionas contemplated by Section 6 would not be necessary; but ifafter committing the offence and before the date of taking ofcognizance of the offence, he was elected as a MunicipalPresident in which capacity he was a public servant under therelevant Municipal law, and was holding that office on the dateon which court proceeded to take cognizance of the offencecommitted by him as a Minister, would a sanction be necessaryand that too of that authority competent to remove him fromthe office of the Municipal President.
The answer was inaffirmative. But the very illustration would show that suchcannot be the law. Such an interpretation of Section 6 wouldrender it as a shield to an unscrupulous public servant. Someoneinterested in protecting may shift him from one office of publicservant to another and thereby defeat the process of law. Onecan legitimately envisage a situation wherein a person mayhold a dozen different offices, each one clothing him with thestatus of a public servant under Section 21 IPC and even if hehas abused only one office for which either there is a validsanction to prosecute him or he has ceased to hold that officeby the time court was called upon to take cognizance, yet onthis assumption, sanction of 11 different competent authoritieseach of which was entitled to remove him from 11 differentpublic offices would be necessary before the court can take ABCDEFGH789cognizance of the offence committed by such public servant, while abusing one office which he may have ceased to hold.
Such an interpretation is contrary to all canons of constructionand leads to an absurd end product which of necessity must beavoided. Legislation must at all costs be interpreted in such away that it would not operate as a rogue’s charter.’ (A.R.Antulay case(supra), pp. 206-207, para 24)”(emphasis supplied)97. This Court has approved of a purposive interpretation of Section29-A IBC in Arcelor Mittal (India) (P) Ltd. v. Satish KumarGupta(supra), where it was observed that: (SCC pp. 46-47, paras29-30)“29. … In Eera v. State (NCT of Delhi) [(2017) 15 SCC 133],this Court, after referring to the golden rule of literalconstruction, and its older counterpart the “object rule” in Heydon case [(1584) 3 Co Rep 7a], referred to the theory ofcreative interpretation as follows: (Eera case(supra), SCCpp. 200-01 & 204, paras 122 & 127)‘122. Instances of creative interpretation are when the Courtlooks at both the literal language as well as the purpose orobject of the statute in order to better determine what thewords used by the draftsman of legislation mean.
In D.R.Venkatachalam v. Transport Commr. [(1977) 2 SCC 273],an early instance of this is found in the concurring judgmentof Beg, J. The learned Judge put it rather well when hesaid: (SCC p. 287, para 28)“28. It is, however, becoming increasingly fashionableto start with some theory of what is basic to a provisionor a chapter or in a statute or even to our Constitution inorder to interpret and determine the meaning of aparticular provision or rule made to subserve an assumed“basic” requirement. I think that this novel method ofconstruction puts, if I may say so, the cart before thehorse. It is apt to seriously mislead us unless thetendency to use such a mode of construction is checkedor corrected by this Court. What is basic for a sectionor a chapter in a statute is provided: firstly, by the wordsBANK OF BARODA & ANR. v. MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH790SUPREME COURT REPORTS[2022] 12 S.C.R.used in the statute itself; secondly, by the context inwhich a provision occurs, or, in other words, by readingthe statute as a whole; thirdly, by the Preamble whichcould supply the “key” to the meaning of the statute incases of uncertainty or doubt; and, fourthly, where somefurther aid to construction may still be needed to resolvean uncertainty, by the legislative history which disclosesthe wider context or perspective in which a provisionwas made to meet a particular need or to satisfy aparticular purpose.
The last-mentioned method consistsof an application of the Mischief Rule laid down in Heydon case (supra) long ago.”* * *127. It is thus clear on a reading of English, US, Australianand our own Supreme Court judgments that the “LakshmanRekha” has in fact been extended to move away from thestrictly literal rule of interpretation back to the rule of theold English case of Heydon (supra), where the Court musthave recourse to the purpose, object, text and context of aparticular provision before arriving at a judicial result. Infact, the wheel has turned full circle. It started out by the ruleas stated in 1584 in Heydon case (supra), which was thenwaylaid by the literal interpretation rule laid down by the PrivyCouncil and the House of Lords in the mid-1800s, and hascome back to restate the rule somewhat in terms of what wasmost felicitously put over 400 years ago in Heydon case(supra).’30. A purposive interpretation of Section 29-A, depending both onthe text and the context in which the provision was enacted, must, therefore, inform our interpretation of the same. (emphasis supplied)”
We have already observed that we do not wish to interpretSection 29A(c) as no arguments have been addressed on that, perhapsfor the reason that Respondent No.3 might not attract any disqualificationon that score.SCOPE OF SECTION 29A(h)
Section 29A(h) of the Code creates one more category ofpersons not being eligible to be a resolution applicant. Other than the ABCDEFGH791persons mentioned thereunder, there may not be any disqualification. The word “person” is of a wider import to include a promoter or a director, as the case may be. The definition of “person” as mentioned under Section 3(23) of the Code includes certain categories of persons andthus, there is no such exclusion. It is merely illustrative/inclusive in natureand therefore, the persons mentioned in Section 29A alone are ineligibleto be resolution applicants.
Once a person executes a guarantee in favour of a creditorwith respect to thecredit facilities availed by a corporate debtor, and in acase where an application for insolvency resolution has been admitted, with the further fact of the said guarantee having been invoked, the barqua eligibility would certainly come into play. What the provision requiresis a guarantee in favour of ‘a creditor’. Once an application for insolvencyresolution is admitted on behalf of ‘a creditor’ then the process would beone of rem, and therefore, all creditors of the same class would havetheir respective rights at par with each other. This position has also beendealt with by this Court in the case of Swiss Ribbons(supra):
82. It is clear that once the Code gets triggered by admission ofa creditor’s petition under Sections 7 to 9, the proceeding that isbefore the adjudicating authority, being a collective proceeding, isa proceeding in rem. Being a proceeding in rem, it is necessarythat the body which is to oversee the resolution process must beconsulted before any individual corporate debtor is allowed to settleits claim. A question arises as to what is to happen before aCommittee of Creditors is constituted (as per the timelines thatare specified, a Committee of Creditors can be appointed at anytime within 30 days from the date of appointment of the interimresolution professional). We make it clear that at any stage wherethe Committee of Creditors is not yet constituted, a party canapproach NCLT directly, which Tribunal may, in exercise of itsinherent powers under Rule 11 of NCLT Rules, 2016, allow ordisallow an application for withdrawal or settlement. This will bedecided after hearing all the parties concerned and considering allrelevant factors on the facts of each case.
The word “such creditor” in Section 29A(h) has to beinterpreted to mean similarly placed creditors after the application forinsolvency application is admitted by the adjudicating authority. As aresult, what is required to earn a disqualification under the said provisionBANK OF BARODA & ANR. v. MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH792SUPREME COURT REPORTS[2022] 12 S.C.R.is a mere existence of a personal guarantee that stands invoked by asingle creditor, notwithstanding the application being filed by any othercreditor seeking initiation of insolvency resolution process. This is subjectto further compliance of invocation of the said personal guarantee byany other creditor. We have already said that the concern of the Court isonly from the point of view of two entities viz., corporate creditors andthe corporate debtors. Any other interpretation would lead to an absurditystriking at the very objective of Section 29A, and hence, the Code. Ineligibility has to be seen from the point of view of the resolution process. It can never be said that there can be ineligibility qua one creditor asagainst others. Rather, the ineligibility is to the participation in theresolution process of the corporate debtor. Exclusion is meant to facilitatea fair and transparent process.
The provision after the amendment speaks of invocation by acreditor. The manner of invocation can never be a factor for theadjudicating authority to adjudge, as against its existence. Adequateimportance will have to be given to the latter part of the provision whichalso disqualifies a person whose liability under the personal guaranteeexecuted in favour of a creditor, remains unpaid in full or in part for theamount due from him, upon invocation.
It is quite obvious that a resolution applicant, other than afinancial creditor under Section 7, an operational creditor under Section8 and a corporate debtor under Section 10, can ever have an independentright to insist for the protection of its own interest in the resolution process. Thus, Section 29A has a laudable object of protecting and balancing theinterest of the committee of creditors and the corporate debtor, whileshutting the doors to canvas the interests of others. That is the reasonwhy it consciously excludes certain categories of persons. We may addthat Section 29A(h) foresees the creditors who are otherwise eitheralready under the insolvency resolution process or are entitled to gounder it.
Yet another issue which requires consideration is to the dateof reckoning qua the provision. That is, the date of submission ofresolution plan or the date of adjudication by the authority. Havingunderstood the provision and the objective behind it, as well as the Code, it is clear that, if there is a bar at the time of submission of resolutionplan by a resolution applicant, it is obviously not maintainable. However, if the submission of the plan is maintainable at the time at which it is ABCDEFGH793filed, and thereafter, by the operation of the law, a person becomesineligible, which continues either till the time of approval by the CoC, oradjudication by the authority, then the subsequent amended provisionwould govern the question of eligibility of resolution applicant to submit aresolution plan. The resolution applicant has no role except to facilitatethe process. If there is ineligibility which in turn prohibits the otherstakeholders to proceed further and the amendment being in the natureof providing a better process, and that too in the interest of the creditorsand the debtor, the same is required to be followed as against the provisionthat stood at an earlier point of time.
Thus, a mere filing of the submissionof a resolution plan has got no rationale, as it does not create any right infavour of a facilitator nor it can be extinguished. One cannot say, what isgood today cannot be applied merely because an applicant was eligibleto submit a resolution plan at an earlier point of time. It is only a part ofprocedural law. We quote with profit the decision in Ebix Singapore Pvt. Ltd. vs. COC of Educomp Solutions Ltd., 2021 SCC OnLine 707:“130. The CoC even with the requisite majority, while approvingthe Resolution Plan must consider the feasibility and viability ofthe Plan and the manner of distribution proposed, which may takeinto account the order of priority amongst creditors as laid downin sub-section (1) of section 53 of the IBC. The CoC cannotapprove a Resolution Plan proposed by an applicant barred under Section 29A of the IBC. Regulation 37 and 38 of the CIRPRegulations govern the contents of a Resolution Plan.
Furthermore,a Resolution Plan, if in compliance with the mandate of the IBC,cannot be rejected by the Adjudicating Authority and becomesbinding on its approval upon all stakeholders - including the Centraland State Government, local authorities to whom statutory duesare owed, operational creditors who were not a part of the CoCand the workforce of the Corporate Debtor who would now begoverned by a new management. Such features of a ResolutionPlan, where a statute extensively governs the form, mode, mannerand effect of approval distinguishes it from a traditional contract, specifically in its ability to bind those who have not consented toit. In the pure contractual realm, an agreement binds parties whoare privy to the contract. In the context of a resolution Plangoverned by the IBC, the element of privity becomes inapplicableonce the Adjudicating Authority confirms the Resolution Plan under Section 31(1) and declares it to be binding on all stakeholders, BANK OF BARODA & ANR. v.
MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH794SUPREME COURT REPORTS[2022] 12 S.C.R.who are not a part of the negotiation stage or parties to the Resolution Plan. In fact, a commentator has noted that the purposeof bankruptcy law is to actually solve a specific ‘contracting failure’that accompanies financial distress. Such a contracting failurearises because “financial distress involves too many parties withstrategic bargaining incentives and too many contingencies forthe firm and its creditors to define a set of rules of every scenario.” Thus, insolvency law recognizes that parties can take benefit ofsuch ‘incomplete contract’ to hold each other up for their individualgain. In an attempt to solve the issue of incompleteness and thehold-up threat, the insolvency law provides proceduralprotections i.e., “the law puts in place guardrails that give theparties room to bargain while keeping them from taking positionthat veer toward extreme hold up” ON MERIT57. Having discussed Section 29A(h) of the Code as weunderstood, we shall now go into the facts of the instant case.
Admittedly, the Respondent No.3 has executed personalguarantees which were invoked by three of the financial creditors evenprior to the application filed. The rigor of Section 29A(h) of the Codeobviously gets attracted. The eligibility can never be restricted to theaforesaid three creditors, but also to other financial creditors in view ofthe import of Section 7 of the Code. In the case at hand, in pursuance tothe invocation, an application invoking Section 7 indeed was filed by onesuch creditor. It was invoked even at the time of submitting a resolutionplan by the Respondent No.3. Thus, in the touchstone of our interpretationof Section 29A(h), we hold that the plan submitted by the RespondentNo.3 ought not to have been entertained.
The adjudicating authority and the appellate tribunal were notright in rejecting the contentions of the appellant on the ground that theearlier appeals having been withdrawn without liberty, the issue quaeligibility cannot be raised for the second time. Admittedly, the appellantwas not a party to the decision of the adjudicating authority on the firstoccasion, in the appeal the appellant merely filed an application forimpleadment. The appellate authority did not decide the matter on merit. In fact, the question of law is left open. The principle governing resjudicata and issue estoppel would never get attracted in such a scenario. ABCDEFGH795Thus, the reasoning rendered by the appellate tribunal to that extentcannot be sustained in law.
On the question of limitation, we are in agreement with theviews expressed by the adjudicating authority as confirmed by theappellate tribunal. There were earlier rounds of litigation with the interimorders. The delay of 106 days has been rightly condoned and excludedby the adjudicating authority by invoking Section 12(3) of the Code. Itwas done only on one occasion. The adjudicating authority was right inholding that there is a marked difference between extension and exclusion. Exclusion would come into play when the decision is challenged beforea higher forum. Extension is one which is to be exercised by the authorityconstituted.
Having held so, we would like to come to the last part of ourorder. Though the very resolution plan submitted by the Respondent No.3, being ineligible is not maintainable, much water has flown under thebridge. The requisite percentage of voting share has been achieved. Wemay also note that the percentage has been brought down from 75% to66% by way of an amendment to Section 30(4) of the Code.
Secondly, majority of the creditors have given their approvalto the resolution plan. The adjudicating authority has rightly noted that itwas accordingly approved after taking into consideration, the techno-economic report pertaining to the viability and feasibility of the plan. Theplan is also put into operation since 18.04.2018, and as of now the Respondent No. 1 is an on-going concern. Though, the Respondent No.11has taken up the plea that its offer was conditional, it has got a veryminor share which may not be sufficient to impact by adding it with thatof the appellant and Respondent No.7. The Respondent No.7 and the Respondent No.11 did not choose to challenge the order of the appellatetribunal.
We need to take note of the interest of over 23,000 shareholdersand thousands of employees of the Respondent No.1. Now, about Rs.300 crores has also been approved by the shareholders to be raised bythe Respondent No.1. It is stated that about Rs. 63 crores has beeninfused into the Respondent No.1 to make it functional. There are manyon-going projects of public importance undertaken by the RespondentNo.1 in the nature of construction activities which are at different stages.
We remind ourselves of the ultimate object of the Code, whichis to put the corporate debtor back on the rails. Incidentally, we also noteBANK OF BARODA & ANR. v. MBL INFRASTRUCTURESLIMITED & ORS. [M. M. SUNDRESH, J.] ABCDEFGH796SUPREME COURT REPORTS[2022] 12 S.C.R.that no prejudice would be caused to the dissenting creditors as theirinterests would otherwise be secured by the resolution plan itself, whichpermits them to get back the liquidation value of their respective creditlimits. Thus, on the peculiar facts of the present case, we do not wish todisturb the resolution plan leading to the on-going operation of the Respondent No.1.
Operative part
The appeal stands disposed of. Accordingly, all applicationsstand disposed of. No costs. Divya PandeyAppeal disposed of. (Assisted by : Deepak Panwar, LCRA)
Questions this judgment answers
What did the Court decide in this case?
The Court recorded the following disposition: The appeal stands disposed of
Which statutory provisions did this judgment involve?
Reconstruction of Financial Assets and Enforcementof Security Interest Act, 2002; SARFAESI Act, 2002 — s. 13(2); Schemeof the Act; Companies Act, 2013; Prevention of Corruption Act, 1988 — s. 19(1); Indian Penal Code, 1860 — s. 21.
Precedent status how later indexed judgments have treated this case
No known negative treatment found in the Courts & Cases corpus.
This is a result about the indexed corpus, not a finding that the judgment remains good law. Coverage may be incomplete.