Central Bank Of India Limited vs M/s. Ashwinikrishnaa Textiles Pvt Ltd.

ORDER

“The Affidavit of Service has been filed by the Applicant herein, which is dated 18.03.2025. The perusal of the AOS reveals that service through speed post was attempted on 01.03.2025 for which postal receipt is attached at Page No. 7. The Applicant has attached tracking report, which reveals that item could not be delivered. The Applicant further states that email service was effected. Registry has also attempted the service; however, no tracking report is available on file for the same. The Counsel for the Applicant requests for a substituted service, which is granted. Registry is directed to handover to the Applicant’s Counsel notice for the purpose of paper publication.

“Perusal of the AOS reveals that the notice was published in four newspapers i.e. “The New Indian Express” in English and “Dinamani” in Tamil, both have been published on 06.04.2025 in Coimbatore Edition. Further, the notice is also published in “The Free Press Journal” in English and “Navshakti” in Marathi on 06.04.2025, in Mumbai Edition. The Applicant has attached the original paper publications along with the AOS. In view of the above, service upon the Respondent is deemed to be complete.”

Contentions of the Corporate Debtor

"60.

There can be no doubt that a Corporate Debtor who is in the red should be resolved expeditiously, following the timelines in the IBC. No extraneous matter should come in the way. However, the viability and overall financial health of the Corporate Debtor are not extraneous matters.

61.

The Adjudicating Authority (NCLT) found the dispute of the Corporate Debtor with the Electricity Regulator or the recipient of electricity would be extraneous to the matters involved in the petition. Disputes with the Electricity Regulator or the Recipient of Electricity may not be of much relevance. The question is whether an award of the APTEL in favour of the Corporate Debtor, can completely be disregarded by the Adjudicating Authority (NCLT), when it is claimed that, in terms of the Award, a sum of Rs.1,730 crores, that is, an amount far exceeding the claim of the Financial Creditor, is realizable by the Corporate Debtor. The answer, in our view, is necessarily in the negative.

62.

In our view, the Appellate Authority (NCLAT) erred in holding that the Adjudicating Authority (NCLT) was only required to see whether there had been a debt and the Corporate Debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP. The existence of a financial debt and default in payment thereof only gave the financial creditor the right to apply for initiation of CIRP. The Adjudicating Authority (NCLT) was require to apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC’s appeal, pending in this Court, order of APTEL referred to above and the over all financial health and viability of the Corporate Debtor under its existing management.

63.

As pointed out by Mr. Gupta, Legislature has, in its wisdom, chosen to use the expression “may” in Section 7(5)(a) of the IBC. When an Adjudicating Authority (NCLT) is satisfied that a default has occurred and the application of a Financial Creditor is complete and there are no disciplinary proceedings against proposed resolution professional, it may by order admit the application. Legislative intent is construed in accordance with the language used in the statute.

70.

As argued by Mr. Gupta, had it been the legislative intent that Section 7(5)(a) of the IBC should be a mandatory provision, Legislature would have used the word ‘shall’ and not the word ‘may’. There is no ambiguity in Section 7(5)(a) of the IBC. Purposive interpretation can only be resorted to when the plain words of a statute are ambiguous or if construed literally, the provision would nullify the object of the statute or otherwise lead to an absurd result. In this case, there is no cogent reason to depart from the rule of literal construction.

77.

The fact that Legislature used ‘may’ in Section 7(5)(a) of the IBC but a different word, that is, ‘shall’ in the otherwise almost identical provision of Section 9(5)(a) shows that ‘may’ and ‘shall’ in the two provisions are intended to convey a different meaning. It is apparent that Legislature intended Section 9(5)(a) of the IBC to be mandatory and Section 7(5)(a) of the IBC to be discretionary. An application of an Operational Creditor for initiation of CIRP under Section 9(2) of the IBC is mandatorily required to be admitted if the application is complete in all respects and in compliance of the requisites of the IBC and the rules and regulations thereunder, there is no payment of the unpaid operational debt, if notices for payment or the invoice has been delivered to the Corporate Debtor by the Operational Creditor and no notice of dispute has been received by the Operational Creditor. The IBC does not countenance dishonesty or deliberate failure to repay the dues of an operational creditor.

78.

On the other hand, in the case of an application by a Financial Creditor who might even initiate proceedings in a representative capacity on behalf of all financial creditors, the Adjudicating Authority might examine the expedience of initiation of CIRP, taking into account all relevant facts and circumstances, including the overall financial health and viability of the Corporate Debtor. The Adjudicating Authority may in its discretion not admit the application of a Financial Creditor.

79.

The Legislature has consciously differentiated between Financial Creditors and Operational Creditors, as there is an innate difference between Financial Creditors, in the business of investment and financing, and Operational Creditors in the business of supply of goods and services. Financial credit is usually secured and of much longer duration. Such credits, which are often long-term credits, on which the operation of the Corporate Debtor depends, cannot be equated to operational debts which are usually unsecured, of a shorter duration and of lesser amount. The financial strength and nature of business of a Financial Creditor cannot be compared with that of an Operational Creditor, engaged in supply of goods and services. The impact of the non-payment of admitted dues could be far more serious on an Operational Creditor than on a financial creditor.

87.

Even though Section 7 (5)(a) of the IBC may confer discretionary power on the Adjudicating Authority, such discretionary power cannot be exercised arbitrarily or capriciously. If the facts and circumstances warrant exercise of discretion in a particular manner, discretion would have to be exercised in that manner.

88.

Ordinarily, the Adjudicating Authority (NCLT) would have to exercise its discretion to admit an application under Section 7 of the IBC of the IBC and initiate CIRP on satisfaction of the existence of a financial debt and default on the part of the Corporate Debtor in payment of the debt, unless there are good reasons not to admit the petition.

89.

The Adjudicating Authority (NCLT) has to consider the grounds made out by the Corporate Debtor against admission, on its own merits. For example, when admission is opposed on the ground of existence of an award or a decree in favour of the Corporate Debtor, and the Awarded/decretal amount exceeds the amount of the debt, the Adjudicating Authority would have to exercise its discretion under Section 7(5)(a) of the IBC to keep the admission of the application of the Financial Creditor in abeyance, unless there is good reason not to do so. The Adjudicating Authority may, for example, admit the application of the Financial Creditor, notwithstanding any award or decree, if the Award/Decretal amount is incapable of realization. The example is only illustrative.

e. Respondent has been wrongfully declared/classified as NPA:-

a. It is the case of Petitioner that they had sanctioned a loan in favor of one Shri Vallabh Pittie South West Industries Limited (erstwhile Platinum Textiles Ltd) (hereinafter referred to as “Principal Borrower”) for the following purported financial facilities: Amount in Crore (Rs.)

Sr. No.	Nature of Facility	Amount Sanctioned
1.	CC General Corporate	18.00
2.	Working Capital Demand Ln-Mclr	27.00
3.	GECL 2.0 Corporate	8.94
	Total	53.94

b. It is the case of the Petitioner that the aforementioned purported loan that was extended to the Principal Borrower, the Principal Borrower,failed to maintain the financial discipline and the Principal Borrower's account was classified as Non-Performing Asset by Petitioner on 01st May 2022, however, no document or communication has been placed on record evidencing the same.

c. However, purportedly, the Corporate Debtor and the Petitioner Bank had executed a Deed of Corporate Guarantee dated 28^th June 2022. Keeping in mind that the aforementioned Deed of Corporate Guarantee dated 28th June 2022 was executed much after the Principal Borrower's account purportedly was declared as NPA i.e., on 01^st May 2022, this date would hold no relevance in case of the Corporate Debtor since the Corporate Debtor's alleged liability to repay, if any, only arose after execution of the aforementioned Deed of Corporate Guarantee dated 28th June 2022 and not prior. Therefore, any default which was suggested to have been occurred prior to the execution of Deed of Corporate Guarantee dated 28th June 2022, would not in any way or manner latch onto the Corporate Debtor. Furthermore, as per the terms of the Deed of Corporate Guarantee dated 28^th June 2022, for the Corporate Debtor to be held liable to repay any amount to the Petitioner, first there had to be a default on the part of the Principal Borrower, which is absent in the present case.

d. In the meantime, it appears that one of the other Financial Creditors of the Principal borrowers namely Indian Overseas Bank (“IoB”) had filed a Company Petition bearing CP (IB) No. 380 (MB) of 2023 against the Principal Borrower, the said Company Petition came to be admitted on 10^th October 2023. Therefore, once again there was no default on the part of the Principal Borrower which could have then drawn its liability to Corporate Debtor herein. Respondent seeks liberty of this Hon’ble Tribunal to place on record the order dated 10th October 2023.

e. It settled position in law that once a Company is admitted into CIRP the board of directors are suspended and no communication can be issued on their behalf, therefore, the OTS proposal 27^th December 2023 (on the basis of which the Company Petition No. 213 of 2025 was admitted) was issued without proper authorization therefore cannot be considered as a valid admission of debt, this principle is rooted in the idea that a person's actions, including statements, can only bind them when they are made with the authority to do so. A communication from someone lacking authority is not legally binding or persuasive as evidence of debt recognition.

f. There is no default committed by the Respondent since no demand has been raised by the petitioner.

a. Thereafter, it is alleged by the Petitioner that as per terms of the purported Deed of Guarantee it is clear that the said Corporate Guarantee was payable ‘on demand’. From the terms of the purported Corporate Guarantee, it appears that for the Corporate Debtor was to be held liable to repay any debt, the Petitioner must first invoke the corporate guarantee as per the terms of the deed of guarantee. It was only after the said invocation of guarantee is when the Petitioner could have filed the said Company Petition under the provision of section 7 of Code against the Corporate Debtor. Respondent states that without invocation, there was no debt due against the Corporate Debtor, and therefore, no default occurred, since a guarantee is a contractual obligation, and liability on the guarantor (in this case the Corporate Debtor) arises only when the creditor formally invokes it. Therefore, unless a guarantee explicitly provides for automatic liability, formal invocation remains a necessary step before any legal action against the guarantor can proceed, which are the admitted facts in the present case. Respondent states that this Hon’ble Tribunal may direct the Petitioner to place on record concrete evidence indicating that they have served a copy of the said notice invoking guarantee, invoking the Deed of Guarantee.

b. Respondent states that, it is the Petitioner’s case they had issued a purported ‘Loan Recall cum Guarantee Invocation Notice’ dated 15th May 2024, with respect to alleged Corporate Guarantee given to purportedly secure the loan availed by the Principal Borrower. However, Respondent states that they have till date never received the aforementioned ‘Loan Recall cum Guarantee Invocation Notice’ dated 15^th May 2024, neither by way of email nor by way of speed post. Therefore, unless the Petitioner can prove that they served a copy of the ‘Loan Recall cum Guarantee Invocation Notice’ dated 15th May 2024, the said Company Petition is not maintainable. Petitioner states that even as per Respondent’s own tracking consignment report annexed to their Company Petition, the Loan Recall cum Guarantee Invocation Notice’ dated 15th May 2024 was returned to Petitioner without any remarks and not such notice was ever received by the Respondent.

g. The present company petition is filed premature in view of the resolution plan of Shrivallabh Pittie South West Industries Limited pending approval.

a. In the meantime, it appears that Shrivallabh Pittie South West Industries Limited, i.e., the Principal Borrower, which is undergoing CIRP, and is in the process of getting resolved., during several CoC meetings, especially, during the 8^th COC meeting held on 17th February 2025, it was discussed that one Authum Investment & Infrastructure Limited (Authum) submitted a resolution plan for a sum of Rs. 56 crores, to the CoC of the principal borrower comprising of Petitioner herein. This Resolution Plan was towards full and final settlement of all the liabilities, including the personal guarantees and third-party securities. Thereafter, the Resolution Professional of the Principal Borrower convened the 9^th CoC meeting on 27^th February 2025. In this meeting, Authum, submitted the highest bid and has unequivocally stated that its proposal includes the third-party securities, corporate guarantee i.e., the subject guarantee.

b. It is essential to mention that the CoC, including the Petitioner, requested the prospective resolution applicants to enhance their offers. Consequently, Authum increased its offer from Rs. 56 crores to Rs. 67.50 crores. However, the plan submitted by it yet includes third-party assets, personal and corporate guarantees, proceeds from PUFE applications. In the 12^th CoC Meeting Authum conveyed its intention in acquiring the Principal Borrower as a whole along with the personal guarantees and third-party securities (including the purported Corporate Guarantee extended the Corporate Debtor herein to the Petitioner). It is only after taking into account factors, it submitted a resolution plan for Rs. 67.50 crores. If the third- party security i.e., the subject properties are not included, then it will significantly impact the resolution and will lead to a downward revision of the plan. As per the terms of the Resolution Plan submitted by Authum stipulates that it shall pay a sum of Rs. 23.00 crores towards the creditors, including the Petitioner herein. Upon approval of the plan by the Ld. Adjudicating Authority, Mumbai Bench, the collaterals offered and the guarantees provided shall stand assigned to Authum. In addition to this, Resolution Plan under Clause 7.1.5 also stipulates that upon approval of the resolution plan by the Ld. Adjudicating Authority, the proceedings of any security interest or debt owned by or against the Corporate Debtor shall stand irrevocably and unconditionally settled and extinguished in perpetuity. Copies of minutes of CoC meetings held by the Resolution Professional of Shrivallabh Pittie South West Industries Limited / Principal Borrower are annexed and marked as Annexure A – 3 to the Reply.

“The Financial Creditors shall absolutely and unconditionally assign and transfer to the Resolution Applicant (acting through the Implementation Vehicle), the FC Assigned Assets and all present and future right, title, interest, obligation, and benefit, whether direct or indirect, that may accrue in respect thereof, to the end and intent that the Implementation Vehicle shall be legally and beneficially vested with all present and future right, title, interest, obligation, and benefit of such Financial Creditors in and in respect of the FC Assigned Assets, in consideration of the Financial Creditors’ Payment payable to such creditors in accordance with Clause 4.3.2 of Chapter IV (Treatment of Stakeholders) (“FC Assignment”). The FC Assigned Assets shall be free and clear of all encumbrances whatsoever. The Upfront FC Payment shall be payable by the Implementation Vehicle to the Financial Creditors simultaneously with the transfer of the FC Assigned Assets, on the Implementation Date. The Balance FC Payment shall be payable in accordance with the terms of FC NCDs as outlined in Schedule 3 (Indicative Terms of FC NCDs).” In addition the above, Respondent submits that the resolution plan submitted by Authum stipulates that it shall pay a sum of Rs. 23.00 crores towards the creditors, including the Petitioner herein. Upon approval of the plan by the Ld. NCLT, the collaterals offered and the corporate guarantees provided shall stand assigned to Authum. A copy of the Resolution Plan submitted by a consortium / SPV of one ‘Ankit A. Kothari and Authum Investment and Infrastructure Limited’ is annexed and marked as Annexure A – 4 to the Reply.

Ld. Counsel for the Respondent states that the Corporate Debtor herein is a Corporate Guarantor to Shri Vallabh Pittie South West Industries Limited. It is stated that the main borrower is already under going CIRP as per the order of the Coordinate Bench of this Tribunal. A Resolution Plan with respect to that Corporate Debtor (main borrower) has been submitted by the Suspended Board of Directors and the COC has put the same Plan for voting.

4.

Ld. Counsel for the Respondent further states that the Resolution Plan submitted by the suspended directors is the only Plan, which has been put to voting. Ld. Counsel for the Applicant states that the guarantee issued is in favor of the consortium of lenders of Shri Vallabh Pittie South West Industries Limited and there are common COC Members in the present Respondent and Shri Vallabh Pittie South West Industries Limited. Ld. Counsel for the Respondent states that in the Plan given by the suspended directors for the principal borrower the issue of the corporate guarantee by the present Corporate Debtor has also been addressed. He thereafter requests this Tribunal to defer the hearing in this matter awaiting the outcome of the voting on the Resolution Plan by COC.

Analysis and Findings: -

1.

If at any time default shall be made by the Borrower in payment of the principal sum not exceeding Rs. 2,05,52,00,000/- (Rupees Two Hundred and Five Crores and Fifty Two Lakhs only) together with interest, penal interest, additional interest, costs, charges, expenses and/or other monies for the time being due to the said Banks and the lOB Consortium (herein after collectively referred to as "the secured parties") in respect of or under the aforesaid credit facilities or any of them, as agreed by the Borrower under the various security documents, the Guarantor shall forthwith on demand from the Lenders/IOB Consortium pay to the said Banks, as the case may be, the whole of such principal sum not exceeding Rs. 2,05,52,00,000/- (Rupees Two Hundred and Five crore and Fifty Two Lakhs only) together with interest, costs, charges, expenses and/or any other monies as maybe then due to the secured parties in respect of the aforesaid credit facilities and shall indemnify and keep indemnified the said Lenders and lOB Consortium against all losses of the said principal sum, interest, penal interest, additional interest, or other monies due and all costs charges and expenses whatsoever which secured parties may incur by reason of any default on the part of the Borrower. Any such demand made by the said Lenders/lOB Consortium on the Guarantor shall be final, conclusive and binding notwithstanding any difference or any dispute among Said Banks, lOB Consortium and the Borrower or any other legal proceedings, pending before any court, tribunal, arbitrator or any other authority. The Guarantor shall be liable for interest on all the monies guaranteed hereunder on daily balance basis or at such other basis, compounded at monthly rests, till the date of actual realization of the dues by the said Banks. The Guarantor shall be bound by the rate/s of interest, as may be fixed by the said Banks from time to time, for the aforesaid credit facilities sanctioned to the Borrower. The Guarantor further agrees that the said Banks shall be within their absolute right to fix and revise the rate/s of interest and the manner of capitalization of the same, from time to time, in respect of all or any of the aforesaid credit facilities granted to the Borrower and in this regard the Guarantor agrees that notwithstanding anything contained in this agreement or in any other writings to the contrary, any change/revision in the rate of interest/manner of capitalization, shall be binding on the Guarantor also, if the same is published/displayed for the general information of public, in a newspaper OR on the website of the said Banks OR in the notice board of the branch office of the said Banks from where the borrower has availed the said facilities or through entry of interest charged in the statement of Account/Loan Account of the Borrower. The revised rates of interest/ procedure shall be applicable and binding on the Guarantor from the effective date stated in the said publication/display. In the event of failure by the Guarantor to make payment as stated above, the Guarantor shall pay default/additional/penal interest as specified in relation to the aforesaid credit facilities for the Borrower till receipt of the aforesaid amounts by the said Banks to their satisfaction. The Guarantor hereby agrees and confirms its liability under this Deed of Guarantee is co-extensive with that of the borrower.

13.

The Guarantor shall forthwith on demand made by the secured parties, deposit with the secured parties such sum or security or further sum or security as the secured parties may from time to time specify as security for the due fulfilment of its obligations under this Guarantee and any security deposited with the secured parties may be sold by the secured parties after giving to the Guarantor a reasonable notice of sale and the said sum or the proceeds of sale of the securities may be appropriated by the secured parties in or towards satisfaction of the said obligations and any liability arising out of non-fulfilment thereof by the Guarantor.

“45.

The Hon’ble Supreme Court of India- CC Alavi Haji v. Palapetty Muhammed (supra) has held that-

“14.

This Court has already held that when a notice is sent by registered post and is returned with a postal endorsement “refused” or “not available in the house” or “house locked” or “shop closed” or “addressee not in station”, due service has to be presumed. …” [emphasis supplied]

46.

In another judgment of Hon’ble Apex Court in Greater Mohali Area Development Authority and Ors. Vs. Manju Jain and Ors. (2010) 9 SCC 157 the Hon’ble Apex Court held as under:

“…

a.In C.C. Alavi Haji v. Palapetty Muhammed [(2007) 6 SCC 555: (2007) 3 SCC (Cri) 236] this Court reiterated a similar view that Section 27 of the General Clauses Act, 1897 and Section 114 Illustration (f) of the Evidence Act, give rise to a presumption that the service of a notice has been effected when it is sent to the correct address by registered post. This Court held as under: (SCC p. 564, para 14)

“14.

Section 27 gives rise to a presumption that service of notice has been effected when it is sent to the correct address by registered post.… Unless and until the contrary is proved by the addressee, service of notice is deemed to have been effected at the time at which the letter would have been delivered in the ordinary course of business.”

b.This Court has reiterated a similar view in Gujarat Electricity Board v. Atmaram Sungomal Poshani [(1989) 2 SCC 602 : 1989 SCC (L&S) 393 : (1989) 10 ATC 396 : AIR 1989 SC 1433] , CIT v. V.K. Gururaj [(1996) 7 SCC 275: 1996 SCC (L&S) 579: (1996) 33 ATC 269] , Poonam Verma v. DDA [(2007) 13 SCC 154], Sarav Investment &Financial Consultancy (P) Ltd. v. Llyods Register of Shipping Indian Office Staff Provident Fund [(2007) 14 SCC 753: (2009) 1 SCC (Cri) 935], Union of India v. S.P. Singh [(2008) 5 SCC 438 : (2008) 2 SCC (L&S) 1] , Municipal Corpn., Ludhiana v. Inderjit Singh [(2008) 13 SCC 506] and V.N. Bharat v. DDA [(2008) 17 SCC 321: AIR 2009 SC 1233] ….” [Emphasis Supplied]

47.

Such like situations have been noted in the legal precedents— including St. Alfred Education Trust v. Kone Elevator India Pvt. Ltd. (supra) and Alavi Haji v. Palapetty Muhammed (supra) — which have been relied upon by the Respondents. The Hon’ble High Court of Madras herein St. Alfred Education Trust (supra) held:

“21.

In the light of the communications exchanged between the parties, the aforesaid conclusion reached by the learned Judge, in our view, is perfectly correct. In the suit, the respondent/plaintiff has taken all efforts to serve summons on the appellant/defendant. It is settled law that if the notice is sent to the correct and last known address of the defendant, the same has to be deemed to be served, whether it is actually served or not. In the present case, summons have been served to the correct and last known address of the appellant. It is not the case of the appellant that summons have been sent to a wrong address. Further, the appellant has not informed about their change of business place. In such circumstances, it can be inferred that summons have been duly served on the appellant, but they failed to contest the suit. Therefore, the application filed by the appellant in the year 2019 to set aside the ex parte decree dated 24.04.2009, after a decade, was rightly dismissed by the learned Judge, by the order impugned herein, which need not be interfered with, at the hands of this court.” [Emphasis Supplied] ”……………..

50.

Basis Section 27 of General Clauses Act, 1897, the service of the notice gets affected when it is sent to the correct address by registered post. Unless and until the contrary is proved by the addressee, service of notice is deemed to have been effected at the time at which the letter would have been delivered in the ordinary course of business. Under these conditions the arguments of the Appellant-PG cannot be accepted that service of demand notice was not affected.

51.

All above judgments support the case of the Respondents that support the proposition that notice served to the last known or registered address is deemed effective even if the recipient does not physically receive it. The Appellant’s failure to update his address cannot now be used to invalidate such service. …………………………

53.

Further the Respondent No.1- Omkara had sent the Recall Notice, Invocation Notice and Demand Notice to the Appellant on the address provided in the Guarantee Deed, being the last known address provided by the Appellant in terms of Clause 22 of the Guarantee Deed. The Appellant has not claimed that the address on which the Recall Notice, the Invocation Notice and the Demand Notice were sent was incorrect or does not belong to the Appellant. Also, the Appellant has not claimed that any fresh address was provided to the Respondent No.1 (or Piramal or DHFL), hence the address mentioned in the Guarantee Deed remained the last known address of the Appellant as provided to the Respondent No.1. It is also noted that address on the memo of parties is the same which was in the invocation notice and also the demand notice. This was the last known address as provided in the Guarantee Deed and shall be deemed to have been served as per Section 27 of the General Clauses Act, 1897. It is claimed by the Appellant-PG that Section 27 of the General Clauses Act, 1897, createsa presumption that a notice properly addressed, prepaid, and sent via registered post is deemed to be served at the time it would ordinarily be delivered. It contends that the presumption under Section 27 is rebuttable and not conclusive. If the addressee provides credible evidence of non-receipt or non-delivery, the presumption can be displaced. The absence of a postal acknowledgment receipt or tracking information indicating non-delivery. But in the facts and circumstances of the case this rebuttal is not credible and is without merit and cannot be accepted.

54.

The claim of the Appellant that the Since the invocation notice and the demand notice were issued in accordance with the provisions of the Guarantee Deed and which constitutes a separate contract between the parties; therefore, the claim of the Appellant-PG is not maintainable.

55.

Therefore, the grounds raised by the Appellant- PG on validity of service are without merits and are not acceptable and doesn’t provide any support to the Appeal. Accordingly, the arguments of the Appellant that service of various notices have not been done cannot be accepted.”

100.

To reiterate, the contention that simultaneous proceedings must be necessarily barred apprehending double enrichment is far-fetched and stands rejected, particularly in view of the safeguards mentioned hereinabove.

16.

We find substance in the arguments being made by the learned Counsel for Appellant which are in tune with the Report of ILC. The ILC in para – 7.5 rightly referred to subsequent Judgement of “Edelweiss Asset Reconstruction Company Ltd. v. Sachet Infrastructure Ltd. and Ors.” dated 20th September, 2019 which permitted simultaneously initiation of CIRPs against Principal Borrower and its Corporate Guarantors. In that matter Judgment in the matter of Pirmal was relied on but the larger Bench mooted the idea of group Corporate Insolvency Resolution Process in para – 34 of the Judgement. The ILC thus rightly observed that provisions are there in the form of Section 60(2) and (3) and no amendment or legal changes were required at the moment. We are also of the view that simultaneously remedy is central to a contract of guarantee and where Principal Borrower and surety are undergoing CIRP, the Creditor should be able to file claims in CIRP of both of them. The IBC does not prevent this. We are unable to agree with the arguments of Learned Counsel for Respondent that when for same debt claim is made in CIRP against Borrower, in the CIRP against Guarantor the amount must be said to be not due or not payable in law. Under the Contract of Guarantee, it is only when the Creditor would receive amount, the question of no more due or adjustment would arise. It would be a matter of adjustment when the Creditor receives debt due from the Borrower/Guarantor in the respective CIRP that the same should be taken note of and adjusted in the other CIRP. This can be conveniently done, more so when IRP/RP in both the CIRP is same. Insolvency and Bankruptcy Board of India may have to lay down regulations to guide IRP/RPs in this regard.

“B. Validity of CIRP Admission

28.

The other aspect on which the Appellant has heavily relied is the acceptance of various sums of money paid by the Corporate Debtor purportedly under the 1st and 2nd restructuring proposals, which according to them amounts to deemed approval of such proposal. As discussed earlier, such argument flies in the face of the fact that the 2nd Respondent had resolutely maintained and rightly so, that the restructuring proposals were underpinned on pre-implementation conditions which the Corporate Debtor had failed to fulfil. Under such circumstances, receipt of various sums of money would not amount to acceptance of the restructuring proposals, thereby novating the earlier loan agreement. Neither would such part payments constitute full satisfaction of the existing debt so as to render the Section 7 application inadmissible.

29.

It has also been vociferously contended that the Corporate Debtor is an ongoing concern and does not lack the ability to repay the debt. It has a subsisting PPA for 25 years with WBSEDCL, and has raised bills of Rs. 906 crore from 01.11.2024 to 31.03.2025. It also has a continuous fuel supply arrangement with Mahanadi Coalfields Ltd. under the SHAKTI scheme and had earned EBIDTA of Rs. 20 crore per month during the CIRP. These facts though attractive at first blush, do not yield either legal or factual justification to rebut the admission of the Section 7 application.

30.

On the legal score, one must bear in mind the scope and purpose for which IBC was promulgated. The main objective of its enactment was to create a complete code for easy, prompt and seamless resolution of insolvency process and thereby ensure that the net worth of the corporate debtor is not dissipated and the entity is salvaged from corporate death through a viable resolution plan accepted by its CoC. The Code prescribes whenever a corporate debtor defaults on a debt that is due and payable, an insolvency process may be initiated. Section 3(12) defines “default” as non payment of a debt which has become due and payable, and includes default in respect of a part or instalment thereof. Such insolvency process may be initiated either by the corporate debtor itself, or by its creditors who are classified as financial creditor or operational creditor. “Financial creditor” is defined as any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned.26 A “financial debt” means a debt along with interest if any, which is disbursed against the consideration for time value of money and includes money borrowed against payment of interest.27 “Operational creditor” is defined as a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned.28 “Operational debt” is a claim in respect of the provision of goods or services including employment or a debt in respect of payment of dues arising under any law for the time being in force and payable to the Central or State government, or any local authority.29

31.

In Swiss Ribbons (P) Ltd. v. Union of India [(2019) ibclaw.in 03 SC],30 such classification of creditors as financial creditors and operational creditors has been held to be constitutionally valid. The Bench underscored the essential differences between a financial creditor and operational creditor and held that financial creditors were mostly secured creditors like banks and financial institutions who extended finance to enable a corporate debtor to set up and/or operate its business. Such credit is extended to a corporate debtor under well-defined loan agreements having specified repayment schedules and reserving rights to recall the loan in case of default or restructure the same enabling a corporate debtor to tide over unforeseen financial stress. On the contrary, operational creditors are mostly unsecured creditors and their claims are relatable to supply of goods and services in the operation of the business. Ordinarily, operational debts are not based on admitted documents and the possibility of genuine disputes with regard to such debts is much higher compared to financial debts.

32.

In light of such classification, the Code makes a distinction in the manner in which an insolvency process may be initiated by a financial creditor under Section 7, IBC in contradistinction to an operational creditor under Section 8 and 9, IBC. Unlike an operational creditor, a financial creditor may trigger an insolvency process under Section 7 in respect of default of any financial debt, whether owed to itself or to any other financial creditor. While the financial creditor may directly file an application under Section 7 setting out the particulars of the financial debt and evidence of default, the operational creditor, on the occurrence of a default, is to first deliver a demand notice of the unpaid debt to a corporate debtor and the latter may within 10 days of receipt of such demand notice bring to the notice of the operational creditor the existence of a dispute or record the pendency of a pre-existing suit or arbitration proceeding in respect of such debt. Once a corporate debtor demonstrates a dispute regarding the existence of the debt, the insolvency process stands aborted vis-à-vis the operational creditor. But when the financial creditor initiates the insolvency process for the purposes of admission, the Adjudicating Authority is only to ascertain the existence of a default from the records of the information utility or the evidence furnished by the financial creditor within fourteen days from the receipt of such application. At this stage, neither is a corporate debtor entitled nor is the Adjudicating Authority required to examine any dispute regarding the existence of such debt. This significantly reduces the scope of enquiry at the stage of a time-bound admission of an insolvency process by a financial creditor which has been succinctly summed up in Innoventive (supra):

“30…… in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.”

33.

Reiterating the ratio in Innoventive (supra), this Court in ES Krishnamurthy v. Bharath Hi-Tech Builders (P) Ltd. [(2021) ibclaw.in 173 SC]32 held as follows:“34. The adjudicating authority has clearly acted outside the terms of its jurisdiction under Section 7(5) IBC. The adjudicating authority is empowered only to verify whether a default has occurred or if a default has not occurred. Based upon its decision, the adjudicating authority must then either admit or reject an application, respectively. These are the only two courses of action which are open to the adjudicating authority in accordance with Section 7(5). The adjudicating authority cannot compel a party to the proceedings before it to settle a dispute.” 34. In a similar vein, the Adjudicating Authority is not required to go into the inability of a corporate debtor to pay its debt. This is a clear departure from the scheme of winding up envisaged under Section 433(e) of the erstwhile Companies Act, 1956 which required the Adjudicating Authority to come to a finding with regard to the inability of the company to pay the debt and thereby arrive at a requisite satisfaction whether it is just and equitable to wind up the company.

The Code restricts the scope of enquiry for admission of an insolvency process by a financial creditor merely to the existence of default of a debt due and payable and nothing more. The legislative intent behind such prompt and summary intervention is “to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation.”

35.

The Appellant has heavily relied on Vidarbha (supra) to argue that the Adjudicating Authority has ample discretion to apply its mind to relevant factors including the feasibility of initiation of insolvency process notwithstanding the existence of default on a debt due and payable by the Corporate Debtor. In Vidarbha (supra), this Court observed:-

“61.

In our view, the Appellate Authority (NCLAT) erred in holding that the adjudicating authority (NCLT) was only required to see whether there had been a debt and the corporate debtor had defaulted in making repayment of the debt, and that these two aspects, if satisfied, would trigger the CIRP. The existence of a financial debt and default in payment thereof only gave the financial creditor the right to apply for initiation of CIRP. The adjudicating authority (NCLT) was required to apply its mind to relevant factors including the feasibility of initiation of CIRP, against an electricity generating company operated under statutory control, the impact of MERC’s appeal, pending in this Court, order of Aptel referred to above and the overall financial health and viability of the corporate debtor under its existing management. …………………………………………………………………

90.

We are clearly of the view that the adjudicating authority (NCLT) as also the 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 the adjudicating authority (NCLT) but to admit the petition under Section 7 IBC.”

36.

However, in review, this Court clarified that observations made in Paragraph 90 are restricted to the facts of Vidarbha (supra):-

“6.

The elucidation in para 90 and other paragraphs [of the judgment under review] were made in the context of the case at hand. It is well settled that judgments and observations in judgments are not to be read as provisions of statute. Judicial utterances and/or pronouncements are in the setting of the facts of a particular case.”

37.

Finally, the apparent dichotomy between Innoventive (supra) and Vidarbha (supra) was set at rest in M. Suresh Kumar Reddy (supra), wherein this Court observed: “14. Thus, it was clarified by the order in review that the decision in Vidarbha Industries was in the setting of facts of the case before this Court. Hence, the decision in Vidarbha Industries cannot be read and understood as taking a view which is contrary to the view taken in Innoventive Industries and E.S. Krishnamurthy. The view taken in Innoventive Industries still holds good.”

38.

In light of the ratio in M. Suresh Kumar Reddy (supra) there is no cavil that the ratio in Innoventive (supra) lays down the correct proposition of law and the observations in Vidarbha (supra) were made in the facts of the case and do not operate as binding precedent.

39.

Even otherwise on facts, Vidarbha (supra) does not come to the aid of the Appellant. In Vidarbha (supra), this Court had taken note of an award passed by APTEL in favour of the corporate debtor which far exceeded the claim of the financial creditor, and held in the setting of such facts, initiation of CIRP was unwarranted. In the present case, Appellant’s contention regarding Corporate Debtor’s viability is highly dubious. Though the Corporate Debtor strenuously demonstrates its commercial viability, the NCLAT has noted that the extent of outstanding liability as on 02.01.2024 was Rs. 3103.31 crore, which far exceeds the bills raised on WBSEDCL to the tune of Rs 906 crore and EBITDA of Rs. 20 crore per month during the CIRP. 40. For these reasons, we are of the opinion the admission of the Section 7 application was lawful and does not call for interference.”