in Kalyan Dey Chowdhury vs. Rita Dey Chowdhury Nee Nandy, (2017) 14 SCC 200 wherein it was held that 25% 3 of the husband’s net salary would be a just amount to be awarded as maintenance to the wife

Learned counsel for the appellant submitted that the reduction of interim maintenance by the High Court is contrary to the law laid down by this Court in Kalyan Dey Chowdhury vs. Rita Dey Chowdhury Nee Nandy, (2017) 14 SCC 200 wherein it was held that 25% 3 of the husband’s net salary would be a just amount to be awarded as maintenance to the wife. 

Learned counsel further submitted that the husband’s net salary after deductions is Rs.1,24,338/- p.m. and the appellant is entitled to 25% of that amount i.e. Rs.31,084/- p.m. It is also the submission of the learned counsel that the respondent has failed to disclose his correct salary income before the High Court and misled the Court by furnishing wrong facts, on the basis of which the High Court reduced the interim maintenance from Rs.15,000/- per month to Rs.5,000/- per month, granted by the Judicial Magistrate, Sirkali as affirmed by the District and Sessions Judge, Nagapattinam. 10. Per contra, learned counsel for the husband submitted that the salary of his client was meager Rs.31,104/- p.m. 

A perusal of the judgment of the original court and the First Appellate Court indicates that the salary slip of the husband for the month of April, 2016 was marked as Exht R-1 where his gross salary is shown as Rs. 1,19,730/- and the net salary is shown as Rs. 31,095/-. Projecting the net salary of Rs. 31,095/-, the husband contended that interim maintenance of Rs. 15,000/- per month would be unbearable as he has other dependents to look after. 

On this aspect, the learned courts noted that barring the deductions for Income Tax and PF contribution, the other deductions mentioned in the Exht. R-1, salary slip are not compulsory deductions. Most of those deductions are of the optional category for which the respondent will enjoy future benefits. 

The learned District Judge as the First Appellate Court specifically noted that the major portion of the deduction from salary of the respondent is towards loan repayment and these deductions were opted by the respondent to deny adequate interim maintenance to the appellant and to deceive her. 

It was further noted that the respondent is working as an Engineer with the Airport Authority of India and he is feigning his incapacity to pay reasonable maintenance of Rs. 15,000/- per month, to his estranged wife. 

No acceptable reason is discernible in the impugned judgment to reduce the interim maintenance sum of Rs. 5,000/- from Rs. 15,000/- concurrently fixed by the learned Judicial Magistrate which was affirmed by the First Appellate Court. 

It cannot also be overlooked that this Court is considering only interim maintenance for the wife, in the proceedings under consideration. 

Keeping the above circumstances in mind, we are of the considered view that the impugned order reducing the interim maintenance passed by the High Court was not merited and the same deserves to be set aside. Consequently, the order passed by the Judicial Magistrate, Sirkali as affirmed by the District and Sessions Judge, stands restored. 

The appeal stands allowed to the above extent without any order on cost.

1

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL No.645 OF 2021

(Arising out of SLP (Crl.) No. 9800 of 2018)

K. KALAISELVI … APPELLANT

Versus

S. SIVARAJ … RESPONDENT

O R D E R

The Court is convened through Video Conferencing.

2. Leave granted. The instant appeal, by way of special leave, is

directed against order dated 10.04.2018 passed by the High Court of

Judicature at Madras in Criminal Revision Case No.1554 of 2017

whereby, the High Court partly allowed the Criminal Revision

Petition filed by the respondent (husband) and reduced the interim

maintenance from Rs.15,000/- per month, granted by the Judicial

Magistrate, Sirkali as affirmed by the District and Sessions Judge,

Nagapattinam, to Rs.5,000/- per month.

3. The brief facts of the case is that the appellant K. Kalaiselvi

and the respondent S. Sivaraj got married in 2013. Pursuant to

differences, the husband filed a Divorce Petition bearing HMOP

No.35/2015 before the Sub-Judge, Chidamabaram and the wife filed

M.C.No.29/2015 under the Domestic Violence Act before the Judicial

Magistrate, Sirkali against the respondent and his relatives.

2

4. The wife further filed CMP No.7098/2015 in M.C.No.29/2015

seeking interim maintenance. The Judicial Magistrate, Sirkali, upon

consideration of the arguments advanced by both sides, directed the

husband to pay the appellant (wife) an interim maintenance of

Rs.15,000/- per month.

5. The husband preferred Crl.A.No.07/2016 before the District and

Sessions Judge, Nagapattinam against the interim maintenance order

but the same was dismissed.

6. Aggrieved by the order of the District and Sessions Judge,

Nagapattinam, the respondent filed Crl.Rev.Case No.1554/2017, which

as discussed above, was partly allowed by the High Court by

reducing the interim maintenance from Rs.15,000/- p.m. to

Rs.5,000/- p.m.

7. Thus aggrieved by the impugned order passed by the High Court,

the wife has approached this Court by way of filing the present

appeal.

8. Heard Mr. G. Sivabalamurugan, learned counsel appearing on

behalf of the appellant and Mr. R. Nedumaran, learned counsel

appearing on behalf of the respondent (husband) at length. Also

carefully perused the material placed on record.

9. Learned counsel for the appellant submitted that the reduction

of interim maintenance by the High Court is contrary to the law

laid down by this Court in Kalyan Dey Chowdhury vs. Rita Dey

Chowdhury Nee Nandy, (2017) 14 SCC 200 wherein it was held that 25%

3

of the husband’s net salary would be a just amount to be awarded as

maintenance to the wife. Learned counsel further submitted that the

husband’s net salary after deductions is Rs.1,24,338/- p.m. and the

appellant is entitled to 25% of that amount i.e. Rs.31,084/- p.m.

It is also the submission of the learned counsel that the

respondent has failed to disclose his correct salary income before

the High Court and misled the Court by furnishing wrong facts, on

the basis of which the High Court reduced the interim maintenance

from Rs.15,000/- per month to Rs.5,000/- per month, granted by the

Judicial Magistrate, Sirkali as affirmed by the District and

Sessions Judge, Nagapattinam.

10. Per contra, learned counsel for the husband submitted that the

salary of his client was meager Rs.31,104/- p.m. Learned counsel

further submitted that no material is adduced by the appellant to

prove that his client is getting the salary of Rs.1,20,000/- p.m.,

after all deductions. It is also the submission of the learned

counsel for the respondent that the appellant is highly qualified

with double PG degree of MA, M.Phil and M.Ed and she herself has

admitted that she was a teacher and she quit a job on her own.

11. A perusal of the judgment of the original court and the First

Appellate Court indicates that the salary slip of the husband for

the month of April, 2016 was marked as Exht R-1 where his gross

salary is shown as Rs. 1,19,730/- and the net salary is shown

as Rs. 31,095/-. Projecting the net salary of Rs. 31,095/-, the

husband contended that interim maintenance of Rs. 15,000/- per

month would be unbearable as he has other dependents to look after.

4

On this aspect, the learned courts noted that barring the

deductions for Income Tax and PF contribution, the other deductions

mentioned in the Exht. R-1, salary slip are not compulsory

deductions. Most of those deductions are of the optional category

for which the respondent will enjoy future benefits.

12. The learned District Judge as the First Appellate Court

specifically noted that the major portion of the deduction from

salary of the respondent is towards loan repayment and these

deductions were opted by the respondent to deny adequate interim

maintenance to the appellant and to deceive her. It was further

noted that the respondent is working as an Engineer with the

Airport Authority of India and he is feigning his incapacity to pay

reasonable maintenance of Rs. 15,000/- per month, to his estranged

wife. No acceptable reason is discernible in the impugned judgment

to reduce the interim maintenance sum of Rs. 5,000/- from Rs.

15,000/- concurrently fixed by the learned Judicial Magistrate

which was affirmed by the First Appellate Court. It cannot also be

overlooked that this Court is considering only interim maintenance

for the wife, in the proceedings under consideration.

13. Keeping the above circumstances in mind, we are of the

considered view that the impugned order reducing the interim

maintenance passed by the High Court was not merited and the same

deserves to be set aside. Consequently, the order passed by the

Judicial Magistrate, Sirkali as affirmed by the District and

Sessions Judge, stands restored.

5

14. The appeal stands allowed to the above extent without any

order on cost.

 .......................CJI.

 (N.V. RAMANA)

.............…….........J.

 (A.S. BOPANNA)

 ..............…..........J.

 (HRISHIKESH ROY)

NEW DELHI;

JULY 19, 2021.

6

ITEM NO.29 Court 1 (Video Conferencing) SECTION II-C

 S U P R E M E C O U R T O F I N D I A

 RECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (Crl.) No(s).9800/2018

(Arising out of impugned final judgment and order dated 10-04-2018

in CRLRC No.1554/2017 passed by the High Court of Judicature at

Madras)

K. KALAISELVI Petitioner(s)

 VERSUS

S. SIVARAJ Respondent(s)

IA No.155202/2018 - PERMISSION TO FILE ADDITIONAL

DOCUMENTS/FACTS/ANNEXURES

Date : 19-07-2021 This matter was called on for hearing today.

CORAM :

 HON'BLE THE CHIEF JUSTICE

 HON'BLE MR. JUSTICE A.S. BOPANNA

 HON'BLE MR. JUSTICE HRISHIKESH ROY

For Petitioner(s) Mr. G.Sivabalamurugan, AOR

For Respondent(s) Mr. R. Nedumaran, AOR

 UPON hearing the counsel the Court made the following

 O R D E R

The Court is convened through Video Conferencing.

Leave granted.

The appeal stands allowed to the extent indicated in the

signed order without any order on cost.

(SATISH KUMAR YADAV) (R.S. NARAYANAN)

 DEPUTY REGISTRAR COURT MASTER (NSH)

(Signed order is placed on the file)

“seniority­cum­merit” in the matter of promotion postulates that given the minimum necessary merit requisite for efficiency of administration, the senior, even though less meritorious, shall have priority and a comparative assessment of merit is not required to be made.

The   appellants   were   promoted   to   the   post   of   Leading Fireman   on   09.02.2012   under   the   Bhakra   Beas   Management Board   Class­III   and   Class­IV   Employees   (Recruitment   and Conditions of Service) Regulations, 1994 (hereinafter called “the Regulations”).  Their promotions have been annulled by the High Court, holding  them to  be ineligible for promotion  under the Regulations. =

Apex court held  that the criterion of “seniority­cum­merit” in the matter of promotion postulates that given the minimum necessary merit requisite for efficiency of administration, the senior, even though less meritorious, shall have priority and a comparative assessment of merit is not required to be made. For assessing the minimum necessary merit, the competent authority can lay down the minimum standard that is required and also prescribe the mode of assessment of merit of the employee who is eligible for consideration for promotion. Such assessment can be made by assigning marks on the basis of appraisal of   performance   on   the   basis   of   service   record   and interview and prescribing the minimum marks which would entitle a person to be promoted on the basis of seniority­cum­merit.” . We are unable to sustain the view taken by the High Court that it was only if a candidate possessed an appreciable initiative and also obtained good reports, then only he was eligible to be considered for promotion.   

The use of the word ‘and’, to our understanding does not make it compulsory for the candidate to possess both because in that event the question of selection from amongst the eligible post on the seniority­cum­merit principle would not apply stricto senso.    Respondent no.3 had not sought any relief for setting aside the promotion of the appellants.  

The High Court travelled beyond the pleadings in annulling the promotion of the appellants.  

The High Court even while holding that promotion was not a matter of  right, nonetheless instead of directing consideration  of the claim of respondent no.3 for promotion, exceeded its jurisdiction by   issuing   a   mandamus   for   promotion.     

The   High   Court completely lost sight of the objection of the management that there were many others senior to respondent no.3 in the category of Fireman.  

A writ petition by respondent no.3 could not become 11 a springboard for out of turn promotion superseding his seniors, taking them by surprise without an opportunity to contest even. 

The   impugned   order   directing   promotion   of   respondent   no.3, causes discrimination by a judicial order leaving the aggrieved remediless as observed in  Bharat  Petroleum  Corporation  Exemployees   Association   vs.   Bharat   Petroleum   Corporation Ltd.   (1995) 2 SCC 15.  

Appropriately the High Court ought to have directed consideration of respondent no.3 for promotion in accordance with law.  However, in the facts of the case we are not inclined to interfere with the promotion of respondent no.3.  The appeal therefore is allowed holding that the appellants were   eligible   to   be   considered   for   promotion.   

Their   orders   of promotion are restored subject to the principle of seniority­cummerit as discussed hereinabove.

NON­REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  4482 OF 2021

(arising out of SLP(C)No.28392 of 2018) 

TEK CHAND AND OTHERS ...APPELLANT(S)

VERSUS

BHAKRA BEAS MANAGEMENT BOARD 

(B.B.M.S.) AND OTHERS           ...RESPONDENT(S)

JUDGMENT

NAVIN SINHA, J.

Leave granted.

2. The   appellants   were   promoted   to   the   post   of   Leading

Fireman   on   09.02.2012   under   the   Bhakra   Beas   Management

Board   Class­III   and   Class­IV   Employees   (Recruitment   and

Conditions of Service) Regulations, 1994 (hereinafter called “the

Regulations”).  Their promotions have been annulled by the High

Court, holding  them to  be ineligible for promotion  under the

Regulations.

1

3. The post of Fireman is a feeder post for that of Leading

Fireman. The appellants are admittedly senior to respondent no.3

having been appointed as Fireman on 09.02.1991.  Respondent

no.3 was appointed as Fireman on 09.01.1992.  The respondent

filed a writ petition claiming to be considered for promotion as

Leading Fireman in view of available vacancies.  The appellants

came to be promoted during the pendency of the writ petition and

were impleaded as respondents. No relief was sought against the

appellants.   The   High   Court   annulled   the   promotion   of   the

appellants as ineligible under the Regulations, and directed the

promotion of respondent no.3.

4. Shri   S.N.   Bhat,   learned   counsel   for   the   appellants,

submitted   that   the   appellants   are   admittedly   senior   to

respondent no.3. Regulation 5 provided that promotion was to be

based on the seniority­cum­merit principle.  The appellants held

a good service record. The Departmental Promotion Committee

after   consideration   of   their   candidature   promoted   them   on

09.02.2012 as Leading Fireman. Respondent no.3 had sought no

relief for annulling the promotion of the appellants, yet the High

2

Court travelled beyond the pleadings to grant a relief not sought

by respondent no.3.  

5. Shri Bhat submits that the possession of an appreciation

certificate under serial 3 of Schedule ‘A’ of the Regulations was

not an independent requirement in addition to a good service

record. It was but only a facet of the good service record.   He

relies upon a passage from Principles of Statutory Interpretation

by Justice G.P. Singh, 9th Edition, which reads as under:

“It is also not unusual to find use of pairs of

words as a composite class. An example of this

nature is found in section 22(1) of the Common

Regulation   Act,   1965   which   uses   the

expression   ‘sports   and   pastimes’   as   a

composite class. In interpreting this expression

LORD   HOFFMAN   said:   “As   a   matter   of

language I think that ‘sports and pastimes’ is

not   two   classes   of   activities   but   a   single

composite class which uses two words in order

to avoid arguments over whether an activity is

a sport or pastime. The law constantly uses

pairs   of   words   in   this   way.   As   long   as   the

activity   can   properly   be   called   a   sport   or   a

pastime, it falls within the composite class. [R.

v. Oxfordshire County Council, (1999) 3 All ER

385 p.396 (HL)]”

The High Court erred in holding that the two were conjunctive

requirements   and   in   absence   of   appreciation   certificates,   the

3

appellants were ineligible to be considered for promotion.  Under

the Regulations, promotion was to be based on seniority­cummerit.  Since the appellants held good service records and were

senior   to   respondent   no.3,   they   were   rightly   promoted   on

09.02.2012.   Appellants   nos.1   and   3   have   since   retired   from

service.   The promotion of the appellants was protected, both

before the High Court and during the pendency of the present

appeal.   They have uninterruptedly continued on the post of

Leading   Fireman.   Respondent   no.3   has   also   been   promoted

subsequently on 21.07.2014 with effect from 09.02.2012.

6. Shri Kailash Vasdev, learned senior counsel appearing for

the   management,   submitted   that   promotion   from   the   post   of

Fireman to Leading Fireman under the Regulations are based on

seniority­cum­merit   principle   alone.     The   appellants   are

admittedly   senior   to   respondent   no.3.     There   were   21   other

persons above respondent no.3 in the seniority list of Fireman, as

mentioned   in   the   counter   affidavit   before   the   High   Court.

Respondent   no.3   could   not   have   been   granted   promotion

4

superseding   so   many   persons   without   examination   of   their

claims. 

7. Shri Vikas Upadhyay, learned counsel for respondent no.3,

submitted that the requirements to show appreciable initiative

and to obtain good reports cannot be telescoped together, as

suggested   on   behalf   of   the   appellants,   but   are   separate

requirements.   The respondent alone possesses an appreciable

initiative certificate dated 14.08.2011 from the Chief Engineer.  It

was   acknowledged   that   the   respondent   has   also   since   been

promoted with effect from 09.02.2012.  The respondent, though

junior but being more meritorious than the appellants, there has

been no violation of the seniority­cum­merit principle. 

8. We   have   considered   the   submissions   on   behalf   of   the

parties. Regulations 4(5) and 5, relevant to the controversy, read

as follows:

“4. Mode of appointmentxxxxxx

5

4(5)   Notwithstanding   anything   contained   in   these

regulations  appointment  by  promotion  shall  be  made by

selection   based   on   seniority­cum­merit   and   no   employee

shall be entitled to such appointment as of right.

5. Qualification­ No person shall be appointed to the service

unless   he   possesses   the   essential   qualifications   and

experience prescribed in Schedule ‘A’ annexed with these

regulations.”

9. Serial   3   to   Schedule   ‘A’   (for   Group   VIII)   prescribing   the

qualifications for promotion to Leading Fireman from Fireman

inter alia reads as follows:

Sr. 

No.

Name of 

Post

Method 

of 

Appoint

ment

Minimum Educational and other 

qualifications

 Minimum 

Experience

3.   Leading 

Fireman

By 

promoti

on from 

amongst

firemen

Qualified   in   sub–Fire   Officer’s

course from National Fire Service

College,   Nagpur   or   equivalent

degree with heavy vehicles driving

license

or

Qualified in Fire Course arranged

by Ministry of  Defence  or  Home

Affairs with heavy vehicles license

or

Departmental candidates without

any course who show appreciable

initiative and obtain good reports

with heavy vehicle license

5 years 

experience in

Fire Service

7 years 

experience in

Fire Service

10 years 

experience in

Fire Service

6

10. The Regulations provide that appointment by promotion is

to be made by selection based on seniority­cum­merit and no

employee   is   entitled   to   appointment   as   a   matter   of   right.

Schedule ‘A’ provides three different categories of Fireman eligible

to be considered for promotion to Leading Fireman.  We are not

concerned   with   the   first   two   categories.     The   appellants   and

respondent no.3, all belong to the third category. They do not

possess   any   proficiency   qualifications   but   have   10   years’

experience as Fireman.  It was expected that they would acquire

sufficient experience by that time to be considered for promotion.

Experience and skill acquired during on­the­job training is very

different from expertise acquired based on preceding proficiency

qualifications from accredited institutions. 

11.  The   term   selection   used   in   Regulation   4(5)   and   its

connotation in respect of the third category of Fireman has to be

understood in that context.  Though a good service record would

be a sine qua non for selection based on seniority­cum­merit, but

if a Fireman appeared to have acquired better proficiency by onthe­job training by reason of an appreciation certificate, he would

7

certainly be considered in possession of an additional attribute.

The   appellants   have   not   been   granted   appreciable   initiative

certificates in performance of their duties.  We find it difficult to

uphold the reasoning that both requirements were mandatory

and conjunctive for promotion or that appreciable initiative was

only a facet of a good service record.  If that were so, there was no

need to incorporate appreciable initiative as a separate head in

the Regulations.  To interpret it otherwise is to render a part of

the Regulations as redundant.  The language of the Regulations

being clear, it shall require a literal interpretation.  The view be

taken   by   us   is   fortified   from   the   endorsement   by   the   Chief

Engineer   on   the   appreciable   initiative   certificate   given   to

respondent no.3 that it should be annexed to his service record.

12. In other words, a person possessing good reports is eligible

to   be   considered   for   appointment   by   promotion   as   Leading

Fireman based on selection.  Other things being equal between

competing candidates, seniority is to be given due weightage.

But it does not mean that even if a junior is more meritorious by

way of possessing an appreciable initiative certificate which the

8

senior does not, irrespective of the same, the senior shall march

ahead on the seniority­cum­merit principle.

13. The fallacy in the thinking of the management is evident

from the letter of the Secretary dated 06.02.2011 in context of the

writ petition filed by respondent no.3, opining that under the

Regulations   there   was   no   provision   for   extra   weightage   of

appreciation   letter   issued   to   employees.     We   are   unable   to

sustain the same.

14. The   seniority­cum­merit   principle   is   well   established   in

service jurisprudence and does not need much discussion.   In

B.V. Sivaiah and Ors. vs. K. Addankl Babu and Ors., (1998) 6

SCC   720,   explaining   the   principle   of   seniority­cum­merit   in

service jurisprudence, this Court observed as follows:

“10. On the other hand, as between the two principles

of seniority and merit, the criterion of “seniority­cummerit” lays greater emphasis on seniority. In State of

Mysore v. Syed Mahmood [AIR 1968 SC 1113 : (1968)

3   SCR   363]   while   considering   Rule   4(3)(b)   of   the

Mysore   State   Civil   Services   General   Recruitment

Rules, 1957 which required promotion to be made by

selection   on   the   basis   of   seniority­cum­merit,   this

9

Court has observed that the Rule required promotion

to   be  made by  selection  on   the  basis  of  “seniority

subject to the fitness of the candidate to discharge the

duties  of  the  post  from  among  persons  eligible  for

promotion”.   It   was   pointed   out   that   where   the

promotion is based on seniority­cum­merit, the officer

cannot claim promotion as a matter of right by virtue

of   his   seniority   alone   and   if   he   is   found   unfit   to

discharge the duties of the higher post, he may be

passed   over   and   an   officer   junior   to   him   may   be

promoted.

11. In  State of Kerala v. N.M. Thomas  [(1976) 2 SCC

310] A.N. Ray, C.J. has thus explained the criterion of

“seniority­cum­merit”: (SCC p. 335, para 38)

“With regard to promotion the normal principles

are either merit­cum­seniority or seniority­cummerit. Seniority­cum­merit means that given the

minimum necessary merit requisite for efficiency

of   administration,   the   senior   though   the   less

meritorious shall have priority.”

xxxxxxxxxx

18. We thus arrive at the conclusion that the criterion

of “seniority­cum­merit” in the matter of promotion

postulates that given the minimum necessary merit

requisite for efficiency of administration, the senior,

even though less meritorious, shall have priority and a

comparative assessment of merit is not required to be

made. For assessing the minimum necessary merit,

the competent authority can lay down the minimum

standard that is required and also prescribe the mode

of assessment of merit of the employee who is eligible

for consideration for promotion. Such assessment can

be made by assigning marks on the basis of appraisal

of   performance   on   the   basis   of   service   record   and

interview and prescribing the minimum marks which

would entitle a person to be promoted on the basis of

seniority­cum­merit.”

10

15. We are unable to sustain the view taken by the High Court

that it was only if a candidate possessed an appreciable initiative

and also obtained good reports, then only he was eligible to be

considered for promotion.   The use of the word ‘and’, to our

understanding does not make it compulsory for the candidate to

possess both because in that event the question of selection from

amongst the eligible post on the seniority­cum­merit principle

would not apply stricto senso.   

16.  Respondent no.3 had not sought any relief for setting aside

the promotion of the appellants.  The High Court travelled beyond

the pleadings in annulling the promotion of the appellants.  The

High Court even while holding that promotion was not a matter

of  right, nonetheless instead of directing consideration  of the

claim of respondent no.3 for promotion, exceeded its jurisdiction

by   issuing   a   mandamus   for   promotion.     The   High   Court

completely lost sight of the objection of the management that

there were many others senior to respondent no.3 in the category

of Fireman.  A writ petition by respondent no.3 could not become

11

a springboard for out of turn promotion superseding his seniors,

taking them by surprise without an opportunity to contest even.

The   impugned   order   directing   promotion   of   respondent   no.3,

causes discrimination by a judicial order leaving the aggrieved

remediless as observed in  Bharat  Petroleum  Corporation  Exemployees   Association   vs.   Bharat   Petroleum   Corporation

Ltd.   (1995) 2 SCC 15.  Appropriately the High Court ought to

have directed consideration of respondent no.3 for promotion in

accordance with law.  However, in the facts of the case we are not

inclined to interfere with the promotion of respondent no.3.

17. The appeal therefore is allowed holding that the appellants

were   eligible   to   be   considered   for   promotion.   Their   orders   of

promotion are restored subject to the principle of seniority­cummerit as discussed hereinabove. 

…………...................J.

[NAVIN SINHA]

…………...................J.

[R. SUBHASH REDDY]

NEW DELHI

JULY 29, 2021.

12

whether the daily wagers/respondents are entitled for regularization of their services=Eligible daily wagers in accordance with the scheme have been eagerly awaiting regularization as per the judgment of this Court in Gujarat Agricultural University’s case (supra). The right of the respondents for regularization has been correctly recognized by the High Court.

 Non-Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

Civil Appeal No. 4443 of 2021

 (Arising out of SLP (C) No.12171 of 2019)

Vice Chancellor Anand Agriculture University

.... Appellant(s)

Versus

Kanubhai Nanubhai Vaghela and Anr.

…. Respondent (s)

WITH

Civil Appeal No. 4444 of 2021

 (@ SLP (C) No. 11429 of 2021 @ Diary No.3021 of 2019)

Civil Appeal No. 4445 of 2021

 (@ SLP (C) No.15957 of 2019)

J U D G M E N T

L. NAGESWARA RAO, J.

Leave granted.

1. The point that arises for consideration in these appeals

is whether the daily wagers/respondents are entitled for

regularization of their services.

1 | P a g e

2. The appellant university engaged daily wagers at

different agricultural research centers who are skilled, semiskilled, unskilled and field labourers. The daily-wage workers

have been working as plumbers, carpenters, sweepers, pump

operators, helpers, masons etc. An industrial dispute was

raised by the daily wagers seeking regularization of their

services. The Industrial Tribunal, Rajkot directed the

appellant to regularize the services of all the daily-rated

labourers who have completed 10 years of service as on

01.01.1993 with pay and allowances along with other

benefits of the permanent Class IV employees. The writ

petition filed by the appellant against the judgment of the

industrial tribunal was partly allowed by the High Court. The

judgment of the industrial tribunal was set aside and the

appellant was directed to make payment to the workmen at

the minimum of the pay scale and to frame a scheme for

regularization of such daily-rated labourers. The Letter

Patent Appeal filed by the management was dismissed.

During the pendency of the appeal filed against the

judgment of the High Court by the appellant, a scheme for

regularization of daily-rated labourers of Gujarat Agricultural

University was framed.

2 | P a g e

3. According to the scheme, all daily wagers who have

completed 10 years or more of continuous service with a

minimum of 240 days in each calendar year as on

31.12.1999 shall be regularized as regular employees with

effect from 01.01.2000 and shall be placed in the time-scale

of pay applicable to the corresponding lowest grade in the

university subject to certain terms and conditions. One of

the conditions is that the daily-rated wagers shall be eligible

and must possess the prescribed qualification for the posts at

the time of their appointment on daily-rated basis. It was

proposed in the scheme that the regularization will be

against the posts/vacancies of the relevant categories. The

daily-wage employees shall be regularized in a phased

manner to the extent of available regular sanctioned

posts/vacancies on the date of regularization and on the

basis of seniority-cum-suitability including physical fitness.

Such of those daily wagers who have completed 10 years of

continuous service with a minimum of 240 days in each

calendar year as on 31.12.1999 but could not be regularized

shall be treated as monthly rated employees w.e.f.

01.01.2000 in the fixed pay without allowances.

3 | P a g e

4. The appeal filed by the university against the judgment

of the High Court was disposed of by a judgment dated

18.01.2001 in Gujarat Agricultural University vs.

Rathod Labhu Bechar & Ors.

1

 It was argued on behalf of

the appellant therein that it would not be possible for the

university to grant permanency to all its employees working

as daily-rated workers, who have completed 10 years of

service as on 01.01.1993. Therefore, the scheme proposed

granting permanent status to all such employees who have

completed 10 years or more of continuous service with a

minimum of 240 days as on 31.12.1999. It was further

contended by the university that daily wagers are not

entitled to get the minimum wages of Class IV employees of

the State.

5. An argument was advanced in the aforementioned

appeal before this Court that all the daily wagers cannot be

regularized or minimum pay scale cannot be given in view of

the financial constraints. It was brought to the notice of this

Court that there were 5100 daily-rated labourers. This Court

rejected the said submission and observed that financial

stringency is not a ground to deprive the daily wagers of

their right for regularization in accordance to the scheme.

1 (2001) 3 SCC 574

4 | P a g e

6. After considering the proposed scheme, this Court

accepted the submission on behalf of the daily wagers that

prescription of certain qualifications to be fulfilled at the time

of appointment as a condition for regularization was not

justified. This Court observed that it would not be

appropriate to disqualify the daily wagers on the ground that

they did not fulfill the prescribed eligibility criteria on the

date when they were engaged initially as daily wagers. While

considering the point related to the absorption of all the daily

wagers at one point of time or in a phased manner, this

Court observed that regularization can be made phase wise.

It was made clear that posts should be created to absorb

maximum number of workers who have completed 10 years

as on 31.12.2000. The scheme proposed by the university

was approved by this Court subject to certain modifications

suggested. The additional regular posts required to be

created by the university was directed to be done

expeditiously. The first phase of absorption was directed to

be completed within a period of 3 months and the scheme to

be implemented expeditiously.

7. During the course of hearing, we were informed that

the State Government passed a resolution on 01.04.2002

5 | P a g e

creating 890 posts for absorption of daily wagers in the

university. It has also been brought to the notice of this

Court that the State Government dissolved the erstwhile

Gujarat Agricultural University in 2004 and constituted four

new agricultural universities. The petitioner is one of the

four agricultural universities. There are 740 daily wagers

working in the university.

8. The respondents/daily wagers in these appeals filed

writ petitions in the High Court of Gujarat seeking

regularization in accordance with the scheme floated by the

State of Gujarat and approved by this Court. The contentions

of the petitioners in the writ petitions was that they were

working in Class IV posts and they were eligible to be

absorbed in accordance with the scheme. Though a number

of colleagues of the respondents/daily wagers were given the

benefit of regularization of their services, they were denied

the same.

9. Writ petitions filed by the daily wagers were allowed by

a common judgment of the High Court of Gujarat on

13.03.2018. The appellant university was directed to treat

the respondents as permanent employees from the date they

have completed 10 years of service as daily wagers. The

6 | P a g e

appeal filed by the appellant was dismissed by the Division

Bench of the High Court of Gujarat affirming the direction of

the learned single judge to regularize the services of

respondents/daily wagers.

10. At the time of issuance of notice, we were informed by

the learned senior counsel, appearing for the appellant that

the benefits given to the respondents by the judgment of the

High Court will not be withdrawn. We make it clear that the

regularization of the services of respondents shall not be

disturbed.

11. We have heard Mr. P.S. Patwalia, learned senior counsel

for the university and Mr. Nachiketa Joshi, learned counsel for

the respondents. The main contention of the university is

that after the judgment of this Court in Secretary, State of

Karnataka and Ors. vs. Umadevi and Ors.

2

, the

respondents are not entitled for regularization as there are

no sanctioned posts available. Another submission made on

behalf of the appellant is that the judgment of this Court

dated 18.01.2001 in Gujarat Agricultural University

(supra) does not survive after the judgment of this Court in

Uma Devi. It is no doubt true that in Umadevi’s case, it

has been held that regularization as a one-time measure can

2 (2006) 4 SCC 1

7 | P a g e

only be in respect of those who were irregularly appointed

and have worked for 10 years or more in duly sanctioned

posts. However, in the instant case the respondents are

covered by the judgment of this Court in Gujarat

Agricultural University (supra). This Court approved the

proposed scheme of the State of Gujarat and directed

regularization of all those daily wagers who were eligible in

accordance with the scheme phase-wise. The right to be

regularized in accordance with the scheme continues till all

the eligible daily-wagers are absorbed. Creation of additional

posts for absorption was staggered by this Court permitting

the appellant and the State of Gujarat to implement the

scheme phase-wise. We are not impressed with the

submissions made on behalf of the university that the

judgment of this Court in Umadevi’s case overruled the

judgment in Gujarat Agricultural University (supra). The

judgment of this Court in Gujarat Agricultural University

(supra) inter partes has become final and is binding on the

university. Even according to Para 54 of Uma Devi’s case,

any judgment which is contrary to the principles settled in

Umadevi shall be denuded of status as precedent. This

observation at Para 54 in Umadevi’s case does not absolve

8 | P a g e

the university of its duty to comply with the directions of this

Court in Gujarat Agricultural University (supra).

12. It was brought to the notice of this Court by Mr. P.S.

Patwalia, learned senior counsel for the university that 890

posts were created coterminous with the services of those

daily wagers who have been absorbed in those posts. He

made a valiant effort to impress upon this Court that no

further posts have been created and therefore, the remaining

daily wagers cannot claim regularization of their services.

Creation of 890 posts is by way of implementation of the

directions given by this Court in Gujarat Agricultural

University (supra) at the first stage. There is no ambiguity

in the directions given by this Court in Gujarat Agricultural

University (supra) that the obligation on the part of the

university to implement the scheme by regularizing all the

eligible daily wagers continued.

13. By an order dated 17.10.2011, persons similarly

situated to the respondents were absorbed by being given

the benefit of regularization. The Division Bench of the High

Court has taken note of the discriminatory approach of the

university in conferring the benefit of regularization to some

and not to all those daily wagers who are eligible. There is

9 | P a g e

no error in the Judgment of the High Court which warrants

interference by this Court. Eligible daily wagers in

accordance with the scheme have been eagerly awaiting

regularization as per the judgment of this Court in Gujarat

Agricultural University’s case (supra). The right of the

respondents for regularization has been correctly recognized

by the High Court.

14. For the aforementioned reasons, the appeals are

dismissed.

 .....................................J.

 [ L. NAGESWARA RAO ]

 .....................................J.

 [ ANIRUDDHA BOSE ]

New Delhi,

July 26, 2021.

10 | P a g e

trigger for initiation of the Corporate Insolvency Resolution Process by a Financial Creditor under Section 7 of the IBC is the occurrence of a default by the Corporate Debtor. ‘Default’ means non-payment of debt in whole or part when the debt has become due and payable and debt means a liability or obligation in respect of a claim which is due from any person and includes financial debt and operational debt. The definition of ‘debt’ is also expansive and the same includes inter alia financial debt. The definition of ‘Financial Debt’ in Section 5(8) of IBC does not expressly exclude an interest free loan. ‘Financial Debt’ would have to be construed to include interest free loans advanced to finance the business operations of a corporate body. 32. The appeal is, therefore, allowed. The judgment and order impugned is, accordingly, set aside. The order of the Adjudicating Authority, dismissing the petition of the Appellant under Section 7 of the IBC is also set aside.

 1 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 2231 OF 2021 M/S ORATOR MARKETING PVT. LTD. … Appellant(s) VERSUS M/S SAMTEX DESINZ PVT. LTD. … Respondent(s) J U D G M E N T Indira Banerjee, J. This appeal under Section 62 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the IBC) is against the final judgment and order of the National Company Law Appellate Tribunal (NCLAT), New Delhi in Company Application (AT)(Insolvency) No. 1064 of 2020 dated 08-03- 2021, whereby the NCLAT has been pleased to dismiss the appeal of the Appellant and confirmed the order dated 23.10.2020 of the Adjudicating Authority, i.e., the National Company Law Tribunal (NCLT), New Delhi, dismissing the petition being CP(IB) No. 908/ND/2020, filed by the Appellant under Section 7 of the IBC with the finding that the Appellant is not a financial creditor of the Respondent. The Appellant is an assignee of the debt in question. 2 2. The short question involved in this Appeal is, whether a person who gives a term loan to a Corporate Person, free of interest, on account of its working capital requirements is not a Financial Creditor, and therefore, incompetent to initiate the Corporate Resolution Process under Section 7 of the IBC. 3. M/s Sameer Sales Private Limited, hereinafter referred to as to “Original Lender”, advanced a term loan of Rs.1.60 crores to the Corporate Debtor for a period of two years, to enable the Corporate Debtor to meet its working capital requirement. The Original Lender has assigned the outstanding loan to the Appellant. 4. According to the Appellant the loan was due to be repaid by the Corporate Debtor in full within 01.02.2020. The Appellant claims that the Corporate Debtor made some payments, but Rs.1.56 crores still remain outstanding. 5. The Appellant filed a Petition under Section 7 of the IBC in the NCLT for initiation of the Corporate Resolution Process. The petition was, however, rejected by a judgment and order dated 23.10.2020. The Adjudicating Authority (NCLT) held : “11. Heard the parties and perused the case records. 12. There is no dispute that the applicant initially had disbursed the amount interest free to the respondent company. A perusal of the application it is clear that the loan was given interest free. 3 **** 15. Mere grant of loan and admission of taking loan will ipso fact not treat the applicant as ‘Financial Creditor’ within the meaning of Section 5(8) of the Code. ******* 17. In the application the applicant himself has submitted that the loan was interest free. …. **** 20. It is well settled that the onus lies on the applicant to establish that the loan was given against the consideration for time value of money. Onus to prove also lies on the applicant to establish that the debt claimed in the application comes within the purview of ‘financial debt’ and that the applicant is a financial creditor’ in respect of the present claim in question. Applicant has miserably failed to substantiate with supporting documentary evidence that interest, as claimed at Part-V of the application, is payable as per the agreed loan covenants. 21. Hon’ble NCLT in the matter of Dr. B.V.S. Lakshmi vs. Geometrix Laser Solutions Private Limited has observed that “fc/- coming within the definition of ‘Financial Debt’ as defined under sub-section (8) of Section 5 the Claimant is required to show that (I) there is a debt along with interest, if any, which has been disbursed and (ii) such disbursement has been made against the ‘consideration for the time value of money” 22. It is reiterated that in the present case neither the loan agreement has any provision regarding the payment of interest not there is any supporting evidence/document to establish applicable rate of interest to be paid on the said loan. The applicant has failed to prove that the loan was disbursed against consideration for time value of money, particularly when respondent company has affirmed that no interest has been paid not payable at any point of time. 23. Similarly, in the matter of Shreyans Realtors Private Limited & Anr. vs. Saroj Realtors & Developers Private Limited Company Appeal (AT) (Insolvency) No.311 of 2018, vide its order dated 04.07.2018 Hon’ble NCLAT has observed that when corporate debtor never accepted the component of interest and has given no undertaking to repay the loan with interest; the Appellants cannot claim to ow ‘financial debt’ from the ‘Corporate Debtor’ and thereby cannot be claimed to be a ‘Financial Creditor’ as defined under Section 5(7) & (8) of the Insolvency and Bankruptcy Code, 2016. 24. Therefore, neither the present claim can be termed to be a ‘financial debt’ nor does the applicant come within the meaning of ‘financial creditor’. Once the applicant does not come within the meaning of ‘financial creditor’ he becomes ineligible to file the application under Section 7 of the Insolvency Code 2016. 25. for the reasons stated above this petition fails and the same stands dismissed as not maintainable.” 4 6. Being aggrieved, the Appellant filed an appeal under Section 61 of the IBC. The appeal has been dismissed by the NCLAT, by the judgment and order impugned before this Court. 7. The relevant part of the impugned judgment and order is extracted hereinbelow for convenience: “5. We have heard Counsel for both sides and perused the Appeal and the Reply filed by the Respondent. The fact that loan was advanced to the Respondent, is not in dispute. The narrow question involved is whether the transaction concerned can be treated as a transaction of Financial Debt as defined in Section 5(8) of IBC. The definition of “Financial Debt” under IBC Section 5(8) reads as under:- “(8) "financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes— (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; Company Appeal (AT) (Ins) No.1064 of 2020; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; Explanation.—For the purposes of this sub-clause,— (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount having the commercial effect of a borrowing; and (ii) the expressions, “allottee” and “real estate project” shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016);] 5 (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;” Company Appeal (AT) (Ins) No.1064 of 20206 IBC separately defines debt under Section 3(11) as under:- “(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;” It is apparent that there can be debts which do not necessarily fall in the definition of financial debt or operational. Money borrowed against payment of interest comes within the definition financial debt. However, if the money borrowed is not against payment of interest, under the definition of financial debt, the core requirement is to find whether there is “consideration for the time value of money”. The facts of the matter disclose and the Appeal also records that when the Corporate Debtor was unable to get any further loan from the market after having taken loan from M/s. Tata Capital Financial Services Ltd., M/s. Sameer Sales which was related party to the Corporate Debtor, extended interest free unsecured loan to the Corporate Debtor payable on or after 1st February, 2020 and that too upon demand by the lenders. It would be appropriate to reproduce the Loan Agreement itself to understand the same. The Loan Agreement (Annexure A-2) reads as under:- LOAN AGREEMENT THE PRESENT LOAN AGREEMENT IS BEING EXECUTED BETWEEN M/S SAMEER SALES PVT. LTD. AND M/S SAMTEX DESINZ PVT. LTD. AT NEW DELHI ON THIS 20th DAY JANUARY Two thousand Eighteen. BETWEEN (1) M/S SAMEER SALES PRIVATE LIMITED, a company registered under the Companies Act, 1956 bearing CIN No. U51900DL1992PTC047363, having registered office at 122, Tribunal Complex, Ishwar Nagar, Mathura Road, New Delhi-110065, represented by its director, Kamlesh Rani Bhardwaj hereinafter referred to the “Lender” which expression shall mean and include is nominees, assigns or successors, from time to time. AND (2) M/S Samtex Desinz Private Limited, a company 6 registered under the Companies Act, 1956 bearing CIN No. U18209DL2017PTC320315, having registered office at A-36, Hoisery Complex Phase 2 NOIDA U.P. represented by its director Mr. Sumeer Duggal, hereinafter referred to the “Borrower” which expression shall mean and include its nominees assigns or successors from time to time. BACKGROUND 1. That whereas consequent to the purchase of the business ( except liabilities) of M/s. Samtex Desinz (Proprietorship Firm) the Borrower had availed of a term loan of Rs. 14,00,00,000.00 (Fourteen Crore Only) form M/S Tata Capital Financial Services Ltd., vide which all the assets of the Borrower have been mortgaged/assigned in favour of the aforesaid institutional lender. That the aforesaid terms facility is insufficient to cover certain working capital requirement of the Borrower and is insufficient to meet other requirement relating to payments stamps duty etc. of SAMTEX DESINZ PRIVATE LIMITED Director Director/Autho. Sign the Borrower and that therefore there is a shortfall of 2,00,00,000.00 (Two Crore Only) 2. That because of the aforesaid loan from the M/s Tata Capital no other institutions. Willing to extend unsecured loan to the Borrower, and therefore it is agreed that the lender is agreeable to extend a loan of Rs. 1,60,00,000.00 (One Crore Sixty Lakh Only) in favour of the Borrower. TERMS AND CONDITIONS 1. The Lender agrees to extend to the Borrower a term loan Rs. 1,60,00,000.00 (One Crore Sixty Lakh Only) for a period of two years commencing form the date of signing of this agreement. 2. The aforesaid amount shall become due and payable 01-02-2020 or upon demand by the lender. 3. That having regard to the status of the parties, the present loan is being extended without any charge on any of the assets at present or in the future. 4. Commencing of the date of this Agreement, the Loan shall bear NIL interest. 5. Notwithstanding anything contained in this agreement, the loan amount shall become immediately due and payable at any time on or after the expiry of a period of two years i.e. on or after 01/02/2020 upon demand by the Lender. 6. The Borrower agrees that so long as the loan as in 7 outstanding the Borrower will inform the Lender in any change in the constitution of the Borrower. 7. The Borrower shall repay the entire loan on or before 04/02/2020 and that till such a time the entire amount is not repaid the terms of the present agreement shall remain in force. The Borrower is entitled to pre-pay the loan amount at any time, without any penalty, after giving the lender notice in writing of its intention of the same. 8. The agreement shall remain in force of the term indicated in Clause 7 above unless terminated earlier in accordance with Clause 7. 9. All notices under this agreement shall be in writing and shall be either delivered via special messenger and hand and upon the addresses as may be advised from time to time by either party. 10. The agreement shall be governed by Indian Law and the Courts of Delhi shall have jurisdiction to settle any dispute arising out of or in connection with this agreement. For the Borrower SamtexDesinzPvt Ltd For the Lender Director Director Witness : When we read the background as recorded in paragraphs – 1 and 2 of the above Loan Agreement, it is clear that the sister concern which extending the loan did not record anything other than the problem of the Corporate Debtor, for granting the loan. It is merely recorded that because of taking loan from M/s. Tata Capital Financial Services Ltd., no other institution is willing to extend unsecured loan to the Corporate Debtor “and therefore”, the lender had agreed to extend the loan of Rs. 1,60,00,000/- to the borrower (i.e. Corporate Debtor). Then the above Agreement refers terms and conditions. Appeal para-7(d) as under :- “d. In these circumstances to ensure continued development of the business of the Corporate Debtor, Mr. Sameer Bharadwaj, the then Director and the Current Authorized Signatory of the Respondent, through the sister concern advanced a sun of Rs. 1.60 Crore. It is submitted that in compliance with the law, the aforesaid sum was extended under a loan agreement, however the sum was advanced interest free, since the development of the business was enough consideration for time value of money.” 8 8. The judgment and order of the NCLAT, affirming the judgment and order of the Adjudicating Authority (NCLT) and dismissing the appeal is patently flawed. Both the NCLAT and NCLT have misconstrued the definition of ‘financial debt’ in Section 5(8) of the IBC, by reading the same in isolation and out of context. 9. In construing and/or interpreting any statutory provision, one must look into the legislative intent of the statute. The intention of the statute has to be found in the words used by the legislature itself. In case of doubt, it is always safe to look into the object and purpose of the statute or the reason and spirit behind it. Each word, phrase or sentence has to be construed in the light of the general purpose of the Act itself, as observed by Mukherjea, J. in Poppatlal Shah Vs. State of Madras1, and a plethora of other judgments of this Court. To quote Krishna Iyer, J, the interpretative effort “must be illumined by the goal, though guided by the words”. 10. When a question arises as to the meaning of a certain provision in a statute, the provision has to be read in its context. The statute has to be read as a whole. The previous state of the law, the general scope and ambit of the statute and the mischief that it was intended to remedy are relevant factors. 1 AIR 1953 SC 274 9 11. In Innoventive Industries Ltd. Vs. ICICI Bank Ltd.2, authored by Nariman, J., this Court analysed the scheme of the IBC and held: “27. The scheme of the Code is to ensure that when a default takes place, in the sense that a debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of “debt”, we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a “claim” and for the meaning of “claim”, we have to go back to Section 3(6) which defines “claim” to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditors and operational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor means a person to whom an operational debt is owed and an operational debt under Section 5(21) means a claim in respect of provision of goods or services. 28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the Explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor — it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and 2 (2018) 1 SCC 407 10 evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. 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. 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. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be. 29. The scheme of Section 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code.…………………….......................................... The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. 30. On the other hand, as we have seen, 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.” 11 12. In Swiss Ribbons Pvt. Ltd. And Anr. Vs. Union of India and Others3, this Court speaking through Nariman, J. held : “27. As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganisation and insolvency resolution of corporate debtors. Unless such reorganisation is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme—workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximise their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. (See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] at para 83, fn 3). 28. It can thus be seen that the primary focus of the legislation 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. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The 3 (2019) 4 SCC 17 12 interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters/those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor's assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends.” 13. This Court further held: “42. A perusal of the definition of “financial creditor” and “financial debt” makes it clear that a financial debt is a debt together with interest, if any, which is disbursed against the consideration for time value of money. It may further be money that is borrowed or raised in any of the manners prescribed in Section 5(8) or otherwise, as Section 5(8) is an inclusive definition. On the other hand, an “operational debt” would include 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 and payable to the Government or any local authority. 43. A financial creditor may trigger the Code either by itself or jointly with other financial creditors or such persons as may be notified by the Central Government when a “default” occurs. The Explanation to Section 7(1) also makes it clear that the Code may be triggered by such persons in respect of a default made to any other financial creditor of the corporate debtor, making it clear that once triggered, the resolution process under the Code is a collective proceeding in rem which seeks, in the first instance, to rehabilitate the corporate debtor. Under Section 7(4), the adjudicating authority shall, within the prescribed period, ascertain the existence of a default on the basis of evidence furnished by the financial creditor; and under Section 7(5), the adjudicating authority has to be satisfied that a default has occurred, when it may, by order, admit the application, or dismiss the application if such default has not occurred. On the other hand, under Sections 8 and 9, an operational creditor may, on the occurrence of a default, deliver a demand notice which must then be replied to within the specified period. What is important is that at this stage, if an application is 13 filed before the adjudicating authority for initiating the corporate insolvency resolution process, the corporate debtor can prove that the debt is disputed. When the debt is so disputed, such application would be rejected.” 14. In Pioneer Urban Land and Infrastructure Ltd. Vs. Union of India4, this Court speaking through Nariman, J. referred to several earlier judgments including Innoventive Industries Ltd. (supra) and Swiss Ribbons Pvt. Ltd. (supra) and held that even individuals who were debenture holders and fixed deposit holders could also be financial creditors who could initiate the Corporate Resolution Process. 15. The definition of ‘financial debt’ in Section 5(8) of the IBC cannot be read in isolation, without considering some other relevant definitions, particularly, the definition of ‘claim’ in Section 3(6), ‘corporate debtor’ in Section 3(8), ‘creditor’ in Section 3(10), ‘debt’ in section 3(11), ‘default’ in Section 3(12), ‘financial creditor’ in Section 5(7) as also the provisions, inter alia, of Sections 6 and 7 of the IBC. 16. Under Section 6 of the IBC, a right accrues to a Financial Creditor, an Operational Creditor and the Corporate Debtor itself to initiate the Corporate Insolvency Resolution Process in respect of such Corporate Debtor, in the manner provided in Chapter II of the IBC. 4 (2019) 8 SCC 416 14 17. Section 7 of the IBC enables a Financial Creditor to file an application for initiating Corporate Insolvency Resolution Process against a Corporate Debtor either by itself, or jointly with other Financial Creditors or any other person on behalf of the Financial Creditor, as may be notified by the Central Government, when a default has occurred. 18. The eligibility of a person, to initiate the Corporate Insolvency Resolution Process, if questioned, has to be adjudicated upon consideration of the key words and expressions in the aforesaid Section and other related provisions. 19. Corporate Resolution Process gets triggered when a Corporate Debtor commits a default. A Financial Creditor may file an application for initiating a Corporate Insolvency Resolution Process against the Corporate Debtor, when a default has occurred. 20. A ‘corporate debtor’ means a corporate person who owes a debt to any person, as per the definition of this expression in Section 3(8) of the IBC. Section 3(11) defines ‘debt’ to mean “a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt.” The word ‘claim’ has been defined in 15 Section 3(6) to mean inter alia “a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured.” ‘Default’ is defined in section 3(12) to mean “non-payment of a debt when the whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the Corporate Debtor, as the case may be.” Under Section 5(7) of the IBC ‘financial creditor’ means any person to whom a financial debt is owed and includes a person to whom such debt has legally been assigned. 21. The definition of ‘financial debt’ in Section 5(8) of the IBC has been quoted above. Section 5(8) defines ‘financial debt’ to mean “a debt along with interest if any which is disbursed against the consideration of the time value of money and includes money borrowed against the payment of interest, as per Section 5(8) (a) of the IBC. The definition of ‘financial debt’ in Section 5(8) includes the components of sub-clauses (a) to (i) of the said Section. 22. The NCLT and NCLAT have overlooked the words “if any” which could not have been intended to be otiose. ‘Financial debt’ means outstanding principal due in respect of a loan and would also include interest thereon, if any interest were payable thereon. If there is no interest payable on the loan, only the outstanding principal would qualify as a financial debt. Both NCLAT and NCLT have failed to notice 16 clause(f) of Section 5(8), in terms whereof ‘financial debt’ includes any amount raised under any other transaction, having the commercial effect of borrowing. 23. Furthermore, sub-clauses (a) to (i) of Sub-section 8 of Section 5 of the IBC are apparently illustrative and not exhaustive. Legislature has the power to define a word in a statute. Such definition may either be restrictive or be extensive. Where the word is defined to include something, the definition is prima facie extensive. 24. In Dilworth v. Commissioner of Stamps5 the Privy Council, dealing with a definition which incorporated the word “include”, said, “The word ‘include’ is very generally used in interpretation clauses in order to enlarge the meaning; and when it is so used these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import, but also those as things which the interpretation clause declares that they shall include. But the word ‘include’ is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expressions defined. It may be equivalent to ‘mean and include’, and in that case it may afford an exhaustive 5 (1899) AC 99 17 explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions.” 25. In dealing with the definition of ‘industry’ in the Industrial Disputes Act 1947 in the State of Bombay v. Hospital Mazdoor Sabha and Ors6, a three-judge Bench of this Court speaking through Gajendragadkar, J. said “It is obvious that the words used in an inclusive definition denote extension and cannot be treated as restricted. Where we are dealing with an inclusive interpretation, it would be inappropriate to put a restrictive interpretation upon words of wider denotation.” 26. In CIT Andhra Pradesh v. Taj Mahal Hotel Secunderabad7, this Court, speaking through A.N. Grover, J. construed the definition of plant in Section 10(5) of the Income Tax Act, 1922, which read “plant” includes vehicles, books, scientific apparatus and surgical equipment, purchased for the purpose of the business, profession or vocation and observed:- “The very fact that even books have been included shows that the meaning intended to be given to ‘plant’ is wide. The word ‘includes’ is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute. When it is so used these words and phrases must be construed as comprehending not only such things as they signify according to their nature and import but also those things which the interpretation clause declares that they shall include.” 6 AIR 1960 SC 610 7 (1971) 3 SCC 550 18 27. Of course, depending on the context in which the word ‘includes’ may have been used, and the objects and the scheme of the enactment as a whole, the expression ‘includes’ may have to be construed as restrictive and exhaustive. 28. In a recent judgment of this Court in Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd. V. Axis Bank Ltd. 8, this court, speaking through Maheswari, J. referred to various precedents on restrictive and expansive interpretation of words and phrases used in a statute, particularly, the words ‘means’ and ‘includes’ and held:- “46. Applying the aforementioned fundamental principles to the definition occurring in Section 5(8) of the Code, we have not an iota of doubt that for a debt to become “financial debt” for the purpose of Part II of the Code, the basic elements are that it ought to be a disbursal against the consideration for time value of money. It may include any of the methods for raising money or incurring liability by the modes prescribed in clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counter-indemnity obligation as per clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in clauses (a) to (h). The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, that the root requirements of “disbursement” against “the consideration for the time value of money” could be forsaken in the manner that any transaction could stand alone to become a financial debt. In other words, any 8 (2020) 8 SCC 401 19 of the transactions stated in the said clauses (a) to (i) of Section 5(8) would be falling within the ambit of “financial debt” only if it carries the essential elements stated in the principal clause or at least has the features which could be traced to such essential elements in the principal clause. In yet other words, the essential element of disbursal, and that too against the consideration for time value of money, needs to be found in the genesis of any debt before it may be treated as “financial debt” within the meaning of Section 5(8) of the Code. This debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money. 47. As noticed, the root requirement for a creditor to become financial creditor for the purpose of Part II of the Code, there must be a financial debt which is owed to that person. He may be the principal creditor to whom the financial debt is owed or he may be an assignee in terms of extended meaning of this definition but, and nevertheless, the requirement of existence of a debt being owed is not forsaken. 48. It is also evident that what is being dealt with and described in Section 5(7) and in Section 5(8) is the transaction vis-à-vis the corporate debtor. Therefore, for a person to be designated as a financial creditor of the corporate debtor, it has to be shown that the corporate debtor owes a financial debt to such person. Understood this way, it becomes clear that a third party to whom the corporate debtor does not owe a financial debt cannot become its financial creditor for the purpose of Part II of the Code. 49. Expounding yet further, in our view, the peculiar elements of these expressions “financial creditor” and “financial debt”, as occurring in Sections 5(7) and 5(8), when visualised and compared with the generic expressions “creditor” and “debt” respectively, as occurring in Sections 3(10) and 3(11) of the Code, the scheme of things envisaged by the Code becomes clearer. The generic term “creditor” is defined to mean any person to whom the debt is owed and then, it has also been made clear that it includes a “financial creditor”, a “secured creditor”, an “unsecured creditor”, an “operational creditor”, and a “decreeholder”. Similarly, a “debt” means a liability or obligation in respect of a claim which is due from any person and this expression has also been given an extended meaning to include a “financial debt” and an “operational debt”. 49.1. The use of the expression “means and includes” in these clauses, on the very same principles of 20 interpretation as indicated above, makes it clear that for a person to become a creditor, there has to be a debt, i.e., a liability or obligation in respect of a claim which may be due from any person. A “secured creditor” in terms of Section 3(30) means a creditor in whose favour a security interest is created; and “security interest”, in terms of Section 3(31), means a right, title or interest or claim of property created in favour of or provided for a secured creditor by a transaction which secures payment for the purpose of an obligation and it includes, amongst others, a mortgage. Thus, any mortgage created in favour of a creditor leads to a security interest being created and thereby, the creditor becomes a secured creditor. However, when all the defining clauses are read together and harmoniously, it is clear that the legislature has maintained a distinction amongst the expressions “financial creditor”, “operational creditor”, “secured creditor” and “unsecured creditor”. Every secured creditor would be a creditor; and every financial creditor would also be a creditor but every secured creditor may not be a financial creditor. As noticed, the expressions “financial debt” and “financial creditor”, having their specific and distinct connotations and roles in insolvency and liquidation process of corporate persons, have only been defined in Part II whereas the expressions “secured creditor” and “security interest” are defined in Part I. 50. A conjoint reading of the statutory provisions with the enunciation of this Court in Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] , leaves nothing to doubt that in the scheme of the IBC, what is intended by the expression “financial creditor” is a person who has direct engagement in the functioning of the corporate debtor; who is involved right from the beginning while assessing the viability of the corporate debtor; who would engage in restructuring of the loan as well as in reorganisation of the corporate debtor's business when there is financial stress. In other words, the financial creditor, by its own direct involvement in a functional existence of corporate debtor, acquires unique position, who could be entrusted with the task of ensuring the sustenance and growth of the corporate debtor, akin to that of a guardian. In the context of insolvency resolution process, this class of stakeholders, namely, financial creditors, is entrusted by the legislature with such a role that it would look forward to ensure that the corporate debtor is rejuvenated and gets back to its wheels with reasonable capacity of repaying its debts and to attend on its other obligations. Protection of the rights of all other stakeholders, including other creditors, would obviously be concomitant of such resurgence of the corporate debtor.” 21 29. In Jaypee Infratech Ltd. (supra), the debts in question were in the form of third-party security, given by the Corporate Debtor to secure loans and advances obtained a third party from the Respondent Lender and, therefore, held not to be a financial debt within the meaning of Section 5(8) of the IBC. There was no occasion for this Court to consider the status of a term loan advanced to meet the working capital requirements of the Corporate Debtor, which did not carry interest. Having regard to the Aims, Objects and Scheme of the IBC, there is no discernible reason, why a term loan to meet the financial requirements of a Corporate Debtor for its operation, which obviously has the commercial effect of borrowing, should be excluded from the purview of a financial debt. 30. In Prabhudas Damodar Kotecha Vs. Manhabala Jeram Damodar9, this Court interpreting Section 41(1) of the Presidency Small Cause Courts Act, 1882, as amended by the Maharashtra Act XIX of 1976, observed that ‘the golden rule is that the words of a statute must prima facie be given their ordinary meaning when the language or phraseology employed by the legislature is precise and plain'. Since Section 41(1) does not specifically exclude a gratuitous licensee or make a distinction between a licensee with material consideration or 9 (2013) 15 SCC 358 22 without material consideration, the expression ‘licensee’ in Section 41(1) was held to also include a ‘gratuitous licensee’. 31. At the cost of repetition, it is reiterated that the trigger for initiation of the Corporate Insolvency Resolution Process by a Financial Creditor under Section 7 of the IBC is the occurrence of a default by the Corporate Debtor. ‘Default’ means non-payment of debt in whole or part when the debt has become due and payable and debt means a liability or obligation in respect of a claim which is due from any person and includes financial debt and operational debt. The definition of ‘debt’ is also expansive and the same includes inter alia financial debt. The definition of ‘Financial Debt’ in Section 5(8) of IBC does not expressly exclude an interest free loan. ‘Financial Debt’ would have to be construed to include interest free loans advanced to finance the business operations of a corporate body. 32. The appeal is, therefore, allowed. The judgment and order impugned is, accordingly, set aside. The order of the Adjudicating Authority, dismissing the petition of the Appellant under Section 7 of the IBC is also set aside. The petition under Section 7 stands revived and may be decided afresh, in accordance with law and in the light of the findings above. 23 33. Pending applications, if any, stand disposed of accordingly. ………………………………………………………,J. [INDIRA BANERJEE] ………………………………………………………,J. [V. RAMASUBRAMANIAN] New Delhi; July 26, 2021.

1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2231 OF 2021

M/S ORATOR MARKETING PVT. LTD. … Appellant(s)

 VERSUS

M/S SAMTEX DESINZ PVT. LTD. … Respondent(s)

J U D G M E N T

Indira Banerjee, J.

This appeal under Section 62 of the Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as the IBC) is

against the final judgment and order of the National Company

Law Appellate Tribunal (NCLAT), New Delhi in Company

Application (AT)(Insolvency) No. 1064 of 2020 dated 08-03-

2021, whereby the NCLAT has been pleased to dismiss the appeal

of the Appellant and confirmed the order dated 23.10.2020 of

the Adjudicating Authority, i.e., the National Company Law

Tribunal (NCLT), New Delhi, dismissing the petition being

CP(IB) No. 908/ND/2020, filed by the Appellant under Section 7

of the IBC with the finding that the Appellant is not a

financial creditor of the Respondent. The Appellant is an

assignee of the debt in question.

2

2. The short question involved in this Appeal is, whether a

person who gives a term loan to a Corporate Person, free of

interest, on account of its working capital requirements is

not a Financial Creditor, and therefore, incompetent to

initiate the Corporate Resolution Process under Section 7 of

the IBC.

3. M/s Sameer Sales Private Limited, hereinafter referred to

as to “Original Lender”, advanced a term loan of Rs.1.60

crores to the Corporate Debtor for a period of two years, to

enable the Corporate Debtor to meet its working capital

requirement. The Original Lender has assigned the outstanding

loan to the Appellant.

4. According to the Appellant the loan was due to be repaid

by the Corporate Debtor in full within 01.02.2020. The

Appellant claims that the Corporate Debtor made some payments,

but Rs.1.56 crores still remain outstanding.

5. The Appellant filed a Petition under Section 7 of the IBC

in the NCLT for initiation of the Corporate Resolution

Process. The petition was, however, rejected by a judgment and

order dated 23.10.2020. The Adjudicating Authority (NCLT)

held :

“11. Heard the parties and perused the case records.

12. There is no dispute that the applicant initially had

disbursed the amount interest free to the respondent company.

A perusal of the application it is clear that the loan was

given interest free.

3

****

15. Mere grant of loan and admission of taking loan will

ipso fact not treat the applicant as ‘Financial Creditor’

within the meaning of Section 5(8) of the Code.

*******

17. In the application the applicant himself has submitted

that the loan was interest free. ….

****

20. It is well settled that the onus lies on the applicant

to establish that the loan was given against the consideration

for time value of money. Onus to prove also lies on the

applicant to establish that the debt claimed in the

application comes within the purview of ‘financial debt’ and

that the applicant is a financial creditor’ in respect of the

present claim in question. Applicant has miserably failed to

substantiate with supporting documentary evidence that

interest, as claimed at Part-V of the application, is payable

as per the agreed loan covenants.

21. Hon’ble NCLT in the matter of Dr. B.V.S. Lakshmi vs.

Geometrix Laser Solutions Private Limited has observed that

“fc/- coming within the definition of ‘Financial Debt’ as

defined under sub-section (8) of Section 5 the Claimant is

required to show that (I) there is a debt along with interest,

if any, which has been disbursed and (ii) such disbursement

has been made against the ‘consideration for the time value of

money”

22. It is reiterated that in the present case neither the

loan agreement has any provision regarding the payment of

interest not there is any supporting evidence/document to

establish applicable rate of interest to be paid on the said

loan. The applicant has failed to prove that the loan was

disbursed against consideration for time value of money,

particularly when respondent company has affirmed that no

interest has been paid not payable at any point of time.

23. Similarly, in the matter of Shreyans Realtors Private

Limited & Anr. vs. Saroj Realtors & Developers Private Limited

Company Appeal (AT) (Insolvency) No.311 of 2018, vide its

order dated 04.07.2018 Hon’ble NCLAT has observed that when

corporate debtor never accepted the component of interest and

has given no undertaking to repay the loan with interest; the

Appellants cannot claim to ow ‘financial debt’ from the

‘Corporate Debtor’ and thereby cannot be claimed to be a

‘Financial Creditor’ as defined under Section 5(7) & (8) of

the Insolvency and Bankruptcy Code, 2016.

24. Therefore, neither the present claim can be termed to

be a ‘financial debt’ nor does the applicant come within the

meaning of ‘financial creditor’. Once the applicant does not

come within the meaning of ‘financial creditor’ he becomes

ineligible to file the application under Section 7 of the

Insolvency Code 2016.

25. for the reasons stated above this petition fails and

the same stands dismissed as not maintainable.” 

4

6. Being aggrieved, the Appellant filed an appeal under

Section 61 of the IBC. The appeal has been dismissed by the

NCLAT, by the judgment and order impugned before this Court.

7. The relevant part of the impugned judgment and order is

extracted hereinbelow for convenience:

“5. We have heard Counsel for both sides and perused the

Appeal and the Reply filed by the Respondent. The fact that

loan was advanced to the Respondent, is not in dispute. The

narrow question involved is whether the transaction concerned

can be treated as a transaction of Financial Debt as defined

in Section 5(8) of IBC. The definition of “Financial Debt”

under IBC Section 5(8) reads as under:-

“(8) "financial debt" means a debt alongwith interest,

if any, which is disbursed against the consideration

for the time value of money and includes—

(a) money borrowed against the payment of interest;

(b) any amount raised by acceptance under any

acceptance credit facility or its de-materialised

equivalent;

(c) any amount raised pursuant to any note purchase

facility or the issue of bonds, notes, debentures,

loan stock or any similar instrument; Company Appeal

(AT) (Ins) No.1064 of 2020;

(d) the amount of any liability in respect of any

lease or hire purchase contract which is deemed as a

finance or capital lease under the Indian Accounting

Standards or such other accounting standards as may be

prescribed;

(e) receivables sold or discounted other than any

receivables sold on non-recourse basis;

(f) any amount raised under any other transaction,

including any forward sale or purchase agreement,

having the commercial effect of a borrowing;

Explanation.—For the purposes of this sub-clause,—

(i) any amount raised from an allottee under a real

estate project shall be deemed to be an amount having

the commercial effect of a borrowing; and

(ii) the expressions, “allottee” and “real estate

project” shall have the meanings respectively assigned

to them in clauses (d) and (zn) of section 2 of the

Real Estate (Regulation and Development) Act, 2016 (16

of 2016);]

5

(g) any derivative transaction entered into in

connection with protection against or benefit from

fluctuation in any rate or price and for calculating

the value of any derivative transaction, only the

market value of such transaction shall be taken into

account;

(h) any counter-indemnity obligation in respect of a

guarantee, indemnity, bond, documentary letter of credit

or any other instrument issued by a bank or financial

institution;

(i) the amount of any liability in respect of any of

the guarantee or indemnity for any of the items

referred to in sub-clauses (a) to (h) of this clause;”

Company Appeal (AT) (Ins) No.1064 of 20206 IBC

separately defines debt under Section 3(11) as under:-

“(11) "debt" means a liability or obligation in respect of

a claim which is due from any person and includes a

financial debt and operational debt;”

It is apparent that there can be debts which do not

necessarily fall in the definition of financial debt or

operational. Money borrowed against payment of interest

comes within the definition financial debt. However, if the

money borrowed is not against payment of interest, under

the definition of financial debt, the core requirement is

to find whether there is “consideration for the time value

of money”. The facts of the matter disclose and the Appeal

also records that when the Corporate Debtor was unable to

get any further loan from the market after having taken

loan from M/s. Tata Capital Financial Services Ltd., M/s.

Sameer Sales which was related party to the Corporate

Debtor, extended interest free unsecured loan to the

Corporate Debtor payable on or after 1st February, 2020 and

that too upon demand by the lenders. It would be

appropriate to reproduce the Loan Agreement itself to

understand the same. The Loan Agreement (Annexure A-2)

reads as under:-

LOAN AGREEMENT

THE PRESENT LOAN AGREEMENT IS BEING EXECUTED BETWEEN

M/S SAMEER SALES PVT. LTD. AND M/S SAMTEX DESINZ PVT.

LTD. AT NEW DELHI ON THIS

20th DAY JANUARY Two thousand Eighteen.

BETWEEN

(1) M/S SAMEER SALES PRIVATE LIMITED, a company

registered under the Companies Act, 1956 bearing CIN

No. U51900DL1992PTC047363, having registered office at

122, Tribunal Complex, Ishwar Nagar, Mathura Road, New

Delhi-110065, represented by its director, Kamlesh

Rani Bhardwaj hereinafter referred to the “Lender”

which expression shall mean and include is nominees,

assigns or successors, from time to time.

AND

(2) M/S Samtex Desinz Private Limited, a company

6

registered under the Companies Act, 1956 bearing CIN

No. U18209DL2017PTC320315, having registered office at

A-36, Hoisery Complex Phase 2 NOIDA U.P. represented

by its director Mr. Sumeer Duggal, hereinafter

referred to the “Borrower” which expression shall mean

and include its nominees assigns or successors from

time to time.

BACKGROUND

1. That whereas consequent to the purchase of the

business ( except liabilities) of M/s. Samtex Desinz

(Proprietorship Firm) the Borrower had availed of a

term loan of Rs. 14,00,00,000.00 (Fourteen Crore Only)

form M/S Tata Capital Financial Services Ltd., vide

which all the assets of the Borrower have been

mortgaged/assigned in favour of the aforesaid

institutional lender. That the aforesaid terms

facility is insufficient to cover certain working

capital requirement of the Borrower and is

insufficient to meet other requirement relating to

payments stamps duty etc. of

SAMTEX DESINZ PRIVATE LIMITED

Director

Director/Autho. Sign

the Borrower and that therefore there is a shortfall

of 2,00,00,000.00 (Two Crore Only)

2. That because of the aforesaid loan from the M/s Tata

Capital no other institutions. Willing to extend

unsecured loan to the Borrower, and therefore it is

agreed that the lender is agreeable to extend a loan

of Rs. 1,60,00,000.00 (One Crore Sixty Lakh Only) in

favour of the Borrower.

TERMS AND CONDITIONS

1. The Lender agrees to extend to the Borrower a term

loan Rs. 1,60,00,000.00 (One Crore Sixty Lakh Only)

for a period of two years commencing form the date of

signing of this agreement.

2. The aforesaid amount shall become due and payable

01-02-2020 or upon demand by the lender.

3. That having regard to the status of the parties, the

present loan is being extended without any charge on

any of the assets at present or in the future.

4. Commencing of the date of this Agreement, the Loan

shall bear NIL interest.

5. Notwithstanding anything contained in this

agreement, the loan amount shall become immediately

due and payable at any time on or after the expiry of

a period of two years i.e. on or after 01/02/2020 upon

demand by the Lender.

6. The Borrower agrees that so long as the loan as in

7

outstanding the Borrower will inform the Lender in any

change in the constitution of the Borrower.

7. The Borrower shall repay the entire loan on or

before 04/02/2020 and that till such a time the entire

amount is not repaid the terms of the present

agreement shall remain in force. The Borrower is

entitled to pre-pay the loan amount at any time,

without any penalty, after giving the lender notice in

writing of its intention of the same.

8. The agreement shall remain in force of the term

indicated in Clause 7 above unless terminated earlier

in accordance with Clause 7.

9. All notices under this agreement shall be in writing

and shall be either delivered via special messenger

and hand and upon the addresses as may be advised from

time to time by either party.

10. The agreement shall be governed by Indian Law

and the Courts of Delhi shall have jurisdiction to

settle any dispute arising out of or in connection

with this agreement.

For the Borrower

SamtexDesinzPvt Ltd For the Lender

Director Director

Witness :

When we read the background as recorded in

paragraphs – 1 and 2 of the above Loan Agreement, it

is clear that the sister concern which extending the

loan did not record anything other than the problem of

the Corporate Debtor, for granting the loan. It is

merely recorded that because of taking loan from M/s.

Tata Capital Financial Services Ltd., no other

institution is willing to extend unsecured loan to the

Corporate Debtor “and therefore”, the lender had

agreed to extend the loan of Rs. 1,60,00,000/- to the

borrower (i.e. Corporate Debtor). Then the above

Agreement refers terms and conditions.

Appeal para-7(d) as under :-

“d. In these circumstances to ensure continued

development of the business of the Corporate Debtor,

Mr. Sameer Bharadwaj, the then Director and the

Current Authorized Signatory of the Respondent,

through the sister concern advanced a sun of Rs. 1.60

Crore. It is submitted that in compliance with the

law, the aforesaid sum was extended under a loan

agreement, however the sum was advanced interest free,

since the development of the business was enough

consideration for time value of money.”

8

8. The judgment and order of the NCLAT, affirming the

judgment and order of the Adjudicating Authority (NCLT) and

dismissing the appeal is patently flawed. Both the NCLAT and

NCLT have misconstrued the definition of ‘financial debt’ in

Section 5(8) of the IBC, by reading the same in isolation and

out of context.

9. In construing and/or interpreting any statutory

provision, one must look into the legislative intent of the

statute. The intention of the statute has to be found in the

words used by the legislature itself. In case of doubt, it is

always safe to look into the object and purpose of the statute

or the reason and spirit behind it. Each word, phrase or

sentence has to be construed in the light of the general

purpose of the Act itself, as observed by Mukherjea, J. in

Poppatlal Shah Vs. State of Madras1, and a plethora of other

judgments of this Court. To quote Krishna Iyer, J, the

interpretative effort “must be illumined by the goal, though

guided by the words”.

10. When a question arises as to the meaning of a certain

provision in a statute, the provision has to be read in its

context. The statute has to be read as a whole. The previous

state of the law, the general scope and ambit of the statute

and the mischief that it was intended to remedy are relevant

factors.

1 AIR 1953 SC 274

9

11. In Innoventive Industries Ltd. Vs. ICICI Bank Ltd.2,

authored by Nariman, J., this Court analysed the scheme of the

IBC and held:

“27. The scheme of the Code is to ensure that when a

default takes place, in the sense that a debt becomes

due and is not paid, the insolvency resolution process

begins. Default is defined in Section 3(12) in very

wide terms as meaning non-payment of a debt once it

becomes due and payable, which includes non-payment of

even part thereof or an instalment amount. For the

meaning of “debt”, we have to go to Section 3(11),

which in turn tells us that a debt means a liability of

obligation in respect of a “claim” and for the meaning

of “claim”, we have to go back to Section 3(6) which

defines “claim” to mean a right to payment even if it

is disputed. The Code gets triggered the moment default

is of rupees one lakh or more (Section 4). The

corporate insolvency resolution process may be

triggered by the corporate debtor itself or a financial

creditor or operational creditor. A distinction is made

by the Code between debts owed to financial creditors

and operational creditors. A financial creditor has

been defined under Section 5(7) as a person to whom a

financial debt is owed and a financial debt is defined

in Section 5(8) to mean a debt which is disbursed

against consideration for the time value of money. As

opposed to this, an operational creditor means a person

to whom an operational debt is owed and an operational

debt under Section 5(21) means a claim in respect of

provision of goods or services.

28. When it comes to a financial creditor triggering

the process, Section 7 becomes relevant. Under the

Explanation to Section 7(1), a default is in respect of

a financial debt owed to any financial creditor of the

corporate debtor — it need not be a debt owed to the

applicant financial creditor. Under Section 7(2), an

application is to be made under sub-section (1) in such

form and manner as is prescribed, which takes us to the

Insolvency and Bankruptcy (Application to Adjudicating

Authority) Rules, 2016. Under Rule 4, the application

is made by a financial creditor in Form 1 accompanied

by documents and records required therein. Form 1 is a

detailed form in 5 parts, which requires particulars of

the applicant in Part I, particulars of the corporate

debtor in Part II, particulars of the proposed interim

resolution professional in Part III, particulars of the

financial debt in Part IV and documents, records and

2 (2018) 1 SCC 407

10

evidence of default in Part V. Under Rule 4(3), the

applicant is to dispatch a copy of the application

filed with the adjudicating authority by registered

post or speed post to the registered office of the

corporate debtor. 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. 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. Under sub-section (7), the

adjudicating authority shall then communicate the order

passed to the financial creditor and corporate debtor

within 7 days of admission or rejection of such

application, as the case may be.

29. The scheme of Section 7 stands in contrast with the

scheme under Section 8 where an operational creditor

is, on the occurrence of a default, to first deliver a

demand notice of the unpaid debt to the operational

debtor in the manner provided in Section 8(1) of the

Code.……………………..........................................

The moment there is existence of such a dispute, the

operational creditor gets out of the clutches of the

Code.

30. On the other hand, as we have seen, 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.”

11

12. In Swiss Ribbons Pvt. Ltd. And Anr. Vs. Union of India

and Others3, this Court speaking through Nariman, J. held :

“27. As is discernible, the Preamble gives an insight

into what is sought to be achieved by the Code. The

Code is first and foremost, a Code for

reorganisation and

insolvency resolution of corporate debtors. Unless such

reorganisation is effected in a time-bound manner, the

value of the assets of such persons will deplete.

Therefore, maximisation of value of the assets of such

persons so that they are efficiently run as going

concerns is another very important objective of the

Code. This, in turn, will promote entrepreneurship as

the persons in management of the corporate debtor are

removed and replaced by entrepreneurs. When, therefore,

a resolution plan takes off and the corporate debtor is

brought back into the economic mainstream, it is able

to repay its debts, which, in turn, enhances the

viability of credit in the hands of banks and financial

institutions. Above all, ultimately, the interests of

all stakeholders are looked after as the corporate

debtor itself becomes a beneficiary of the resolution

scheme—workers are paid, the creditors in the long run

will be repaid in full, and shareholders/investors are

able to maximise their investment. Timely resolution of

a corporate debtor who is in the red, by an effective

legal framework, would go a long way to support the

development of credit markets. Since more investment

can be made with funds that have come back into the

economy, business then eases up, which leads, overall,

to higher economic growth and development of the Indian

economy. What is interesting to note is that the

Preamble does not, in any manner, refer to liquidation,

which is only availed of as a last resort if there is

either no resolution plan or the resolution plans

submitted are not up to the mark. Even in liquidation,

the liquidator can sell the business of the corporate

debtor as a going concern.

(See ArcelorMittal [ArcelorMittal (India) (P)

Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] at para 83,

fn 3).

28. It can thus be seen that the primary focus of the

legislation 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. The Code is thus a beneficial legislation

which puts the corporate debtor back on its feet, not

being a mere recovery legislation for creditors. The

3 (2019) 4 SCC 17

12

interests of the corporate debtor have, therefore, been

bifurcated and separated from that of its

promoters/those who are in management. Thus, the

resolution process is not adversarial to the corporate

debtor but, in fact, protective of its interests. The

moratorium imposed by Section 14 is in the interest of

the corporate debtor itself, thereby preserving the

assets of the corporate debtor during the resolution

process. The timelines within which the resolution

process is to take place again protects the corporate

debtor's assets from further dilution, and also

protects all its creditors and workers by seeing that

the resolution process goes through as fast as possible

so that another management can, through its

entrepreneurial skills, resuscitate the corporate

debtor to achieve all these ends.”

13. This Court further held:

“42. A perusal of the definition of “financial

creditor” and “financial debt” makes it clear that a

financial debt is a debt together with interest, if

any, which is disbursed against the consideration for

time value of money. It may further be money that is

borrowed or raised in any of the manners prescribed in

Section 5(8) or otherwise, as Section 5(8) is an

inclusive definition. On the other hand, an

“operational debt” would include 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 and payable to the Government or

any local authority.

43. A financial creditor may trigger the Code either by

itself or jointly with other financial creditors or

such persons as may be notified by the Central

Government when a “default” occurs. The Explanation to

Section 7(1) also makes it clear that the Code may be

triggered by such persons in respect of a default made

to any other financial creditor of the corporate

debtor, making it clear that once triggered, the

resolution process under the Code is a collective

proceeding in rem which seeks, in the first instance,

to rehabilitate the corporate debtor. Under Section

7(4), the adjudicating authority shall, within the

prescribed period, ascertain the existence of a default

on the basis of evidence furnished by the financial

creditor; and under Section 7(5), the adjudicating

authority has to be satisfied that a default has

occurred, when it may, by order, admit the application,

or dismiss the application if such default has not

occurred. On the other hand, under Sections 8 and 9, an

operational creditor may, on the occurrence of a

default, deliver a demand notice which must then be

replied to within the specified period. What is

important is that at this stage, if an application is

13

filed before the adjudicating authority for initiating

the corporate insolvency resolution process, the

corporate debtor can prove that the debt is disputed.

When the debt is so disputed, such application would be

rejected.”

14. In Pioneer Urban Land and Infrastructure Ltd. Vs. Union

of India4, this Court speaking through Nariman, J. referred to

several earlier judgments including Innoventive Industries

Ltd. (supra) and Swiss Ribbons Pvt. Ltd. (supra) and held that

even individuals who were debenture holders and fixed deposit

holders could also be financial creditors who could initiate

the Corporate Resolution Process.

15. The definition of ‘financial debt’ in Section 5(8) of the

IBC cannot be read in isolation, without considering some

other relevant definitions, particularly, the definition of

‘claim’ in Section 3(6), ‘corporate debtor’ in Section 3(8),

‘creditor’ in Section 3(10), ‘debt’ in section 3(11),

‘default’ in Section 3(12), ‘financial creditor’ in Section

5(7) as also the provisions, inter alia, of Sections 6 and 7

of the IBC.

16. Under Section 6 of the IBC, a right accrues to a

Financial Creditor, an Operational Creditor and the Corporate

Debtor itself to initiate the Corporate Insolvency Resolution

Process in respect of such Corporate Debtor, in the manner

provided in Chapter II of the IBC.

4 (2019) 8 SCC 416

14

17. Section 7 of the IBC enables a Financial Creditor to file

an application for initiating Corporate Insolvency Resolution

Process against a Corporate Debtor either by itself, or

jointly with other Financial Creditors or any other person on

behalf of the Financial Creditor, as may be notified by the

Central Government, when a default has occurred.

18. The eligibility of a person, to initiate the Corporate

Insolvency Resolution Process, if questioned, has to be

adjudicated upon consideration of the key words and

expressions in the aforesaid Section and other related

provisions.

19. Corporate Resolution Process gets triggered when a

Corporate Debtor commits a default. A Financial Creditor may

file an application for initiating a Corporate Insolvency

Resolution Process against the Corporate Debtor, when a

default has occurred.

20. A ‘corporate debtor’ means a corporate person who owes a

debt to any person, as per the definition of this expression

in Section 3(8) of the IBC. Section 3(11) defines ‘debt’ to

mean “a liability or obligation in respect of a claim which

is due from any person and includes a financial debt and

operational debt.” The word ‘claim’ has been defined in

15

Section 3(6) to mean inter alia “a right to payment, whether

or not such right is reduced to judgment, fixed, disputed,

undisputed, legal, equitable, secured or unsecured.”

‘Default’ is defined in section 3(12) to mean “non-payment of

a debt when the whole or any part or instalment of the amount

of debt has become due and payable and is not paid by the

debtor or the Corporate Debtor, as the case may be.” Under

Section 5(7) of the IBC ‘financial creditor’ means any person

to whom a financial debt is owed and includes a person to whom

such debt has legally been assigned.

21. The definition of ‘financial debt’ in Section 5(8) of the

IBC has been quoted above. Section 5(8) defines ‘financial

debt’ to mean “a debt along with interest if any which is

disbursed against the consideration of the time value of money

and includes money borrowed against the payment of interest, as

per Section 5(8) (a) of the IBC. The definition of ‘financial

debt’ in Section 5(8) includes the components of sub-clauses (a)

to (i) of the said Section.

22. The NCLT and NCLAT have overlooked the words “if any”

which could not have been intended to be otiose. ‘Financial

debt’ means outstanding principal due in respect of a loan and

would also include interest thereon, if any interest were

payable thereon. If there is no interest payable on the

loan, only the outstanding principal would qualify as a

financial debt. Both NCLAT and NCLT have failed to notice

16

clause(f) of Section 5(8), in terms whereof ‘financial debt’

includes any amount raised under any other transaction, having

the commercial effect of borrowing.

23. Furthermore, sub-clauses (a) to (i) of Sub-section 8 of

Section 5 of the IBC are apparently illustrative and not

exhaustive. Legislature has the power to define a word in a

statute. Such definition may either be restrictive or be

extensive. Where the word is defined to include something,

the definition is prima facie extensive.

24. In Dilworth v. Commissioner of Stamps5 the Privy Council,

dealing with a definition which incorporated the word

“include”, said, “The word ‘include’ is very generally used in

interpretation clauses in order to enlarge the meaning; and

when it is so used these words or phrases must be construed as

comprehending, not only such things as they signify according

to their natural import, but also those as things which the

interpretation clause declares that they shall include. But

the word ‘include’ is susceptible of another construction,

which may become imperative, if the context of the Act is

sufficient to show that it was not merely employed for the

purpose of adding to the natural significance of the words or

expressions defined. It may be equivalent to ‘mean and

include’, and in that case it may afford an exhaustive

5 (1899) AC 99 

17

explanation of the meaning which, for the purposes of the Act,

must invariably be attached to these words or expressions.”

25. In dealing with the definition of ‘industry’ in the

Industrial Disputes Act 1947 in the State of Bombay v.

Hospital Mazdoor Sabha and Ors6, a three-judge Bench of this

Court speaking through Gajendragadkar, J. said “It is obvious

that the words used in an inclusive definition denote

extension and cannot be treated as restricted. Where we are

dealing with an inclusive interpretation, it would be

inappropriate to put a restrictive interpretation upon words

of wider denotation.”

26. In CIT Andhra Pradesh v. Taj Mahal Hotel Secunderabad7,

this Court, speaking through A.N. Grover, J. construed the

definition of plant in Section 10(5) of the Income Tax Act,

1922, which read “plant” includes vehicles, books, scientific

apparatus and surgical equipment, purchased for the purpose of

the business, profession or vocation and observed:-

“The very fact that even books have been included shows

that the meaning intended to be given to ‘plant’ is

wide. The word ‘includes’ is often used in

interpretation clauses in order to enlarge the meaning

of the words or phrases occurring in the body of the

statute. When it is so used these words and phrases

must be construed as comprehending not only such things

as they signify according to their nature and import

but also those things which the interpretation clause

declares that they shall include.”

6 AIR 1960 SC 610

7 (1971) 3 SCC 550

18

27. Of course, depending on the context in which the word

‘includes’ may have been used, and the objects and the scheme

of the enactment as a whole, the expression ‘includes’ may

have to be construed as restrictive and exhaustive.

28. In a recent judgment of this Court in Anuj Jain, Interim

Resolution Professional for Jaypee Infratech Ltd. V. Axis

Bank Ltd.

8, this court, speaking through Maheswari, J.

referred to various precedents on restrictive and expansive

interpretation of words and phrases used in a statute,

particularly, the words ‘means’ and ‘includes’ and held:-

“46. Applying the aforementioned fundamental principles

to the definition occurring in Section 5(8) of the

Code, we have not an iota of doubt that for a debt to

become “financial debt” for the purpose of Part II of

the Code, the basic elements are that it ought to be a

disbursal against the consideration for time value of

money. It may include any of the methods for raising

money or incurring liability by the modes prescribed in

clauses (a) to (f) of Section 5(8); it may also include

any derivative transaction or counter-indemnity

obligation as per clauses (g) and (h) of Section 5(8);

and it may also be the amount of any liability in

respect of any of the guarantee or indemnity for any of

the items referred to in clauses (a) to (h). The

requirement of existence of a debt, which is disbursed

against the consideration for the time value of money,

in our view, remains an essential part even in respect

of any of the transactions/dealings stated in clauses

(a) to (i) of Section 5(8), even if it is not

necessarily stated therein. In any case, the

definition, by its very frame, cannot be read so

expansive, rather infinitely wide, that the root

requirements of “disbursement” against “the

consideration for the time value of money” could be

forsaken in the manner that any transaction could stand

alone to become a financial debt. In other words, any

8 (2020) 8 SCC 401

19

of the transactions stated in the said clauses (a) to

(i) of Section 5(8) would be falling within the ambit

of “financial debt” only if it carries the essential

elements stated in the principal clause or at least has

the features which could be traced to such essential

elements in the principal clause. In yet other words,

the essential element of disbursal, and that too

against the consideration for time value of money,

needs to be found in the genesis of any debt before it

may be treated as “financial debt” within the meaning

of Section 5(8) of the Code. This debt may be of any

nature but a part of it is always required to be

carrying, or corresponding to, or at least having some

traces of disbursal against consideration for the time

value of money.

47. As noticed, the root requirement for a creditor to

become financial creditor for the purpose of Part II of

the Code, there must be a financial debt which is owed

to that person. He may be the principal creditor to

whom the financial debt is owed or he may be an

assignee in terms of extended meaning of this

definition but, and nevertheless, the requirement of

existence of a debt being owed is not forsaken.

48. It is also evident that what is being dealt with

and described in Section 5(7) and in Section 5(8) is

the transaction vis-à-vis the corporate debtor.

Therefore, for a person to be designated as a financial

creditor of the corporate debtor, it has to be shown

that the corporate debtor owes a financial debt to such

person. Understood this way, it becomes clear that a

third party to whom the corporate debtor does not owe a

financial debt cannot become its financial creditor for

the purpose of Part II of the Code.

49. Expounding yet further, in our view, the peculiar

elements of these expressions “financial creditor” and

“financial debt”, as occurring in Sections 5(7) and

5(8), when visualised and compared with the generic

expressions “creditor” and “debt” respectively, as

occurring in Sections 3(10) and 3(11) of the Code, the

scheme of things envisaged by the Code becomes clearer.

The generic term “creditor” is defined to mean any

person to whom the debt is owed and then, it has also

been made clear that it includes a “financial

creditor”, a “secured creditor”, an “unsecured

creditor”, an “operational creditor”, and a “decreeholder”. Similarly, a “debt” means a liability or

obligation in respect of a claim which is due from any

person and this expression has also been given an

extended meaning to include a “financial debt” and an

“operational debt”.

49.1. The use of the expression “means and includes” in

these clauses, on the very same principles of

20

interpretation as indicated above, makes it clear that

for a person to become a creditor, there has to be a

debt, i.e., a liability or obligation in respect of a

claim which may be due from any person. A “secured

creditor” in terms of Section 3(30) means a creditor in

whose favour a security interest is created; and

“security interest”, in terms of Section 3(31), means a

right, title or interest or claim of property created

in favour of or provided for a secured creditor by a

transaction which secures payment for the purpose of an

obligation and it includes, amongst others, a mortgage.

Thus, any mortgage created in favour of a creditor

leads to a security interest being created and thereby,

the creditor becomes a secured creditor. However, when

all the defining clauses are read together and

harmoniously, it is clear that the legislature has

maintained a distinction amongst the expressions

“financial creditor”, “operational creditor”, “secured

creditor” and “unsecured creditor”. Every secured

creditor would be a creditor; and every financial

creditor would also be a creditor but every secured

creditor may not be a financial creditor. As noticed,

the expressions “financial debt” and “financial

creditor”, having their specific and distinct

connotations and roles in insolvency and liquidation

process of corporate persons, have only been defined in

Part II whereas the expressions “secured creditor” and

“security interest” are defined in Part I.

50. A conjoint reading of the statutory provisions with

the enunciation of this Court in Swiss Ribbons [Swiss

Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17] ,

leaves nothing to doubt that in the scheme of the IBC,

what is intended by the expression “financial creditor”

is a person who has direct engagement in the

functioning of the corporate debtor; who is involved

right from the beginning while assessing the viability

of the corporate debtor; who would engage in

restructuring of the loan as well as in reorganisation

of the corporate debtor's business when there is

financial stress. In other words, the financial

creditor, by its own direct involvement in a functional

existence of corporate debtor, acquires unique

position, who could be entrusted with the task of

ensuring the sustenance and growth of the corporate

debtor, akin to that of a guardian. In the context of

insolvency resolution process, this class of

stakeholders, namely, financial creditors, is entrusted

by the legislature with such a role that it would look

forward to ensure that the corporate debtor is

rejuvenated and gets back to its wheels with reasonable

capacity of repaying its debts and to attend on its

other obligations. Protection of the rights of all

other stakeholders, including other creditors, would

obviously be concomitant of such resurgence of the

corporate debtor.”

21

29. In Jaypee Infratech Ltd. (supra), the debts in question

were in the form of third-party security, given by the

Corporate Debtor to secure loans and advances obtained a third

party from the Respondent Lender and, therefore, held not to

be a financial debt within the meaning of Section 5(8) of the

IBC. There was no occasion for this Court to consider the

status of a term loan advanced to meet the working capital

requirements of the Corporate Debtor, which did not carry

interest. Having regard to the Aims, Objects and Scheme of

the IBC, there is no discernible reason, why a term loan to

meet the financial requirements of a Corporate Debtor for its

operation, which obviously has the commercial effect of

borrowing, should be excluded from the purview of a financial

debt.

30. In Prabhudas Damodar Kotecha Vs. Manhabala Jeram

Damodar9, this Court interpreting Section 41(1) of the

Presidency Small Cause Courts Act, 1882, as amended by the

Maharashtra Act XIX of 1976, observed that ‘the golden rule is

that the words of a statute must prima facie be given their

ordinary meaning when the language or phraseology employed by

the legislature is precise and plain'. Since Section 41(1)

does not specifically exclude a gratuitous licensee or make a

distinction between a licensee with material consideration or

9 (2013) 15 SCC 358

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without material consideration, the expression ‘licensee’ in

Section 41(1) was held to also include a ‘gratuitous

licensee’.

31. At the cost of repetition, it is reiterated that the

trigger for initiation of the Corporate Insolvency Resolution

Process by a Financial Creditor under Section 7 of the IBC is

the occurrence of a default by the Corporate Debtor.

‘Default’ means non-payment of debt in whole or part when the

debt has become due and payable and debt means a liability or

obligation in respect of a claim which is due from any person

and includes financial debt and operational debt. The

definition of ‘debt’ is also expansive and the same includes

inter alia financial debt. The definition of ‘Financial Debt’

in Section 5(8) of IBC does not expressly exclude an interest

free loan. ‘Financial Debt’ would have to be construed to

include interest free loans advanced to finance the business

operations of a corporate body.

32. The appeal is, therefore, allowed. The judgment and

order impugned is, accordingly, set aside. The order of the

Adjudicating Authority, dismissing the petition of the

Appellant under Section 7 of the IBC is also set aside.

The petition under Section 7 stands revived and may be decided

afresh, in accordance with law and in the light of the

findings above.

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33. Pending applications, if any, stand disposed of

accordingly.

………………………………………………………,J.

[INDIRA BANERJEE]

………………………………………………………,J.

[V. RAMASUBRAMANIAN]

New Delhi;

July 26, 2021.