The broad issues before the Supreme Court were (i) what is the concept of

default under the Insolvency Code and how it must be ascertained (ii) what
is the scope and extent of enquiry at the admission of a insolvency
application; (iii) consequently what is the scope of hearing to be provided to
a corporate debtor.

Whilst discussing and determining the above issues, the Supreme Court
observed:

1. Insolvency Code brings a paradigm shift in law including a need to

remove the management of a corporate debtor which defaults on its
debts. Thus, entrenched managements are no longer allowed to
continue in case of non-payment of debts.
2. The concept of default under the Insolvency Code is very wide. It is
simpliciter a non-payment of debt when the same becomes due and
includes non-payment of even a part thereof. Even non-payment of a
disputed financial debt when due would constitute a default under the
Code. In other words, as long as the debt is due it does not matter if
the same is disputed.
3. The Court noticed that the difference in the scheme of initiation of
insolvency proceedings at the instance of a financial creditor (under
Section 7) and by an operational creditor (under Section 8) of the
Insolvency Code.

1. Under Section 7 the Court found that, 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. The scope of enquiry before the adjudicating
authority is therefore limited to assessing the records provided by the
financial creditor to satisfy itself that the default has occurred.
2. 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.
The adjudicating authority may therefore only reject an application on
a defence taken by the corporate debtor that the debt was not due and
not otherwise.
3. Whilst noticing the provisions of the Section 7 of the Insolvency Code,
the Court found that “The speed, within which the adjudicating
authority is to ascertain the existence of a default from the records of
 the information utility or on the basis of evidence furnished by the
financial creditor, is important. This it must do within 14 days of the
receipt of the application.
4. It is at the stage of Section 7(5), where the adjudicating authority is to
be satisfied that a default has occurred, that the corporate debtor is
entitled to point out that a default has not occurred in the sense that
the “debt”, which may also include a disputed claim, is not due. A debt
may not be due if it is not payable in law or in fact. The moment the
adjudicating authority is satisfied that a default has occurred, the
application must be admitted unless it is incomplete, in which case it
may give notice to the applicant to rectify the defect within 7 days of
receipt of a notice from the adjudicating authority.”

 After noticing the scheme of the Insolvency Code in detail, the

Court found that the scheme of the Insolvency Code, therefore, is
to make an attempt, by divesting the erstwhile management of its
powers and vesting it in a professional agency, to continue the
business of the corporate body as a going concern until a
resolution plan is drawn up, in which event the management is
handed over under the plan so that the corporate body is able to
pay back its debts and get back on its feet. All this is to be done
within a period of 6 months with a maximum extension of another
90 days or else the chopper comes down and the liquidation
process begins.
 On the question of whether both the NCLT and NCLAT had erred
in refusing to go into the other contention of Innoventive that it was
because the creditors did not disburse the amounts under the MRA
that Innoventive was not able to pay its dues, the Court held that
the NCLT and the NCLAT were right in not going into this
contention for the very good reason, first that the period of 14 days
within which the application is to be decided was long over by the
time the second application was made before the NCLT
and secondthe second application clearly appears to be an after-
thought for the reason that the corporate debtor was fully aware of
the fact that the MRA had failed and could easily have pointed out
these facts in the first application itself.

5. The Court said that even otherwise, it was satisfied that the
obligations of the corporate debtor under MRA were unconditional and
did not depend upon infusing of funds by the creditors into the
appellant company.
6. On the aspect of whether the provisions of the MRU Act will prevail
over the provisions of the Insolvency Code, the Court held that MRU
Act operates in the same field as the Insolvency Code and is
 repugnant to Insolvency Code and that the later non-obstante clause
(Section 238) of the Parliamentary enactment (Insolvency Code) will
also prevail over the limited non-obstante clause contained in Section
4 of the Maharashtra Act.

The judgment recognizes that the Insolvency Code has brought about a
paradigm shift in law and economic policy. The judgment is truly
progressive, forward looking and path breaking and should pave the way of
efficient and effective implementation of the Insolvency Code through
adherence to the timelines specified under the Insolvency Code and speed
of the resolution process.

* Senior Counsel Mr. Harish Salve and Mr Shyam Divan, as instructed by Cyril
Amarchand Mangaldas represented ICICI Bank Ltd. before the Supreme Court

NON PERFORMING ASSESTS: a continuous loan default for 90 days forces banks to
classify a borrower as an npa, sec 29 A prevents such person from submitting resolution plan.

Dt Deutsche Forfait Ag vs Uttam Galva Steels Ltd

It is not practical for more than one ‘operational creditor’ to file a joint petition. Petition
under section 9 has to be filed individually and not jointly. A joint application under section 9
is not maintainable, as also an incomplete application is not maintainable.

From provisions of sections 8 and 9, it is clear that unlike section 7, a notice under section 8
is to be issued by an operational creditor individually and the petition under section 9 has to
be filed by the operational creditor individually and not jointly. Otherwise also it is not
practical for more than one operational creditor to file a joint petition. A joint application
under section 9 by one or more operational creditor is not maintainable.

Insolvency and Bankruptcy Code, 2016 – Sections 9 and 8 read with section 7 – Corporate
insolvency resolution process – Initiation by operational creditor – Can more than one
‘operational creditor’ file a joint petition – Is such joint application maintainable – Whether
from provisions of sections 8 and 9 it is clear that unlike section 7, a notice under section 8 is
to be issued by an operational creditor individually, and the petition under section 9 has to be
filed by operational creditor individually and not jointly – Held, yes [Para 19] – Whether
otherwise also it is not practical for more than one operational creditor to file a joint petition,
as each ‘operational creditor’ has to issue his individual claim notice under section 8 and
claim will vary and will be different – Held, yes, date of notice under section 8 in different
cases will be different and it will have tto be issued in formats – Whether separate Form 3 or
Form 4 will have to be filed – Held, yes – Whether petition under section 9 in the format will
contain separate individual data – Held, yes [Para 20] – Whether joint application under
section 9 is not maintainable – Held, yes, and rule relied on has not been adopted by section
10 [Para 21].

Where certificate is issued by a foreign bank which is not recognised as ‘financial

institution’, and the application in the prescribed form is not complete, the application under
section 9 is not maintainable.

Where the certificate attached by the respondents to the application for initiation of Corporate
Insolvency Resolution Process has not been issued by any ‘financial institution’ as defined in
clause (14) of section 3 but has been issued by a foreign bank which is not recognized as
‘financial institution’, and the application in prescribed form is also not complete, it has to be
held that the application under section 9 was not maintainable.

Insolvency and Bankruptcy Code, 2016 – Sections 9 – Corporate Insolvency Resolution

Process – Initiation by operational creditor – Certificate issued by foreign bank, not
recognized as ‘financial institution’, and application in prescribed form not complete –
Maintainability of application under section 9 – Whether such application under section 9 is
not maintainable – Held, yes [Para 24].

Operational creditor can apply himself or through a person authorized to act on his behalf,
and such person should have some position with or in relation to operational creditor, and he
cannot be just an advocate/lawyer/chartered accountant/company secretary in the absence of
any authority of the Board of Directors.

From bare perusal of Form 3 and Form 4 read with sub-rule (1) of rule 5 of Adjudication
Authority Rules and section 8, it is clear that an operational creditor can apply himself or
through a person authorized to act on behalf of operational creditor. Such authorized person
is also required to state ‘his position with or in relation to the operational creditor’, meaning
thereby that the person authorized by the operational creditor must hold position with or in
relation to the operational creditor and only such person can issue notice under section 8, and
not just an advocate/lawyer or chartered accountant or company secretary in the absence of
any authority of the Board of Directors, and holding no position with or in relation to the
operational creditor, which otherwise is a lawyer’s notice as distinct from notice to be given
by operational creditor in terms of section 8.

Insolvency and Bankruptcy Code, 2016 – Section 8 read with sub-rule (1) of rule 5 of
Adjudication Authority Rules – Insolvency resolution process – Initiation by operational
creditor – Can operational creditor apply through a person authorized who also has a position
with or in relation to the operational creditor – Whether operational creditor can apply
himself or through a person authorized who also has some position with or in relation to the
operational creditor, and he is not just an advocate lawyer/chartered accountant/secretary
without an authorization of the Board of directors – Held, yes [Paras 30, 31 & 32].

Where notice of winding up was issued and claim disputed much prior to purported notice
under section 8, it is to be held that there is existence of a dispute, and the petition under
section 9 was not maintainable.
Where a notice of winding up was issued by respondents and the claim was disputed by
appellant by detailed reply, much prior to the purported notice under section 8, issued by
lawyer and a suit between the parties was pending, it is held that there is an existence of
‘dispute’, within the meaning of section 8 read with sub-section (5) of section 5 and,
therefore, the petition under section 9 preferred by respondents against the appellant was not
maintainable.

Insolvency and Bankruptcy Code, 2016 – Sections 9 and 8 read with section 5(5) – Corporate
Insolvency Resolution Process – Initiation by operational creditor – Claim disputed by
corporate debtor when notice of winding up issued by respondents much prior to purported
notice under section 8 issued by a lawyer and a suit between the parties was pending – Is it to
be held that there is an existence of dispute – Is petition under section 9 preferred by
respondents against appellant not maintainable – Whether it is to be held on facts that there is
an existence of ‘dispute’ within the meaning of section 8 read with sub-section (5) of section
5, and, therefore, the petition under section 9 preferred by respondents against the appellant is
not maintainable – Held, yes [Para 37].

Learned counsel then took us through various provisions of the Bombay Rent Act. He
referred to section 5(11) defining "tenant" and emphasised that this definition did not
have any exclusionary clause as in section 2(1) of the Delhi Act. Section 5(11) of the
Bombay Rent Act reads as follows:

"5(11). "tenant" means any person by whom or on whose account rent is payable for any
premises and includes,-
(a) such sub-tenants and other persons as have derived title under a tenant before the 1st
day of February 1973;

Default means non-payment of debt when whole or any part of installment of the
amount of debt has become due and payable and is not repaid by the debtor or the
corporate debtor, as the case may be.

The following person could initiate the Recovery Process; on the admission of a
default by the Corporate Person:

 A Financial Creditor (means any person to whom a financial debt (Loan) is

owed)
 An Operational Creditor (means a person to whom an operational debt is
owed)

https://timesofindia.indiatimes.com/business/india-business/no-insolvency-proceedings-
against-firm-for-lease-dues/articleshow/62044082.cms

the above link is for jindal vs dcm case.(section 9)

k narsimha rao vs nasimuddin ahmed 1996.

The High Court, on a construction of section 7(2) of the Tamil Nadu Act, held that the
tenant could not be held to have committed willful default in payment of rent on these
facts. The High Court also took the view that Section 7 of the Tamil Nadu Buildings
(Lease and Rent and Eviction) Control Act,1960. For this reason, it held that the decision
on this Court in Modern Hotel,Gudur, Represented by M.N.Narayanan Vs.
K.Radhakrishnaiah and Others (1989 [2] SCC

686) is applicable to hold that the tenant has not committed any wilful default in payment
of the rent. The other decisions under provisions of the corresponding Act in Bihar were
distinguished on the different language of the provisions in the Bihar Buildings (Lease,
Rent and Eviction) Control Act (hereinafter referred to as "the Bihar Act"). Aggrieved by
the decision of the High Court allowing the tenant's Civil Revision Petition,this appeal by
special leave has been filed by the landlord.

It is clear from the narration of facts that the ground of wilful default in payment of rent
by the tenant for the period July 1990 to November 1990 @ Rs.150/- per month
amounting to Rs.750/- was nonexistent if the excess amount of Rs.2850/- available with
the landlord in the form of excess advance required adjustment towards the arrears of
rent. The nature of this excess amount of advance and its availability for adjustment
towards the arrears of rent without an express request by the tenant to this effect would
determine the decision on this point. The language of the relevant provision in the statute
is of significance for this purpose.

Section 7 of Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 reads as under :-

"7. Landlord not to claim or receive anything in excess of fair rent or agreed rent. - (l)
Where the Controller has fixed or refixed the fair rent of a building -
(a) the landlord shall not claim, receive, or stipulate for the payment of (i) any premium
or other like sum in addition to such fair rent, or (ii) save as provided in Section
5 or Section 6, anything in excess of such fair rent: Provided that the landlord may
receive, or stipulate for the payment of, an amount not exceeding one month's rent by way
of advance;
(b) Save as Provided in clause
(a), any Premium or other like sum or any rent Paid in addition to, or in excess of, such
fair rent, whether before or after the date of the commencement of this Act, in
consideration of the grant, continuance or renewal of the tenancy of the building after the
date of such commencement, shall be refunded by the landlord to the person by whom it
was paid or at the option of such person, shall be other wise adjusted by the landlord:
Provided that where before the fixation or refixation of the fair rent, rent has been paid in
excess thereof, the refund or adjustment shall be limited to the amount paid in excess for
the period commencing on the date of the application by the tenant or landlord under sub-
section (1) of Section 4 of sub-
section (3) of Section 5, as the case may be, and ending with the date of such fixation or
refixation.
(2) Where the fair rent of a building has not been so fixed-
(a) the landlord shall not claim, receive or stipulate for the payment of, any premium or
other like sum in addition to the agreed rent :
Provided that the landlord may receive, or stipulate for the payment of, an amount not
exceeding one month's rent by way of advance;
(b) Save as Provided in clause
(a), any sum Paid in excess of the agreed ,rent, whether before or after the date of the
commencement of this Act, in consideration of the grant, continuance or renewal of the
tenancy of the building after the date of such commencement, shall be refunded by the
landlord to the Person by whom it was Paid or, at the option of such person, shall be
other- wise adjusted by the landlord. (3) Any stipulation in contravention of sub-section
(1) or sub-section (2) shall be null and void."

(emphasis supplied) The provisions in sub-sections (1) and (2) are similar and provide for
cases where fair rent has been fixed or not fixed, as the case may be. Sub-section (3)
declares any stipulation in contravention of sub-section (1) or sub- section (2) to be null
and void. In this case, it is admitted that fair rent of the building had not been fixed and,
therefore, sub-section (2) applies. Clause (a) of sub- section (2) enacts that a landlord is
entitled to claim and receive only the agreed rent, which was Rs.150/- per month in this
case. The proviso to clause (a) permits the landlord to receive by way of advance an
amount not exceeding one month's rent only i.e. Rs.150/- in the present case. Clause

(b) provides for the situation where any sum is paid by the tenant to the landlord in excess
of the agreed rent save as provided in clause (a), i.e., any sum paid in excess of the agreed
rent and an amount net exceeding one month's rent by way of advance. Clause (b) enacts
that the amount in excess of the Sum which the landlord is permitted to take under clause
(a) shall be refunded by the landlord to the person by whom it was paid, i.e., the tenant, or
at the option of the tenant, shall be otherwise adjusted by the landlord. In other words,
clause (b) requires that the excess amount paid to the landlord has to be refunded by the
landlord to the tenant unless the tenant exercises the option of requiring the landlord tc
otherwise adjust the excess amount. It is clear that this excess amount available with the
landlord is only for the benefit of the tenant, the liability to refund the amount to the
tenant being immediate unless the tenant exercises the option to get it adjusted otherwise.
The character or the excess amount undoubtedly is that it is the tenant's money in the
hands of the landlord for return to the tenant or for adjustment towards the dues of the
tenant's at the tenant's option. Any other stipulation in contravention to it has no legal
effect being null and void.

The provision clearly enacts the course to be adopted in the case of any excess amount
being paid by the tenant to the landlord, taking into account the factor that the tenant in
certain circumstances may be compelled to make payment as advance of an amount in
excess of that required to be paid to the landlord according to law. For that situation the
provision imposes the legal obligation on the landlord to immediately refund the excess
amount to the tenant unless the tenant exercises the option of requiring the landlord to
adjust that amount towards any dues of the tenant or in any other manner indicated by the
tenant. This provision has the effect of creating a corresponding enforceable right in the
tenant to recover the excess amount from the landlord or to have it adjusted for his benefit
in case the landlord fails to discharge his obligation of refunding that amount. The
provision of adjustment of the excess amount at the option of the tenant clearly visualizes
its adjustment towards the rent due from the tenant since the jural relationship envisages
payment only of rent by the tenant to the landlord towards which it can be adjusted.

There is no illegality attaching to the payment of the excess amount by the tenant to the
landlord and a legally enforceable right clearly flows from the provision to the tenant.
The pari delicto principle is, therefore, clearly excluded for the purpose of envisaging the
consequences of an excess amount being taken by the landlord from the tenant because
the provision requires the landlord to refund that excess amount. The corresponding
provisions in the Bihar Act are different which import the pari delicto principle. This
difference in the language of the provisions of the two enactments distinguishes the cases
under the Bihar Act.

Modern Hotel. Gudur. Represented by M.N. Narayanan Vs. K. Radhakrishnaiah and

Others (1989 [2] SCC 686), was a case under Section 7(2) of the Andhra Pradesh
Buildings (Lease, Rent and Eviction) Control Act which is in pari materia with the
corresponding provision in the Tamil Nadu Act. In that case the amount of arrears of rent
was smaller than the amount of advance held by the landlord on account of the tenant and
it was held that there was no default of rent to permit a decree for eviction on the ground
of arrears of rent. While dealing with the effect of sub-sections (2) and (3) of Section 7,it
was held as under :

"Mr. Rao building upon the ratio of these two decisions rightly contended before us that
when the landlord had Rs.5000/- on tenant's account with him which he was holding for
years without paying interest and against the clear statutory bar, there could be no
justification for granting a decree of eviction on the plea of arrears of rent. In view of the
fact that the stipulation that the amount would be refundable at the end of the tenancy is
null and void under Section 7(3) of the Act, the amount became payable to the tenant
immediately and the landlord with Rs.5000/- of the tenant with him could not contend
that the tenant was in default for a smaller amount by not paying the rent for some
months."

With respect we are of the opinion that this decision squarely applies in the present case
under the Tamil Nadu Act and was rightly relied on by the High Court.

The cases relating to the provisions in the Bihar Act from which some support was sought
by learned counsel for the appellant to overcome the effect of the decision in Modern
Hotel. Gudur (supra) are Budhwanti and Anr. vs. Gulab Chand Prasad [1987 (2) SCC
153], M/s.Sarwan Kumar Onkar Nath vs. Subhas Kumar Agarwalla [1987 (4) SCC
546], Nand Lal Agarwal vs. Ganesh Prasad Sah and Others[1988 (4) SCC 215], and
Bhoia alias Bhoja Ram Gupta vs.Rameshwar Agarwala and Others[1993(2)SCC 443].

For the purpose of this case, it is sufficient for us to say that there are provisions in
the Bihar Act, which clearly make it illegal to claim or receive any payment in excess of
the amount in addition to the rent or any sum exceeding one month's rent in advance and
there is a clear declaration that any excess amount received would not be lawful. There is
no provision in the Bihar Act corresponding to that in sub-section (1) and (2) of Section
7 in the Tamil Nadu and Andhra Pradesh Acts, which creates a legal obligation in the
landlord to refund the excess amount to the tenant creating a corresponding right in the
tenant to recover that amount from the landlord. The absence of such a provision in
the Bihar Actmaking the excess amount refundable and imposing an obligation on the
landlord to make that refund immediately or to adjust it, is the distinguishing feature in
the Bihar Act. However, on the clear provision of the Tamil Nadu Act which applies in
the present case, there is no ambiguity. Further reference to the decisions under the Bihar
Act is. therefore, not necessary.

In the present case, excluding from consideration the tenant's claim for adjustment of the
amount of Rs.1000/- spent on repairs and the amount of Rs.750/- sent by demand draft on
receipt of the notice, the amount of Rs.2850/- with the landlord as the excess amount of
advance paid by the tenant to the landlord, was alone sufficient to negative the landlord's
claim of ejectment. The arrears of rent from July to November 1990 was only Rs.750/- ,
while the excess amount of advance was Rs.2850/-, far in excess of the arrears. The
landlord was bound to immediately refund that excess amount even before the arrears
accrued, and he not having made the refund was bound to adjust it towards the rent due
from the tenant. On these facts, the tenant could certainly not be held to be a willful
defaulter in the payment of rent. The High Court is, therefore, right in deciding
against the landlord.

The NCLAT has conclusively held that proceedings pending under Section 34 of the Act
would not imply that there is a dispute in existence regarding the operational debt, and in
fact, the arbitral award passed in such proceedings would be a record of the operational
debt.

The intention of the NCLAT that pending proceedings challenging an arbitral award cannot
come in the way of a genuine corporate insolvency resolution process is clear and the order
is strictly in accordance with the provisions of the Code. However, by holding that the Code
overrides the provisions of the Act rather than attempting to harmoniously construe the two
legislations, the NCLAT seems not to have considered the consequence of a stay being
granted by a court on the operation of the arbitral award in terms of Section 36 of the Act,
during the pendency of proceedings under Section 34. Further, once the IRP is appointed,
the corporate insolvency resolution process is an irreversible one and the implication of this
decision with respect to an arbitral award that is subsequently set aside under Section 34
remains unclear.

It remains to be seen whether this order of the NCLAT is challenged before the Supreme
Court of India. If the order is taken up in appeal, the decision of the Supreme Court should
provide some clarity on the manner in which the Code is to be interpreted vis-à-vis the
provisions of the Act.(mondaq article)