SC refuses to review its judgment in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022)

The Supreme Court recently refused to review its judgment in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. (2022), which had held that power of the National Company Law Tribunal (NCLT) to admit an application for initiation of the corporate insolvency resolution process (CIRP) by a financial creditor under Section 7(5)(a) of the Insolvency and Bankruptcy Code, is discretionary and not mandatory [Axis Bank Ltd. v. Vidarbha Industries Power Ltd.].

In the case of Vidarbha Industries Power Limited v. Axis Bank Limited (2022 SCC Online SC 841) (“case“), the Supreme Court was presented with a set of facts which necessitated adjudication on the discretionary powers of the Adjudicating Authority (as defined as “National Company Law Tribunal” under Section 5(1) of the Code) basis the statutory interpretation of Section 7(5) (a) of the Code. Upon a detailed consideration of the rules of statutory interpretation, a division bench of the Hon’ble Supreme Court rejected the view of National Company Law Tribunal, Mumbai (“NCLT Mumbai“) and National Company Law Appellate Tribunal (“NCLAT“) and vide order dated 14th July 2022 inter alia held that the Adjudicating Authority has the discretion powers to admit or dismiss a petition under Section 7 even in the existence of debt and default. Pertinently, the Supreme Court has also held that these discretionary powers cannot be wielded arbitrarily, and the discretionary powers can be exercised by the Adjudicating Authority only when the facts and circumstances of the cases warrant this exercise.

The rationale of the Supreme Court is based on the general principles of interpretation of statutes. The Supreme Court has interpreted the word “may” in Section 7(5) (a) of the Code to uphold the discretionary powers vested in the Adjudicating Authority whilst deciding petitions filed by Financial Creditors under Section 7 of the Code.

In doing so, the Hon’ble Supreme Court has taken a liberal interpretation of the provisions of the Code to hold that it is not the intention of the Code to penalize solvent companies who have temporarily defaulted in repayment of financial debts.

However, these discretionary powers are in no manner unfettered. The Supreme Court has also cautioned that the said discretionary powers must be exercised in a particular manner based on the facts and circumstances of the case. Whilst this move is a welcome relief for Corporate Debtors who have for genuine grounds lapsed in payments, the possibility of misuse to frustrate the object of the Code can certainly not be ruled out.