Compedium Respondent Anonymous

TEAM CODE: 001
9TH NLIU CORPORATE LAW MOOT COURT COMPETITION
IN THE
HON’BLE SUPREME COURT OF INDIA
AT NEW DELHI
COMPENDIUM
COMPENDIUM FOR THE RESPONDENTS

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No. 9170 of 2019
(@ Special Leave Petition (C) No. 22596 of 2019)
M/s Embassy Property Developments Pvt. Ltd. ...Appellant(s)
Versus
State of Karnataka & Ors. ...Respondent(s)

WITH
and
J U D G M E N T
V. Ramasubramanian, J.
1. Leave Granted.
2. Two seminal questions of importance namely:
Signature Not Verified
Digitally signed by R
NATARAJAN
i) Whether the High Court ought to interfere, under
Date: 2019.12.03
17:00:14 IST
Reason:
Article 226/227 of the Constitution, with an Order
1
superior court is questioned on the basis of ouster clauses and
(ii) cases where the exercise of jurisdiction by a superior court
is questioned on the ground of availability of alternative
remedy, was recognized even in Anisminic, when Lord Reid
referred to the decision in Smith vs. East Elloe Rural
District Council16 as posing some difficulty. As a result, the
Court of Appeal held in R vs. Secretary of State for the
Environment, Ex p. Ostler17 that the availability of a
statutory right to challenge within a specified time limit,
among other points, provided a sufficient basis for
distinguishing Anisminic. This was taken note of by the UK
Supreme Court in Regina (Privacy International). Therefore
the question whether the error committed by an administrative
authority/tribunal or a court of law went to jurisdiction or
whether it was within jurisdiction may still be relevant to test
whether a statutory alternative remedy should be allowed to
be bypassed or not.
16 (1956) AC 736
17 (1977) QB 122
24
23. In several cases, both in England and India, the ancient
rule stated by Willes, J., in Wolverhampton New
Waterworks Co. vs. Hawkesford18 to the effect that where a
liability not existing at Common Law is created by a statute,
which also gives a special and particular remedy for enforcing
it, the remedy provided by the statute must be followed, has
been quoted with approval. For instance, Union Bank of
India vs. Satyawati Tandon19 held that the availability of a
remedy of appeal under the DRT Act, 1993 and SARFAESI Act,
2002 should deter the High Courts from exercising the
jurisdiction under Article 226. Similarly, the availability of
remedy of appeal under Section 173 of the Motor Vehicles Act,
1988 as against an award of the Accidents Claims Tribunal
was held in Sadhana Lodh vs. National Insurance Co.20 as
sufficient for the High Court to refuse to exercise its
supervisory jurisdiction. The same principle was applied in (1)
Nivedita Sharma vs. Cellular Operators Association of
18 [1859] 6 CB (NS) 336

19 (2010) 8 SCC 110
20 (2003) 3 SCC 524
25
India21 and (2) Cicily Kallarackal vs. Vehicle Factory22 in
relation to the awards passed by the special fora constituted
under the Consumer Protection Act, 1986.
24. Therefore in so far as the question of exercise of the
power conferred by Article 226, despite the availability of a
statutory alternative remedy, is concerned, Anisminic cannot
be relied upon. The distinction between the lack of jurisdiction
and the wrongful exercise of the available jurisdiction, should
certainly be taken into account by High Courts, when Article
226 is sought to be invoked bypassing a statutory alternative
remedy provided by a special statute.
25. On the basis of this principle, let us now see whether the
case of the State of Karnataka fell under the category of (1)
lack of jurisdiction on the part of the NCLT to issue a direction
in relation to a matter covered by MMDR Act, 1957 and the
Statutory Rules issued thereunder or (2) mere wrongful
exercise of a recognised jurisdiction, say for instance, asking
21 (2011) 14 SCC 337

22 (2012) 8 SCC 524
26
MANU/SC/0054/2018
Equivalent Citation: AIR2018SC 676, 2018(2)ALD132, 2018 (129) ALR 204, 2018 2 AWC 1100SC , 2018(2)BomC R279, [2018]143C LA331(SC ),
2018(3)C TC 671, ILR2018(1)Kerala479, 2018(1)J.L.J.R.381, 2018(1)JKJ107[SC ], 2018 (1) KHC 786, 2018(1)KLJ820, 2018(1)KLT784, 2018-3-
LW445, 2018(5)MhLj586, 2018(4)MPLJ162, 2018(2)PLJR61, 2018(2)RC R(C ivil)1, 2018 141 RD92, 2018(1)SC ALE618, (2018)3SC C 85, 2018 (3)
SC J 201, [2018]146SC L83(SC ), 2018(1)UC 294, 2018(2)UC 855, (2018)2WBLR(SC )365

Civil Appeal No. 1281 of 2018 (Arising out of SLP (C) No. 24610 of 2015)
Decided On: 30.01.2018
Appellants: Authorized Officer, State Bank of Travancore and Ors.
Vs.
Respondent: Mathew K.C.
Hon'ble Judges/Coram:
Rohinton Fali Nariman and Navin Sinha, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: Harin P. Raval, Sr. Adv., Sanjay Kapur, Megha
Karnwal, Mansi Kapur and Aditya P. Arora, Advs.
For Respondents/Defendant: Roy Abraham, Praveen Kumar, Reena Roy, Seema Jain,
Akhil Abraham and Himinder Lal, Advs.
Case Category:
MERCANTILE LAWS, COMMERCIAL TRANSACTIONS INCLUDING BANKING - MATTERS
RELATING TO SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND
REINFORCEMENT OF SECURITY INTEREST ACT, 2002
JUDGMENT
Navin Sinha, J.
1. Leave granted.
2 . The present appeal assails an interim order dated 24.04.2015 passed in a writ
petition Under Article 226 of the Constitution, staying further proceedings at the
stage of Section 13(4) of the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 (hereinafter referred as the 'SARFAESI
Act'), on deposit of Rs. 3,50,000/- within two weeks. An appeal against the same has
also been dismissed by the Division Bench observing that counter affidavit having
been filed, it would be open for the Appellant Bank to seek
clarification/modification/variation of the interim order.
3. Shri H.P. Raval, learned Senior Counsel appearing for the Appellants, submits that
the loan account of the Respondent was declared a Non-Performing Asset (NPA) on
28.12.2014. The outstanding dues of the Respondent on the date of the institution of
the writ petition was Rs. 41,82,560/-. Despite repeated notices, the Respondent
failed and neglected to pay the dues. Statutory notice Under Section 13(2) of the
SARFAESI Act was issued to the Respondent on 21.01.2015. The objections Under
Section 13(3A) were considered, and rejection was communicated by the Appellant
on 31.3.2015. Possession notice was then issued Under Section 13(4) of the Act read
19-01-2021 (Page 1 of 7) www.manupatra.com National Law University Jodhpur

with Rule 8 of The Security Interest (Enforcement) Rules, 2002 (hereinafter referred
to as 'the Rules') on 21.04.2015.
4. The SARFAESI Act is a complete code by itself, providing for expeditious recovery
of dues arising out of loans granted by financial institutions, the remedy of appeal by
the aggrieved Under Section 17 before the Debt Recovery Tribunal, followed by a
right to appeal before the Appellate Tribunal Under Section 18. The High Court ought
not to have entertained the writ petition in view of the adequate alternate statutory
remedies available to the Respondent. The interim order was passed on the very first
date, without an opportunity to the Appellant to file a reply. Reliance was placed on
United Bank of India v. Satyawati Tandon and Ors. MANU/SC/0541/2010 :
2010 (8) SCC 110, and General Manager, Sri Siddeshwara Cooperative Bank
Limited and Anr. v. Ikbal and Ors. MANU/SC/0856/2013 : 2013 (10) SCC 83. The
writ petition ought to have been dismissed at the threshold on the ground of
maintainability. The Division Bench erred in declining to interfere with the same.
5 . Shri Roy Abraham, learned Counsel for the Respondent, submitted that it was
desirous to repay the loan, and merely sought regularisation of the loan account. The
inability to service the loan was genuine, occasioned due to market fluctuations
causing huge loss in business, beyond the control of the Respondent. The failure of
the Bank to consider the request for regularisation of the loan account, the absence
of a right to appeal Under Section 17 against the order passed Under Section 13(3A),
the Respondent was left with no option but to prefer the writ application as the
Respondent genuinely desired to discharge the loans. The collateral security offered
included agricultural lands also, which had to be excluded Under Section 31 of the
SARFAESI Act. There had been violation of the principles of natural justice. A large
number of similar writ applications are pending before the High Court preferred by
the concerned borrowers, but the Bank has singled out the present Respondent alone
for a challenge.
6. We have considered the submissions on behalf of the parties. Normally this Court
in exercise of jurisdiction Under Article 136 of the Constitution is loathe to interfere
with an interim order passed in a pending proceeding before the High Court, except
in special circumstances, to prevent manifest injustice or abuse of the process of the
court. In the present case, the facts are not in dispute. The discretionary jurisdiction
Under Article 226 is not absolute but has to be exercised judiciously in the given
facts of a case and in accordance with law. The normal Rule is that a writ petition
Under Article 226 of the Constitution ought not to be entertained if alternate statutory
remedies are available, except in cases falling within the well defined exceptions as
observed in Commissioner of Income Tax and Ors. v. Chhabil Dass Agarwal,
MANU/SC/0802/2013 : 2014 (1) SCC 603, as follows:
1 5 . Thus, while it can be said that this Court has recognised some
exceptions to the Rule of alternative remedy i.e. where the statutory authority
has not acted in accordance with the provisions of the enactment in question,
or in defiance of the fundamental principles of judicial procedure, or has
resorted to invoke the provisions which are repealed, or when an order has
been passed in total violation of the principles of natural justice, the
proposition laid down in Thansingh Nathmal case, Titaghur Paper Mills case
and other similar judgments that the High Court will not entertain a petition
Under Article 226 of the Constitution if an effective alternative remedy is
available to the aggrieved person or the statute under which the action
complained of has been taken itself contains a mechanism for redressal of

grievance still holds the field. Therefore, when a statutory forum is created
by law for redressal of grievances, a writ petition should not be entertained
ignoring the statutory dispensation.
7. The pleadings in the writ petition are very bald and contain no statement that the
grievances fell within any of the well defined exceptions. The allegation for violation
of principles of natural justice is rhetorical, without any details and the prejudice
caused thereby. It harps only on a desire for regularisation of the loan account, even
while the Respondent acknowledges its own inability to service the loan account for
reasons attributable to it alone. The writ petition was filed in undue haste in March
2015 immediately after disposal of objections Under Section 13(3A). The legislative
scheme, in order to expedite the recovery proceedings, does not envisage grievance
redressal procedure at this stage, by virtue of the explanation added to Section 17 of
the Act, by Amendment Act 30 of 2004, as follows:
Explanation.--For the removal of doubts, it is hereby declared that the
communication of the reasons to the borrower by the secured creditor for not
having accepted his representation or objection or the likely action of the
secured creditor at the stage of communication of reasons to the borrower
shall not entitle the person (including the borrower) to make an application
to the Debts Recovery Tribunal under this Sub-section.
8. The Section 13(4) notice along with possession notice Under Rule 8 was issued on
21.04.2015. The remedy Under Section 17 of the SARFAESI Act was now available to
the Respondent if aggrieved. These developments were not brought on record or
placed before the Court when the impugned interim order came to be passed on
24.04.2015. The writ petition was clearly not instituted bonafide, but patently to stall
further action for recovery. There is no pleading why the remedy available Under
Section 17 of the Act before the Debt Recovery Tribunal was not efficacious and the
compelling reasons for by-passing the same. Unfortunately, the High Court also did
not dwell upon the same or record any special reasons for grant of interim relief by
direction to deposit.
9. The statement of objects and reasons of the SARFAESI Act states that the banking
and financial sector in the country was felt not to have a level playing field in
comparison to other participants in the financial markets in the world. The financial
institutions in India did not have the power to take possession of securities and sell
them. The existing legal framework relating to commercial transactions had not kept
pace with changing commercial practices and financial sector reforms resulting in
tardy recovery of defaulting loans and mounting non-performing assets of banks and
financial institutions. The Narasimhan Committee I and II as also the Andhyarujina
Committee constituted by the Central Government Act had suggested enactment of
new legislation for securitisation and empowering banks and financial institutions to
take possession of securities and sell them without court intervention which would
enable them to realise long term assets, manage problems of liquidity, asset liability
mismatches and improve recovery. The proceedings under the Recovery of Debts due
to Banks and Financial Institutions Act, 1993, (hereinafter referred to as 'the DRT
Act') with passage of time, had become synonymous with those before regular courts
affecting expeditious adjudication. All these aspects have not been kept in mind and
considered before passing the impugned order.
10. Even prior to the SARFAESI Act, considering the alternate remedy available under
the DRT Act it was held in Punjab National Bank v. O.C. Krishnan and Ors.

MANU/SC/0452/2001 : (2001) 6 SCC 569, that:
6. The Act has been enacted with a view to provide a special procedure for
recovery of debts due to the banks and the financial institutions. There is a
hierarchy of appeal provided in the Act, namely, filing of an appeal Under
Section 20 and this fast-track procedure cannot be allowed to be derailed
either by taking recourse to proceedings Under Articles 226 and 227 of the
Constitution or by filing a civil suit, which is expressly barred. Even though a
provision under an Act cannot expressly oust the jurisdiction of the court
Under Articles 226 and 227 of the Constitution, nevertheless, when there is
an alternative remedy available, judicial prudence demands that the Court
refrains from exercising its jurisdiction under the said constitutional
provisions. This was a case where the High Court should not have
entertained the petition Under Article 227 of the Constitution and should have
directed the Respondent to take recourse to the appeal mechanism provided
by the Act.
1 1 . I n Satyawati Tandon (supra), the High Court had restrained further
proceedings Under Section 13(4) of the Act. Upon a detailed consideration of the
statutory scheme under the SARFAESI Act, the availability of remedy to the aggrieved
Under Section 17 before the Tribunal and the appellate remedy Under Section 18
before the Appellate Tribunal, the object and purpose of the legislation, it was
observed that a writ petition ought not to be entertained in view of the alternate
statutory remedy available holding:
43. Unfortunately, the High Court overlooked the settled law that the High
Court will ordinarily not entertain a petition Under Article 226 of the
Constitution if an effective remedy is available to the aggrieved person and
that this Rule applies with greater rigour in matters involving recovery of
taxes, cess, fees, other types of public money and the dues of banks and
other financial institutions. In our view, while dealing with the petitions
involving challenge to the action taken for recovery of the public dues, etc.
the High Court must keep in mind that the legislations enacted by Parliament
and State Legislatures for recovery of such dues are a code unto themselves
inasmuch as they not only contain comprehensive procedure for recovery of
the dues but also envisage constitution of quasi-judicial bodies for redressal
of the grievance of any aggrieved person. Therefore, in all such cases, the
High Court must insist that before availing remedy Under Article 226 of the
Constitution, a person must exhaust the remedies available under the
relevant statute.
***
55. It is a matter of serious concern that despite repeated pronouncement of
this Court, the High Courts continue to ignore the availability of statutory
remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction
Under Article 226 for passing orders which have serious adverse impact on
the right of banks and other financial institutions to recover their dues. We
hope and trust that in future the High Courts will exercise their discretion in
such matters with greater caution, care and circumspection.
1 2 . I n Union Bank of India and Anr. v. Panchanan Subudhi,
MANU/SC/1229/2009 : 2010 (15) SCC 552, further proceedings Under Section 13(4)

were stayed in the writ jurisdiction subject to deposit of Rs. 10,00,000/- leading this
Court to observe as follows:
7 . In our view, the approach adopted by the High Court was clearly
erroneous. When the Respondent failed to abide by the terms of one-time
settlement, there was no justification for the High Court to entertain the writ
petition and that too by ignoring the fact that a statutory alternative remedy
was available to the Respondent Under Section 17 of the Act.
13. The same view was reiterated in Kanaiyalal Lalchand Sachdev and Ors. v.
State of Maharashtra and Ors. MANU/SC/0103/2011 : 2011 (2) SCC 782
observing:
23. In our opinion, therefore, the High Court rightly dismissed the petition
on the ground that an efficacious remedy was available to the Appellants
Under Section 17 of the Act. It is well settled that ordinarily relief Under
Articles 226/227 of the Constitution of India is not available if an efficacious
alternative remedy is available to any aggrieved person. (See Sadhana Lodh
v. National Insurance Co. Ltd.; Surya Dev Rai v. Ram Chander Rai and SBI v.
Allied Chemical Laboratories.)
1 4 . I n Ikbal (supra), it was observed that the action of the Bank Under Section
13(4) of the 'SARFAESI Act' available to challenge by the aggrieved Under Section 17
was an efficacious remedy and the institution directly Under Article 226 was not
sustainable, relying upon Satyawati Tandon (Supra), observing:
27. No doubt an alternative remedy is not an absolute bar to the exercise of
extraordinary jurisdiction Under Article 226 but by now it is well settled that
where a statute provides efficacious and adequate remedy, the High Court
will do well in not entertaining a petition Under Article 226. On misplaced
considerations, statutory procedures cannot be allowed to be circumvented.
***
28.......In our view, there was no justification whatsoever for the learned
Single Judge to allow the borrower to bypass the efficacious remedy
provided to him Under Section 17 and invoke the extraordinary jurisdiction in
his favour when he had disentitled himself for such relief by his conduct. The
Single Judge was clearly in error in invoking his extraordinary jurisdiction
Under Article 226 in light of the peculiar facts indicated above. The Division
Bench also erred in affirming the erroneous order of the Single Judge.
15. A similar view was taken in Punjab National Bank and Anr. v. Imperial Gift
House and Ors. MANU/SC/1010/2009 : (2013) 14 SCC 622, observing:
3. Upon receipt of notice, the Respondents filed representation Under Section
13(3-A) of the Act, which was rejected. Thereafter, before any further action
could be taken Under Section 13(4) of the Act by the Bank, the writ petition
was filed before the High Court.
4 . In our view, the High Court was not justified in entertaining the writ
petition against the notice issued Under Section 13(2) of the Act and
quashing the proceedings initiated by the Bank.

16. It is the solemn duty of the Court to apply the correct law without waiting for an
objection to be raised by a party, especially when the law stands well settled. Any
departure, if permissible, has to be for reasons discussed, of the case falling under a
defined exception, duly discussed after noticing the relevant law. In financial matters
grant of ex-parte interim orders can have a deleterious effect and it is not sufficient
to say that the aggrieved has the remedy to move for vacating the interim order.
Loans by financial institutions are granted from public money generated at the tax
payers expense. Such loan does not become the property of the person taking the
loan, but retains its character of public money given in a fiduciary capacity as
entrustment by the public. Timely repayment also ensures liquidity to facilitate loan
to another in need, by circulation of the money and cannot be permitted to be
blocked by frivolous litigation by those who can afford the luxury of the same. The
caution required, as expressed in Satyawati Tandon (supra), has also not been
kept in mind before passing the impugned interim order:
4 6 . It must be remembered that stay of an action initiated by the State
and/or its agencies/instrumentalities for recovery of taxes, cess, fees, etc.
seriously impedes execution of projects of public importance and disables
them from discharging their constitutional and legal obligations towards the
citizens. In cases relating to recovery of the dues of banks, financial
institutions and secured creditors, stay granted by the High Court would have
serious adverse impact on the financial health of such bodies/institutions,
which (sic will) ultimately prove detrimental to the economy of the nation.
Therefore, the High Court should be extremely careful and circumspect in
exercising its discretion to grant stay in such matters. of course, if the
Petitioner is able to show that its case falls within any of the exceptions
carved out in Baburam Prakash Chandra Maheshwari v. Antarim Zila Parishad,
Whirlpool Corporation v. Registrar of Trade Marks and Harbanslal Sahnia v.
Indian Oil Corporation Ltd. and some other judgments, then the High Court
may, after considering all the relevant parameters and public interest, pass
an appropriate interim order.
1 7 . The writ petition ought not to have been entertained and the interim order
granted for the mere asking without assigning special reasons, and that too without
even granting opportunity to the Appellant to contest the maintainability of the writ
petition and failure to notice the subsequent developments in the interregnum. The
opinion of the Division Bench that the counter affidavit having subsequently been
filed, stay/modification could be sought of the interim order cannot be considered
sufficient justification to have declined interference.
1 8 . We cannot help but disapprove the approach of the High Court for reasons
already noticed in Dwarikesh Sugar Industries Ltd. v. Prem Heavy Engineering
Works (P) Ltd. and Anr. MANU/SC/0639/1997 : 1997 (6) SCC 450, observing:
3 2 . When a position, in law, is well settled as a result of judicial
pronouncement of this Court, it would amount to judicial impropriety to say
the least, for the subordinate courts including the High Courts to ignore the
settled decisions and then to pass a judicial order which is clearly contrary to
the settled legal position. Such judicial adventurism cannot be permitted and
we strongly deprecate the tendency of the subordinate courts in not applying
the settled principles and in passing whimsical orders which necessarily has
the effect of granting wrongful and unwarranted relief to one of the parties.
It is time that this tendency stops.

19. The impugned orders are therefore contrary to the law laid down by this Court
Under Article 141 of the Constitution and unsustainable. They are therefore set aside
and the appeal is allowed.
20. All questions of law and fact remain open for consideration in any application by
the aggrieved before the statutory forum under the SARFAESI Act.
© Manupatra Information Solutions Pvt. Ltd.

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
NEW DELHI
Company Appeal (AT) (Insolvency) No. 608-610 of 2018
IN THE MATTER OF:
Mr. Anthony Raphael Kallarakkal …Appellant
Versus
Rajendra K. Bhuta & Ors. …Respondents
Present:
For Appellant : Mr. Rajvardhan Singh, Advocate
For Respondents : Mr. Rajeev K. Panday, Mr. Rajeev M. Roy, Mr. P.

Srinivasan, Mr. Ashish Verma and Ms. Nishtha
Sikroria and Ms. Sowmya Saikumar, Advocates
ORDER
12.11.2018 This appeal has been preferred by the appellant ‘Mr. Anthony
Raphael Kallarakkal’ against order dated 18th August, 2017; 5th April, 2018 and
18th July, 2018 along with petition for condonation of delay. Though the appeal
is against the orders dated 18th July, 2018 and 18th August, 2017 which are
hopelessly barred by limitation and cannot be entertained in view of sub-section
(2) of Section 61 of the I&B Code, in spite of the same, we have gone through the
impugned orders.
From the record we find that the ‘corporate insolvency resolution process’
was initiated against the ‘corporate debtor’ pursuant to an application under
Section 7 of the I&B Code filed by ‘The Abhyudaya Co-operative Bank Limited’
(Financial Creditor). In the said case, the Miscellaneous Application was filed by
the ‘Resolution Professional’ with the prayer in respect of a property bearing Plot
No. 849, Road No. 9, Kalamboli, Panvel, District Rajgad, admeasuring 900 sq.
-2-
mtrs. which was valued Rs. 1.79 Crores. In the declaration of Liquidation, he
advertised the same in the newspaper but due to obstruction from the side of
the others, the complaint was made before the Police. The Adjudicating
Authority by order dated 18th July, 2018 observed that the promoters and
Directors if obstructing the commencement of liquidation, they will be liable to
penal consequences as prescribed for punishment under Chapter-VII of the
Code.
From the order dated 18th August, 2017, we find that the application which
was filed on 9th June, 2017 under Section 7 of the I&B Code was admitted on
the said date and the order of moratorium was passed. The appellant could not
make it clear as to how the order of liquidation was passed earlier if the
application under Section 7 filed by ‘Abhyudaya Co-operative Bank Limited’
admitted on 18th August, 2017.
It appears that the order dated 18th August, 2017 passed by the
Adjudicating Authority was challenged before the Adjudicating Authority by filing
a Miscellaneous Application No. 239 /2018. It was submitted that the order was
passed in violation of rules of natural justice. However, taking into consideration
the earlier record, while the Adjudicating Authority held that there is ‘debt’ and
‘default’, further observed that the order passed earlier cannot be reviewed or
recalled in absence of any provision. The Miscellaneous Application was rejected
by order dated 5th April, 2018. The said order was handed over to the ‘Corporate
Debtor’ on 17th September, 2018 whereinafter this appeal has been filed. But it
appears that the appeal before this Tribunal was presented on 11th September,
2018 that is prior to issuance of the certified copy of the order. There is an
-3-
ambiguity as to how a certified copy issued on 17th September, 2018 have been
enclosed in the appeal filed by the ‘Corporate Debtor’ on 11th September, 2018.
In absence of any explanation, we are not deciding the merit.
For the said reason without going into the merit of the case and the appeal
being barred by limitation is dismissed. No cost.
[Justice S.J. Mukhopadhaya]

Chairperson
[ Justice Bansi Lal Bhat ]

Member (Judicial)
/ns/uk/
REPORTABLE
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOs. 8337-8338 OF 2017
M/S. INNOVENTIVE INDUSTRIES LTD. …APPELLANT
VERSUS
ICICI BANK & ANR. ...RESPONDENTS
JUDGMENT
R.F. Nariman, J.
1. The present case raises interesting questions which arise
under the Insolvency and Bankruptcy Code of 2016 (hereinafter
referred to as the Code), which received the Presidential assent on
28th May, 2016, but which provisions were brought into force only in
November-December, 2016.
2. The appellant before us is a multi-product company catering to
applications in diverse sectors. From August, 2012, owing to labour
problems, the appellant began to suffer losses. Since the appellant

Digitally signed by
R.NATARAJAN
was not able to service the financial assistance given to it by 19
Date: 2017.08.31
16:32:02 IST
Reason:
banking entities, which had extended credit to the appellant, the
appellant itself proposed corporate debt restructuring. The 19

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 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. Under Section 8(2), the corporate debtor can, within a period
of 10 days of receipt of the demand notice or copy of the invoice
mentioned in sub-section (1), bring to the notice of the operational
creditor the existence of a dispute or the record of the pendency of a
suit or arbitration proceedings, which is pre-existing – i.e. before
such notice or invoice was received by the corporate debtor. 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.
31. The rest of the insolvency resolution process is also very
important. The entire process is to be completed within a period of
180 days from the date of admission of the application under Section
12 and can only be extended beyond 180 days for a further period of
not exceeding 90 days if the committee of creditors by a voting of
75% of voting shares so decides. It can be seen that time is of
essence in seeing whether the corporate body can be put back on its
feet, so as to stave off liquidation.
32. As soon as the application is admitted, a moratorium in terms
of Section 14 of the Code is to be declared by the adjudicating

REPORTABLE
CIVIL ORIGINAL/APPELLATE JURISDICTION
WRIT PETITION (CIVIL) NO. 43 OF 2019
Pioneer Urban Land and Infrastructure …Petitioners

Limited & Anr.
Versus
Union of India & Ors. …Respondents
WITH
WRIT PETITION (CIVIL) NO.99 OF 2019
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CIVIL APPEAL NO.1486 OF 2019
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NATARAJAN
Date: 2019.08.09
15:26:59 IST
Reason:
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JUDGMENT
R.F. Nariman, J.
1. The large number of writ petitions that have been filed in
this Court challenge the constitutional validity of amendments
9
as in the Krishi Utpadan Mandi Samiti (supra) case. In two other
recent judgments, Bharat Coop. Bank (Mumbai) Ltd. v. Coop.
Bank Employees Union (2007) 4 SCC 685, at paragraphs 12 and
23, and State of West Bengal and Ors. v. Associated
Contractors (2015) 1 SCC 32 at paragraph 14, this Court has
held that wherever the expression “means” is followed by the
expression “and includes” whether with or without additional words
separating “means” from “includes”, these expressions indicate
that the definition provision is exhaustive as a matter of statutory
interpretation. It has also been held that the expression “and
includes” is an expression which extends the definition contained
in words which follow the expression “means”. From this
discussion, two things follow. Krishi Utpadan Mandi Samiti
(supra) cannot be said to be good law insofar as its exposition on
“means” and “includes” is concerned, as it ignores earlier
precedents of larger and coordinate benches and is out of sync
with later decisions on the same point. Equally, Dr. Singhvi’s
argument that sub-clauses (a) to (i) of Section 5(8) of the Code
must all necessarily reflect the fact that a financial debt can only
be a debt which is disbursed against the consideration for the time
value of money, and which permeates clauses (a) to (i), cannot be
accepted as a matter of statutory interpretation, as the expression
167
“and includes” speaks of subject matters which may not
necessarily be reflected in the main part of the definition.
73. In any event, as was correctly argued by learned Additional
Solicitor General Mrs. Madhavi Divan, the legislature is not
precluded by way of amendment from inserting words into what
may even be an exhaustive definition. What is an exhaustive
definition is exhaustive for purposes of interpretation of a statute
by the Courts, which cannot bind the legislature when it adds
something to the statute by way of amendment. On this score also,
there is no substance in the aforesaid argument.
74. It was then argued, relying on a large number of judgments
that Section 5(8)(f) must be construed noscitur a sociis with sub-
clauses (a) to (e) and (g) to (i), and so construed would only refer
to loans or other financial transactions which would involve money
at both ends. This, again, is not correct in view of the fact that
Section 5(8)(f) is clearly a residuary “catch all” provision, taking
within it matters which are not subsumed within the other sub-
clauses. Even otherwise, in Controller of Estate Duty v. Kantilal
Trikamlal (1976) 4 SCC 643, this Court has held that when an
expression is a residuary one, ejusdem generis will not apply. It
was thus held:
168
MANU/KE/0724/2002
Equivalent Citation: 2003(2)KLT1076
IN THE HIGH COURT OF KERALA

I.T.A. Nos. 16 and 18 etc. of 2001 and 83 of 2002
Appellants: Commissioner of Income Tax
Vs.
Respondent: Dhanalakshmi Bank Ltd.
G. Sivarajan and K. Balakrishnan Nair, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: P.K. Raveendranatha Menon, Sr. Adv. and George K.
George, Adv.
For Respondents/Defendant: Sarangan, Sr. Adv., Vinod Chandran, P. Balakrishnan,
P.G.K. Warrier and R. Amritharaj, Advs.
JUDGMENT
G. Sivarajan, J.
1. All these appeals are filed by the Commissioner of Income Tax, Trichur against the
order of the Income Tax Appellate Tribunal, Cochin Bench . I.T.A.Nos. 16, 18, 19, 21
and 23 of 2001 arise out of a common order of the Tribunal in I.T.A.Nos. 883, 884,
885/Coch/90, 7 & 8/Coch/91 and 271/Coch/91 in the case of Dhanalakshmi Bank,
Thrissur, (I.T.A. No. 11/01 filed against I.T.A. No. 883/90 which was disposed of by
the Tribunal by the common order is being dealt with separately since one more
question is involved in the said appeal). I.T.A. No. 83/02 arises out of the order of
the Tribunal in I.T.A. No. 79/94 in respect of the assessment year 1990-91 in the
case of South Indian Bank Ltd., Thrissur. Similarly I.T.A. Nos. 127/01 and 135/01
arise out of the order of the Tribunal in I.T.A. Nos. 295 & 296 of 1993 in respect of
the assessment years 1988-89 and 1989-90 in the case of Catholic Syrian Bank Ltd.,
Thrissur. All these appeals are being disposed of by this judgment since the sole
question that arises for consideration in all these cases is as to whether the Tribunal
is right in law in holding that the rate of penal interest the assessee has to pay under
the relevant banking law is interest only and not penalty. In other words, the
question is as to whether the payment of penal interest under the Banking Laws is for
the infraction of law,
2. The respondents-assessees in all these cases are scheduled banks, all having their
head offices at Thrissur. In the assessment of the respondents-assessees for the
years already mentioned they have claimed deduction of the penal interest paid to the
Reserve Bank of India for non-maintenance of cash reserve. The assessing officers
concerned had disallowed the same on the ground that the amount represents penal
interest. According to the assessees penal interest is paid to the Reserve Bank of
India for non-maintenance of cash reserve as stipulated by the Banking Regulation

11. The very same question came up for consideration before this Court in CIT v.
Travancore Electro Chemical Industries Ltd. MANU/KE/0135/1994 :
[1995]211ITR775(Ker) . The question that arose for consideration was as to whether
the interest payable under the Electricity Supply Act is in the nature of penalty which
cannot be allowed as a deduction under Section 35 of the Income Tax Act. This Court
relying on the principles laid down by the Andhra Pradesh High Court in
MANU/AP/0069/1987 : [1988]172ITR113(AP) and the decision of the Supreme Court
in MANU/SC/0282/1980 : [1980]123ITR429(SC) mentioned supra held that the
interest liable to be paid by the Kerala State Electricity Board is not penal in nature
and therefore the assessee is entitled to claim deduction under Section 10(2)(xv) of
the Income Tax Act.
1 2 . Again the very same Division Bench in CIT v. Pachi Philip and Co.
MANU/KE/0107/1994 : (1995) 212 ITR 75 considered the issue with reference to the
deducibility of the interest payable under the Abkari Act for delayed payment of kist.
Referring to the provisions of the Abkari Act and the Rules and the decisions of the
Supreme Court in Prakash Cotton Mills' case, Mahalakshmi Sugar Mills' case and the
decision of the Andhra Pradesh High Court in Hyderabad Allwyn Metal Works Ltd.'s
case, which held that the question whether the liability for interest was compensatory
or penal in nature has to be decided with reference to the provisions of the relevant
statute providing for the impost, ignoring the nomenclature of the impost as given by
the statute it was held as follows:
"The case before us, has to be tested in the light of the principles laid down
in the aforesaid decisions. We have already noted that there is no provision
in the Abkari Act or the Rules imposing any penalty on the licensee for non-
payment of the kist in time. Nor is he exposed to any criminal liability or
prosecution. In fact, the liability is primarily of a civil nature, arising out of
non-performance of the obligation under the rules and the agreement. The
only action contemplated for default is coercive and not penal. It has,
therefore, to be held that interest payable is compensatory in nature and not
penal. Interest is generally intended to compensate the person entitled to
receive the amount for the loss that is sustained by him by reason of the
deprivation of the use of the money during a particular period. That is
precisely the position under Rule 6(25). As already pointed out, there is
absolutely no distinction between the nature of the interest payable up to the
25th and thereafter. Having regard to all this, we are of the opinion that
payment of the interest accruing on delayed payment of the kist is an
expenditure incurred wholly and exclusively for the purpose of business and,
therefore, liable to be deducted under Section 37 of the Act".
The Madras High Court in CIT v. Chemical Constructions MANU/TN/0548/1998 :
[2000]243ITR858(Mad) considered the question as to whether penalty imposed under
Section 10A of the Central Sales Tax Act for violation of the terms of the statute can
be treated as penalty for infraction of law. The Madras High Court noted that the
Supreme Court in Malwa Vanaspati and Chemical Co. v. CIT MANU/SC/1600/1997 :
[1997]225ITR383(SC) which has taken the view that the fact that a levy is termed as
a penalty in a statute is not by itself decisive of its true character and observed that it
is only when a levy does not have any compensatory character that it has to be
regarded as penalty. The Supreme Court in Malwa Vanaspati's case was concerned
with the question, inter alia, with the levy of penalty under Section 8 of the Madhya
Pradesh General Sales Tax Act, which provides for a penalty in cases where raw
materials purchased by a registered dealer are utilised for any purpose other than the

purpose specified in Sub-section (1) of Section 8 of that Act. As per the said section
the penalty was to be an amount not less than the difference between the amount of
tax leviable under the statute and the amount of tax payable under Section 8(1) of
the Act and not exceeding 1 1/4th times the amount of tax. Construing the said
provision the Supreme Court held that Section 8(2) of the Act provides both the
elements of compensation and penalty; compensation in so far as payment of tax at
the full rate is obligatory, and penalty in so far as something more upto 25% thereon
being payable should the Commissioner so directs. In the light of the Supreme Court
decision the Madras High Court held that the amount so recovered though termed
penalty is in fact compensatory as the assessee had only been now made to pay what
he should have paid initially as tax and therefore the penalty under Section 10A of
the Act is an allowable deduction.
13. Thus it is evident from the various decisions of the Supreme Court, this Court
and of the Andhra Pradesh High Court as approved by the Supreme Court that
whenever any statutory impost paid by an assessee by way of damages or penalty or
interest, is claimed as an allowable expenditure under Section 37(1) of the Income
Tax Act, 1961, the assessing officer is required to examine the scheme of the
provisions of the relevant statute providing for payment of such impost
notwithstanding the nomenclature of the impost as given by the statute, to find out
whether it is compensatory or penal in nature. The authority has to allow deduction
under Section 37(1) of the Act, wherever such examination reveals the concerned
impost to be purely compensatory in nature. Wherever such impost is found to be of
a composite nature, i.e., partly of compensatory nature and partly of penal nature,
the authorities are obliged to bifurcate the two components of the impost and give
deduction to that component which is compensatory in nature and refuse to give
deduction to that component which is penal in nature. As observed by this Court in
Pachi Philip and Co.'s case supra one of the important test to determine whether the
levy is compensatory or penal in nature is whether for the non-compliance of the
provisions any criminal liability or prosecution is provided. If any criminal liability or
prosecution is provided the levy is surely penal in nature.
1 4 . Now let us examine the provisions of the Reserve Bank of India Act and the
Banking Regulation Act under which the assessees had paid penal interest. We have
already extracted the relevant provisions in the aforesaid two enactments. Section 42
of the Reserve Bank of India Act, 1934 Sub-section (1) thereof provides that every
bank included in the Second Schedule (admittedly the assessees' banks squarely fall
within the said Schedule) shall maintain with the Bank and average daily balance the
amount of which shall not be less than three percent of the total of the demand and
time liabilities in India of such bank as shown in the return referred to in Sub-section
(2). Sub-section (1A) provides that notwithstanding anything contained in Sub-
section (1), the Bank may, by notification in the Gazette of India, direct that every
scheduled bank shall, with effect from such date as may be specified in the
notification, maintain with the Bank, in addition to the balance prescribed by or under
Sub-section (1), an additional average daily balance the amount of which shall not be
less than the rate specified in the notification, such additional balance being
calculated with reference to the excess of the total of the demand and time liabilities
of the bank as shown in the return referred to in Sub-section (2) over the total of its
demand and time liabilities at the close of business on the date specified in the
notification as shown by such return so however, that the additional balance shall, in
no case, be more than such excess.
15. Sub-section (3) provides that if the average daily balance held at the Bank by a

REPORTABLE
CIVIL ORIGINAL/APPELLATE JURISDICTION
Swiss Ribbons Pvt. Ltd. & Anr. …..Petitioners
VERSUS
Union of India & Ors. …..Respondents
WITH


SPECIAL LEAVE PETITION (CIVIL) NO. 28623 OF 2018
NATARAJAN
Date: 2019.01.25
12:26:58 IST
Reason:
1
37. The trigger for a financial creditor‘s application is non-payment of
dues when they arise under loan agreements. It is for this reason that
Section 433(e) of the Companies Act, 1956 has been repealed by the
Code and a change in approach has been brought about. Legislative
policy now is to move away from the concept of ―inability to pay debts‖
to ―determination of default‖. The said shift enables the financial
creditor to prove, based upon solid documentary evidence, that there
was an obligation to pay the debt and that the debtor has failed in such
obligation. Four policy reasons have been stated by the learned
Solicitor General for this shift in legislative policy. First is predictability
and certainty. Secondly, the paramount interest to be safeguarded is
that of the corporate debtor and admission into the insolvency
resolution process does not prejudice such interest but, in fact,
protects it. Thirdly, in a situation of financial stress, the cause of default
is not relevant; protecting the economic interest of the corporate debtor
is more relevant. Fourthly, the trigger that would lead to liquidation can
only be upon failure of the resolution process.
79
Whether the Penal Interest is to be treated as interest for the purpose of exemption under
Sr. No. 27 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, HELD BY AAR
that the penal interest charged by the Appellant amounts to supply of services under Sr.
No. 5(e) of Schedule II to the CGST Act, and is therefore liable to GST. UPHELD BY AAAR
APPELLATE AUTHORITY ADVANCE RULING ORDER NO. MAH/AAAR/SS-RJ/24/2018-19,

Date- 14th March, 2019
THE MAHARASHTRA APPELLATE AUTHORITY FOR ADVANCE RULING FOR GOODS AND
SERVICES TAX
(constituted under Section 99 of the Maharashtra Goods and Services Tax Act, 2017)
BEFORE THE BENCH OF
(1) Smt. Sungita Sharma, MEMBER
(2) Shri Rajiv Jalota, MEMBER
GSTIN Number 27AABCB1518L1ZS

Legal Name of Bajaj Finance Limited
Appellant
Registered 3rd Floor, Panchshil Tech Park, Viman Nagar, Pune- 411 014.
Address
Details of appeal Appeal No. MAH/GST-AAAR-24/2018-19 dated 14.12.2018against
Advance Ruling No. GST-ARA- 22/2018-19/B-85 dated 06.08.2018
Jurisdictional State Tax Officer (VAT-C-707) Pune
Officer
PROCEEDINGS
(under Section 101 of the Central Goods and Services Tax Act, 2017 and the Maharashtra
Goods and Services Tax Act, 2017)
At the outset, we would like to make it clear that the provisions of both the CGST Act and the
MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically
made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to
the same provisions under the MGST Act.
The present appeal has been filed under Section 100 of the Central Goods and Services Tax Act,
2017 and the Maharashtra Goods and Services Tax Act, 2017 [hereinafter referred to as "the
CGST Act and MGST Act"] by Bajaj Finance Limited (herein after referred to as the "Appellant")
against the Advance Ruling No. GST-ARA-22/2018-19/B-85 dated 06.08.2018.
BRIEF FACTS OF THE CASE
A. The Appellant is a non-banking financial company and is inter alia engaged in providing various
types of loans to the customers such as auto loans, loans against the property, personal loans,
consumer durable goods loans, etc.
B. The Appellant, inter alia, enters into agreements with borrowers/customers for providing loans
to them. The loan agreements provide for repayment of the outstanding dues/Equated Monthly
Installments (EMI) through cheque/ Electronic Clearing System ('ECS')/ National Automated
Clearing House ('NACH') or any other electronic or clearing mandate. The illustrative copies of
lean agreement entered into between the Appellant and the customers have been enclosed with
the Appeal.
C. The installment of a loan is computed taking into consideration the amount of loan, rate of
interest, duration for a loan etc. Generally, EMI paid by the customer is a fixed amount paid at a
specified date. EMI includes the amount of interest and the principal amount.
D. In case of delay in repayment of EMI by the customers, the Appellant collects penal/default
interest (hereinafter referred to as 'penal interest') as an additional interest for the number of days
of delay as per terms of the agreements executed with the customers. The penal interest is
calculated at a fixed percentage on the overdue loan amounts of the customer. The percentage of
penal interest varies from customer to customer, and generally ranges between 2% to 4% per
month depending on the product. The illustrative copies of customer account statement reflecting
the penal interest collected by the Appellant have been enclosed with the Appeal. Further, the
sample working of the penal interest is also enclosed herewith.
E. The relevant extract of clauses of a sample auto loan agreement in respect of penal interest is
reproduced below for ease of reference:-^
"I. DEFINITIONS AND ABBREVIATIONS:
r. "Penal Charges" shall mean and include overdue charges on non-payment of installment on the
due date.
II. TERMS OF THE LOAN:~
3. The Borrower agrees and confirms that:-^
...............
(iv) BFL is entitled to levy penalty as follows on default:-^
(a) for continuing non-payment of amount due, a penalty not exceeding 3% per month on amount
due calculated on pro-rata basis from due date till actually paid as per clause B of the schedule.~
...............
Schedule forming part of Auto Loan agreement:
(B) Penal Charges for bounce up to Rs. 350/- per default / per month & late payment penalty not
exceeding 3% on amount due."~
F. The amount of penal interest collected from the customers are accounted by the Appellant in its
core accounting platform i.e. SAP under General Ledger Code 60000150.
G. Under the GST law, the Appellant is of the view that penal interest collected from the customer
is in the nature of additional interest, and therefore, the same is not subjected to GST levy.
However, considering the ambiguity on taxability under the GST law, as an abundant caution, the
Appellant had filed an application for Advance Ruling before the Maharashtra Authority for
Advance Ruling (hereinafter referred to the Id. AAR') on 09.05.2018, on the following questions:-^
"i) Whether the Penal Interest is to be treated as interest for the purpose of exemption under Sr.
No. 27 of Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017, Sr. No. 27 of
Maharashtra State Notification No. 12/2017-State Tax (Rate) dated 29.06.2017, and Sr. No. 28 of
Notification No. 9/2017-lntegrated Tax (Rate) dated 28.06.2017?
ii) If the answer to the above is negative, whether the activity of collecting penal interest by the
Appellant would amount to a taxable supply under the GST regime ?"~
H. The AAR passed the Order No. GST-ARA-21/2018-19/B-24 dated 06.08.2018 (hereinafter
referred to as 'impugned order'), holding that the penal interest charged by the Appellant amounts
to supply of services under Sr. No. 5(e) of Schedule II to the CGST Act, and is therefore liable to
GST.
I. Aggrieved by the impugned order dated 06.08.2018, the Appellant has filed this appeal, inter
alia, on the following grounds which are urged without prejudice to each other.
GROUNDS OF APPEAL
1. The impugned AAR order is a non-speaking order and is liable to be set aside on this
ground alone.-^
(i) Without prejudice to the submissions that the penal interest is an additional interest on loan,
such penal interest is liable to be included in the value of main supply under Section 15(2)(d) of
the CGST Act, and therefore, any treatment given to the main supply shall be given to the penal
interest, and hence, shall be exempt from GST.
(ii) In any case, the penal interest charged by the Appellant is in the nature of penalty or liquidated
damages for breach of contract, which does not amount to consideration for any contract, and
therefore, there cannot be any supply of service.
(iii) Penal interest collected by the Appellant for the breach of contract by the customer, is not
covered under the ambit of clause (e) of Entry 5 of Schedule II to the CGST Act. The said clause
can be made applicable only when there is an agreement to the obligation to tolerate an act or
situation, and the word 'obligation' implies a duty or a liability on the person making the obligation,
with a corresponding right to the other person to enforce such obligation. However, in the present
case, there is no obligation upon the Appellant to tolerate an act of non-payment or delayed
payment by the borrower. The payment of penal interest neither obligates the Appellant not to take
any legal action against the borrower, nor the borrower gains any right to sue the Appellant for any
legal action taken by the Appellant. Therefore, the penal interest payable by the borrower on
breach of its contractual obligation cannot be treated as a payment for any obligation on the
Appellant towards the borrower.
(iv) Even internationally, the damages received by way of compensation for termination or breach
of a contract are not treated as a supply and therefore not subjected to GST/VAT levy.~
2. It is submitted that the above submissions are very crucial to determine whether the penal
interest collected by the Appellant is liable to GST. However, the impugned AAR order is
completely silent on the above submissions and fails to provide any reasons/observations for not
accepting the same.
3. While passing the impugned AAR order, the Ld. AAR was under an obligation to consider each
and every submission of the Appellant and record the reasons for acceptance or rejection of every
submission of the Appellant, in order to establish the linkage between the facts, and grant sanctity
to the order. In this regard, reliance is placed on the following judgements of the Apex Court:-^
• State of Orissa v. DhaniramLuhar, (2004) 5 SCC 568
• Oryx Fisheries Pvt. Ltd. v. Union of India, 2011 (266) E.LT. 422 (S.C.)
• Asstt. Commr., Commercial Tax Department v. Shukla & Brothers, 2010-TIOL-131-SC-CT
• Commissioner of CGST & Central Excise v. M/s Development Credit Bank Ltd., 2018-TIOL-
2313-HC-MUM-CX~
4. It is an undisputed fact that the Appellant is an NBFC which is engaged in providing various
types of loans to the customers such as auto loans, loan against property, personal loan,
consumer durable goods loan, etc. Further, it is also undisputed that interest on loans have been
kept outside the levy of GST, under Serial No. 27 of the Notification No. 12/2017-Central Tax
(Rate) dated 28.06.2017. The relevant portion of the said Exemption Notification is reproduced
herein below:
SI. Chapter, Description of Services Rate (per Condition

No. Section, cent.)
Heading,
Group or
Service
Code
(Tariff)
(1) (2) (3) (4) (5)
27 Heading Services by way of,- Nil Nil
9971
(a) extending deposits, loans or
advances in so far as the consideration
is represented by way of interest or
discount
(other than interest involved in credit

card services);
5. In view of the above, it is submitted that services of providing loans are exempt, in so far as the
consideration of the said services is represented by way of interest. It is therefore submitted that
any amount which is charged as interest is not taxable.
6. In the above background, it is important to understand whether the penal interest

charged/collected by the Appellant in the present case, qualifies as "interest". The same has been
explained in the submissions made herein below.
Meaning of the term 'interest'
7. The term 'interest' has been defined under clause (zk) of para 2 of the above said Exemption
Notification, which reads as under-^
"(zk) "interest" means interest payable in any manner in respect of any moneys borrowed or debt
incurred (including a deposit, claim or other similar right or obligation) but does not include any
service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any
credit facility which has not been utilised;"~
8. The above definition clearly states that 'interest' means interest payable in any manner in
respect of any moneys borrowed or debt incurred. This would not only include the normal interest
charged on loan instalments, but also include the interest charged for the delayed payment of
such loan instalments.
9. Further, the term 'interest' has been discussed at length by various Courts holding that interest
is the return or compensation for the use or retention by one person, of a sum of money belonging
to or owed to another. ln this regard, reliance is placed on the Supreme Court judgment in the
case of Central Bank of India v. Ravindra, 2002
(1) SCC 367, wherein the Hon'ble Supreme Court dealing with the nature of 'interest', has held as
under:-^
"Black's Law Dictionary (7th Edn.) defines "interest" inter alia as the compensation fixed by
agreement or allowed by law for the use or detention of money, or for the loss of money by one
who is entitled to its use; especially, the amount owed to a lender in return for the use of the
borrowed money. According to Stroud's Judicial Dictionary of Words and Phrases (5th Edn.)
interest means, inter alia, compensation paid by the borrower to the lender for deprivation of the
use of the money. In Secy., Irrigation, Deptt. Govt, of Orissa v. G.C. Roy the Constitution Bench
opined that a person deprived of the use of money to which he is legitimately entitled has a tight to
be compensated for the deprivation, call it by any name. It may be called interest, compensation or
damages ................. this is the principle of Section 34 of the Civil Procedure Code. In Sham
LalNarula (Dr.) v. CIT this Court held that interest is paid for the deprivation of the use of the
money. The essence of interest in the opinion of Lord Wright in Riches v. Westminster Bank Ltd.
All ER at p. 472 is that it is a payment which becomes due because the creditor has not had his
money at the due date. It may be regarded either as representing the profit he might have made if
he had the use of the money, or, conversely, the loss he suffered because he had not that use.
The general idea is that he is entitled to compensation for the deprivation; the money due to the
creditor was not paid, or in other words, was withheld from him by the debtor after the time when
payment should have been made in breach of his legal rights, and interest was a compensation
whether the compensation was liquidated under an agreement or statute. A Division Bench of the
High Court of Punjab speaking through Tek Chand J. in CIT v. Dr. Sham LalNarula thus articulated
the concept of interest (AIR p. 414, para 8).
"The words 'interest' and 'compensation' are sometimes used interchangeably and on other
occasions they have distinct connotation. 'Interest' in general terms is the return or compensation
for the use or retention by one person of a sum of money belonging to or owed to another. In its
narrow sense, 'interest' is understood to mean the amount which one has contracted to pay for
use of borrowed money....... In whatever category 'interest' in a particular case may be put, it is a
consideration paid either for the use of money or for forbearance in demanding it after it has fallen
due, and thus, it is a charge for the use or forbearance of money. In this sense, it is a
compensation allowed by law or fixed by parties, or permitted by custom or usage, for use of
money, belonging to another, or for the delay in paying money after it has become payable". It is
the appeal against this decision of the Punjab High Court which was dismissed by the Supreme
Court in Dr. Sham LalNarula case."~
10. Reliance is also placed on the judgment of the Hon'ble Madras High Court in the case of
EdupugantiPitchayya and Ors. v. GonuguntlaVenkataRanga Row, AIR 1944 (Mad)
243,whereinthe issue under consideration was whether any amount paid over and above the
principal amount could be treated as interest. In this regard, the Hon'ble Madras High Court
interpreted the word interest as under:
" ......... Halsbury's Laws of England', Vol. 23, Section 253 defines interest as follows: interest
when considered in relation to money denotes the return or consideration or compensation for the
use or retention by one party of a sum of money or other property belonging to another.
........... The definition of interest in the English Money-lenders' Act, after excluding certain charges,
says:
But save as aforesaid, interest includes any amount, by whatsoever name called, in excess of the
"principal paid or payable to a money-lender in consideration of or otherwise in respect of a loan.
The word interest has a basic meaning of advantage or profit. When used with reference to a loan,
interest means the profit or advantage of the creditor which he gets by giving to another the use of
his money. If the contract stipulates that for the use of the creditor's money a certain profit shall be
payable to the creditor, that profit is interest, by whatever name it is called, or if it is called by no
name at all. Applying Act 4 of 1938 to the present contract it is clear that the principal is Rs.2500.
The only payment was an open payment of Rs.150 made on 23rd July 1931. The whole of the
interest as on 1st October 1937 is cancelled and the creditor is entitled to Rs.2350 with interest at
6.25 per cent per annum from 1st October 1937. The Appellants are entitled to their costs here
and in the Court below."
Similarly; in the case of V. Srinivasachariar v. ConjeevaramHodgsonpetDharamarakshakaNidhi

Limited, 1940 AIR (Mad) 937, the Hon'ble Madras High Court held as under:
"3 ..................... I proceed therefore to such an examination and I find that towards the sum of Rs.
1,500 borrowed in February, 1927, a sum of Rs. 1,396-3-3 has been credited as part repayment.
The suit is for the balance, namely, Rs. 807-13-2 and the accounts have been closed shortly
before the filing of the suit in March, 1932. The result then is that for a debt of Rs. 1,500 incurred
in February, 1927, a total sum of Rs. 1,396-3-3 plus Rs. 807-13-2, that is, Rs. 2,204-0-5 has to be
repaid and this repayment is related to a period of just over five years. Of this sum, Rs. 1,500 of
course represents the principal and the remaining Rs. 704 represents what is claimable in addition
to the principal. It is argued for the respondent that this may not be interest in the strict sense of
the word because of the provision relating to the monthly payment of subscriptions. But when we
probe into the heart of the transaction it seems to me clear that is in all respects analogous to the
payment of interest. When money is borrowed and a larger sum is to be repaid the excess over
the principal must in my opinion be treated as interest.
Therefore, in this matter the sum of Rs. 704 represents the interest charged under the terms of
this bond on a debt of Rs. 1,500 for a period of just over five years. Arithmetical calculation will
show that this interest represents a rate of slightly more than 9 per cent, per annum. It seems to
me therefore that with respect to the present claim as the interest works out at more than 9 per
cent, per annum the respondent can not successfully argue that Section 10(2)(iii) applies."
11. From the above judgments, it comes out clearly that any consideration received in lieu of
money is nothing but interest only. Further, interest when considered in relation to money denotes
the return or consideration or compensation for the use or retention by one party of a sum of
money or other property belonging to another, and any amount repaid over and above the
principal sum of money is interest only.
12. It is relevant to note that the position in the GST regime is similar to the position in the pre-
GST regime. Therefore, reference is also made to para 4.14.2 of the Revised Education Guide on
Taxation of Services dated 20.06.2012 issued by the CBEC, which describes interest as the time
value of money. The relevant portion of the same is reproduced herein below:
"4.14.2 What are the "services by way of extending deposits, loans or advances in so far as
the consideration is represented by way of interest or discount"?
The negative list entry covers any such service wherein moneys due are allowed to be used or
retained on payment of interest or on a discount. The words used are 'deposits, loans or
advances' and have to be taken in the generic sense. They would cover any facility by which an
amount of money is lent or allowed to be used or retained on payment of what is commonly called
the time value of money which could be in the form of an interest or a discount. This entry would
not cover investments by way of equity or any other manner where the investor is entitled to a
share of profit.
Illustrations of such services are -^
> ...................
> Providing a loan or overdraft facility or a credit limit facility in consideration for payment of
interest.
> Mortgages or loans with a collateral security to the extent that the consideration for advancing
such loans or advances are represented by way of interest.
> ...................."~
13. On conjunctive perusal of the above, it can be understood that "interest" represents the time
value of money, and any amount received in lieu of usage or retention by one person of a sum of
money belonging to another is nothing but interest only.
14. In the present case, the Appellant is primarily engaged in the business of lending/financing. As
a consideration for lending/financing, the Appellant charges interest from the customers at a
particular rate, for the period for which such loan is granted. The principal and interest amount on
such loan is repaid by the customers by way of equated monthly installments (hereinafter referred
to as 'EMI') over the tenure of loan. Accordingly, while computing the EMI, the Appellant charges
and factors pro-rata interest payable on each due date, on the underlying assumption that the
customers would not default in payment of the EMI on the due dates. However, in case of any
default, the Appellant charges additional interest for the number of days of default. This interest is
commonly known as penal/default interest. The sample working of computing the penal interest
was enclosed. For ease of reference, the following illustration is made to explain the manner of
charging penal interest:
S. No. Particulars Amount

A EMI Amount Rs. 10,000/-
B EMI Due Date 10tn of every month
C Due Date for the month of June 2018 10th June 2018
D Interest factored in EMI upto due date Rs. 3,000/-
E Actual Date of Payment 30th June 2018
F Period of Delay/Default 20 days
G Penal Interest rate 2% p.m.
H Penal Interest for the period of delay Rs. 133/-
(Rs.10000 * 2% * 20/30)
15. The manner of computing Penal Interest, as explained in the above illustration, substantiates
that the Penal Interest collected by the Appellant is an additional interest for the delay in payment
of loan instalment beyond the due date. It is nothing but the consideration for the usage or
retention of money (i.e. overdue loan instalment) by the borrowers for additional time beyond the
stipulated time period (i.e. the due date).
16. In other words, Penal Interest reflects the time value of money. To explain further, it is
submitted that where the Appellant grants loan to a customer for a specified duration of time, they
earn interest on such loan, which represents consideration for use of money for that specified
period of time. Similarly, when the customer delays the payment of instalment of loan beyond the
due date as provided in the agreement, the Appellant levies additional interest (which is termed as
Penal Interest) for use of the money beyond the stipulated period of time by the borrowers.
Therefore, penal interest is nothing but interest only.
17. It is further submitted that there is no distinction in law for 'principal interest' and 'penal
interest'. The definition of the term 'interest' given in clause (zk) of para 2 of the Exemption
Notification covers interest payable in any manner, and therefore, even the penal interest is
covered within the scope of 'interest' for the purposes of the GST law, and hence, the same shall
be exempt from GST.
18. However, the Ld. AAR in the impugned AAR order has held that the penal interest is not
interest on loans. In this regard, the Ld. AAR has recorded a finding that the penal interest has
been termed as 'penalty' in the loan agreements entered into by the Appellant.
19. It is submitted in this regard that the additional interest for the period of default has been
variedly termed in the loan agreements as 'penal interest' / 'default interest' / 'late payment
penalty', however, the same does not change its nature from being 'interest' only. It is a settled
principle in law that the nomenclature alone would not determine the nature of transaction. In this
regard, reliance is placed on the decision of the Hon'ble Supreme Court in the case of Moped
India Limited reported at 1986 (23) ELT 8 (SC), wherein it was held as under:
"6 .............. Now it is true that this amount allowed to the dealers has been referred to in the
agreement as commission but the label given by the parties cannot be determinative because it is,
for the court to decide whether the amount is trade discount or not, whatever be the name given to
it. ........."
20. Reliance is also placed on Hindustan Gas & Industries Ltd. v. CCE, reported at 1991 (54)
E.L.T. 383 (Tri.), wherein the Hon'ble Tribunal observed as under:
"14. ............. We further observe that it was only because the margins allowed to the agents were
considered as commissions, the deductions were disallowed. Where the appellants do not retain
the title to the goods and actually sell them, be it to Commission Agents discounts, should be
admissible. We have noted the Id. advocate's argument that it is the real substance of the
transaction that matters and not the nomenclature given to a particular type of discount."
21. It is therefore submitted that the mere fact that the additional interest for the period of default
has been termed as penalty, will not alter the nature of such transaction.
22. It is further submitted that the amount of overdue loan instalment on default would be Virtually
treated as a new loan transaction under the same contract', and the penal interest so charged on
the overdue loan instalment would be treated as interest for such loan amount. In the above
illustration, the defaulted loan instalment / EMI of Rs. 10,000/- is, in effect, an additional loan given
to the customer, for which penal interest is charged at a specified rate, for the period starting from
the date of default till the date of payment of such defaulted EMI, i.e., from 10th June 2018 to 30th
June 2018. Hence, in any case, the penal interest charged by the Appellant would be treated as
interest only.
23. However, the Ld. AAR in the impugned order held that penal interest cannot be construed as
additional interest. In this regard, the Ld. AAR recorded a finding that normally, interest is
calculated on the entire tenure of loan given and not on monthly basis, therefore, it cannot be said
that the penal interest is for the period of delay not included in the EMI/instalment amount. The Ld.
AAR further recorded a finding that rate of interest of loan and the penal interest is different, and in
general course of business, the interest charges are fixed at a certain rate, however, the penal
interest has been defined in the loan agreement to be "not exceeding 3% per month". The Ld.
AAR further recorded a finding that the penal interest which is termed as additional interest is also
levied on the interest component of the EMI.
24. The above findings are based on an incorrect understanding of the facts of the present case.
In this regard, it is relevant to note that the Ld. AAR has not disputed that the interest which is
factored in EMI fits into the meaning and scope of interest of loans, therefore, the rate at which
such interest is payable is not relevant to determine the nature of such transaction. The Ld. AAR
has failed to understand the commercial reality of the financial transactions. It is submitted in this
regard, that there are many ways of determination of the rate of interest, which includes flat
interest rate, reducing balance rate, etc. However, in any case, the interest is, in effect, the
consideration for the usage of money for a certain period of time, therefore, even if the interest is
computed at flat rate, (i.e. interest for the entire tenure divided by the number of instalments), the
same is charged only for the period of usage of money. Further, the rate of interest on loans,
amongst other factors, is a matter of negotiation between the lender and the customer, but the
same in no manner affects the nature of such interest. For instance, whether a loan is given for
10% flat rate of interest or 15% reducing rate of interest, would net alter the nature of the interest
on such loan. Therefore, the Ld. AAR has erred in recording the finding that since interest is
computed for the entire period of loan, the penal interest cannot be treated to be the interest for
the period of default.
25. It is further submitted that the mere fact that the rate of interest and penal interest is different
does not alter the nature of the transaction. It is submitted in this regard that the rate at which
penal interest is charged from the customers is a matter of discretion of the lender, and depends
on various factors such as the customer credit history, credit worthiness, past payment records,
etc. Therefore, the mere difference in the rate of normal interest and penal interest cannot be
taken as a factor for distinguishing the nature of interest and penal interest. Further, though the
loan agreements entered by the Appellant with customers in certain cases define the penal
interest as "not exceeding 3% per month", however, the customer account statements clearly
evidence that the penal interest is charged at a fixed rate. Therefore, the findings of the Ld. AAR in
this regard are erroneous.
26. It is further submitted that the manner of computing penal interest clearly substantiates that it
is nothing but time value of money which is interest only. It is undisputed that penal interest is
charged only upon default of payment of the EMI, and it is also undisputed that the same is
calculated at a specified rate on the defaulted EMI for the period starting from the date of default
till the date of payment of such EMI. Further, such interest for the period beyond the due date is
not factored in the EMI and is therefore charged separately as penal interest. These facts clearly
establish that the penal interest charged by the Appellant is nothing but an additional interest for
the period of delay in making payment of the EMI. Further, the Ld. AAR himself has admitted that
penal interest is levied on the interest component of the EMI. This also substantiates that the
defaulted EMI (principal and interest) virtually amounts to a new loan, in as much as penal interest
is charged on the defaulted EMI (which is inclusive of interest) for the period of default. Hence, the
penal interest shall be treated as interest only, and therefore, the above mentioned findings of the
Ld. AAR are erroneous and bad in law.
27. In view of the above discussions, it is submitted that Penal Interest collected by the Appellant
is additional interest only, therefore, any treatment given to the main consideration, i.e. interest on
loans, shall also be equally applicable to the penal interest. Hence, the penal interest shall be
exempted from payment of GST under the Exemption Notification.
28. In this regard, reference is also made to UK VAT Notice 701/49: Finance issued under the UK
VAT law, wherein the charges levied for deferment of payment beyond the time of supply have
been treated as consideration for an exempt supply of credit. The relevant portion of the said UK
VAT Notice is extracted herein below:-^
"4.5 Deferred payments-You may allow customers to defer payment but make an extra charge for
allowing them to do so. If the charge relates to periods before and up to the time of the supply (see
VAT Notice 700: the VAT Guide) it is not a charge for credit, but is further consideration for the
supply of the goods or services. Alternatively, where you agree to defer payment beyond the time
of supply and make an additional charge for doing so, such a charge will be consideration for an
exempt supply of credit."~
29. It is submitted that even internationally, the charges for deferment of payment are treated as
consideration for exempt supply of credit. It is submitted that though the foreign case laws are not
binding, but they have persuasive value for deciding the matters similar to them. Therefore, the
penal interest charged in the present case for deferment of the loan instalment should be treated
as a consideration for exempt supply of loan, and hence, shall not be leviable to GST.
In any case, penal interest is liable to be included in the value of main supply under Section 15(2)
(d) of the CGST Act, and therefore, any treatment given to the main supply shall be given to the
penal interest, and hence, shall be exempt from GST.
30. Without prejudice to the above, it is submitted that in view of clause (d) of subsection (2) of
Section 15 of the CGST Act, the penal interest being an interest/penalty for delayed payment of
any consideration for a supply would be included in the value of that supply, which is interest. The
said provision is extracted herein below for reference:-^
"15. Value of taxable supply.
.................
(2) The value of supply shall include,-
..........................
(d) interest or late fee or penalty for delayed payment of any consideration for any supply;"~
31. In view of the above provision, any interest or late fee or penalty charged/levied or collected for
delayed payment of any consideration for a supply, shall be includible in the value of the said
supply.
32. It is relevant to note that sub-section (2) of Section 15 of the CGST Act is applicable for
determination of value of 'any supply', both for taxable as well as exempt supply. Therefore, even
if the main supply is exempt by way of any exemption notification, still, the provisions of Section 15
(2) shall be applicable to determine the value of such exempt supply. It would be incorrect to say
that the provisions of Section 15(2) are not applicable for exempt supplies, in as much as, the
valuation of exempt supplies is equally important as that of taxable supplies, as the quantum of
reversal of input tax credit under Section 17(2) of the CGST Act is determined on the basis of the
value of exempt supplies. Hence, the provisions of Section 15(2) are applicable to determine the
value of exempt supplies as well.
33. In view of Section 15(2)(d) of the Act, the penal interest levied for delayed payment of loan
dues/EMI, being an interest/penalty for delayed payment of consideration, is to be included in the
value of loans, which is nothing but interest only. Therefore, the penal interest so levied by the
Appellant would be treated at par with interest, and any treatment given to the main consideration
(i.e. interest) shall also be equally applicable to such amount (i.e. penal interest). Hence, the penal
interest would be exempt from GST under Serial No. 27 of the Notification No. 12/2017-Central
Tax (Rate) dated 28.06.2017.
In any case, the penal interest charged by the Appellant is in the nature of penalty or liquidated
damages for breach of contract, which does not amount to consideration for any contract, and
therefore, there cannot be any supply of service.
34. Without prejudice to the above submissions, in any case, if the penal interest is not treated as
interest on loan, then, the same shall be treated either as penalty or as liquidated damages for the
default committed by the customers, which is not leviable to tax in GST law.
35. Under the GST regime, the taxable event is the 'supply' of goods or services. The scope of the
term 'supply' is provided under Section 7 of the CGST Act, which is reproduced herein below for
reference:
"7. (1) For the purposes of this Act, the expression "supply" includes,-^
(a) alll forms of supply of goods or services or both such as sale, transfer, barter, exchange,
licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the
course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule
II."~
36. On perusal of the above provision, it can be seen that clause (a), (b) and (c) define the scope
of supply, whereas, clause (d) classifies certain activities specified in Schedule II as supply of
goods or supply of services. Clause (a) covers all kinds of supply of goods or services made or
agreed to be made for a consideration by a person in the course or furtherance of business.
Clause (b) specifically includes import of services for a consideration, whether or not in the course
or furtherance of business. Clause (c) expands the scope of supply by including activities specified
in Schedule I, made or agreed to be made without consideration.
37. It is therefore submitted that for an activity to be treated as supply under the GST law, it has to
be carried out for a consideration, except those activities specified in Schedule I for which
consideration is not necessary. In other words, any activity undertaken without consideration,
except those activities specified in Schedule I, shall not be treated as 'supply', and accordingly, will
not be leviable to GST.
38. It is submitted that the present case of penal interest collected by the Appellant is neither a
case of import, nor, is covered in the list of activities specified in Schedule I. Therefore, clause (b)
and clause (c) of Section 7(1) of the CGST Act are not applicable in the present case. Further, as
submitted above, clause (d) is only for the purpose of determination whether a particular activity is
a supply of goods or supply of services. Therefore, it is relevant to first determine whether a
particular activity is covered within the scope of clause (a), (b) or (c) of Section 7(1) of the CGST
Act. In any case, the penal interest collected by the Appellant is also not covered under clause (d),
as explained in detail in the submissions made below.
39. In this background, it is necessary to understand whether the penal interest collected by the
Appellant constitute a supply for consideration under clause (a) of Section 7(1). In this regard, it is
relevant to refer to the definition of the term 'consideration' given in Section 2(31) the CGST Act as
under:-^
"(31) "consideration" in relation to the supply of goods or services or both includes,-^
(a) any payment made or to be made, whether in money or otherwise, in respect of; in response
to, or for the inducement of the supply of goods or services or both, whether by the recipient or by
any other person but shall not include any subsidy given by the Central Government or a State
Government;
(b) the monetary value of any act or forbearance, in respect of, in response to, or for the
inducement of, the supply of goods or services or both, whether by the recipient or by any other
person but shall not include any subsidy given by the Central Government or a State
Government:"~~
40. Since the above definition is an inclusive one, the meaning of the term 'consideration' has to
be understood from various external aids, including the natural meaning given in various
dictionaries, meaning given to the term in rulings by various forums, etc.
41. It is submitted in this regard that the concept of consideration has been derived from the Latin
phrase "quid pro quo" which means "something in return for something". It is a well settled
principle that "where there is no consideration, there is no contract".
42. Reference in this regard is also made to the definition of the term 'consideration' provided in
Section 2(d) of the Indian Contract Act, 1872, which reads as under:-^
"When, at the desire of the promisor, the promisee or any other person has done or abstained
from doing, or does or abstains from doing, or promises to do or to abstain from doing, something,
such act or abstinence or promise is called a consideration for the promise."~
43. Furthermore, it is submitted that various dictionaries define the term 'consideration' as follows:
BLACK'S LAW DICTIONARY
Consideration means something which is of value in the eye of law, moving from the plaintiff either
of benefit to the plaintiff or of detriment to the defendant.
WEBSTER DICTIONARY
Something of value given or done in exchange for something of value given or done by another, in
order to make binding contract; inducement for a contract.
44. From the above discussed meaning of the term 'consideration', it can be said that
consideration would necessarily mean "quid pro quo", i.e. something in return. It is a benefit which
must be bargained for between the parties, and is essential reason for a party entering into a
contract. Further, the consideration for an activity must be at the desire of the other person.
45. However, damages for the breach of contract cannot be treated as a consideration for any
activity. It is submitted that upon breach of contract, the aggrieved party is entitled to claim
compensation for breach of contract. Such compensation is a legal and statutory right provided
under Section 73 and 74 of the Indian Contract Act, 1872, and even without any specific clause in
the contract for the damages or compensation payable upon the breach of contract, the party
suffering such breach has the statutory right to claim damages or compensation from the party
who has broken the contract.
46. The provisions of Section 73 and 74 are extracted herein below for reference:-^
"73. Compensation for loss or damage caused by breach of contract.-
When a contract has been broken, the party who suffers by such breach is entitled to receive, from
the party who has broken the contract, compensation for any loss or damage caused to him
thereby, which naturally arose in the usual course of things from such breach, or which the parties
knew, when they made the contract, to be likely to result from the breach of it.
74. Compensation for breach of contract where penalty stipulated for.-
When a contract has been broken, if a sum is named in the contract as the amount to be paid in
case of such breach, or if the contract contains any other stipulation by way of penalty, the party
complaining of the breach is entitled, whether or not actual damage or loss is proved to have been
caused thereby, to receive from the party who has broken the contract reasonable compensation
not exceeding the amount so named or, as the case may be, the penalty stipulated for.
Explanation. - A stipulation for increased interest from the date of default may be a stipulation by
way of penalty."~
47. Both, Section 73 and 74, provide for reasonable compensation, but, Section 74 is narrower in
scope and limits the compensation to the extent provided for, or stipulated in the contract.
48. It is submitted that the damages in Section 74 may either be in the nature of liquidated
damages or penalty. If the sum stipulated in the contract is a genuine pre-estimate of damages
likely to flow from the breach, it is called liquidated damages. If it is not a genuine pre-estimate of
the loss, but an amount intended to secure performance of the contract, it may be penalty. The
question whether a particular stipulation in a contract, is in the nature of penalty has to be
determined by the court against the background of various relevant factors, such as the character
of the transaction and its special nature.
49. It is relevant to note that the Explanation to Section 74 (supra), clearly states that a stipulation
for increased interest from the date of default may be a stipulation by way of penalty.
50. In the present case, the Appellant lends money to the customers with one of the conditions in
the loan agreement that the customers shall make timely repayment of loan instalments on the
due dates as per the repayment schedule, and in case of any default, the Appellant shall be
entitled to charge penal/default interest for the period of default at the specified rate. Therefore,
upon default in payment of the instalments, the Appellant shall be entitled to receive damages
stipulated in the contract in accordance with Section 74 of the Indian Contract Act, 1872.
51. The Explanation to Section 74 (supra) directly covers the case of penal interest, wherein,
higher rate of interest is charged from the customers from the date of default, so as to deter the
customers from making such default in future. Therefore, looking from this angle, the penal
interest charged by the Appellant may be treated as penalty for the breach of the contract. In any
case, if it is held to be not penalty, then, the same shall be treated as liquidated damages.
52. Therefore, in view of the above discussions, it is submitted that the penal interest charged in
the present case shall be treated either as penalty or liquidated damages.
53. In fact, the Ld. AAR has also accepted the submissions that the penal interest is in the nature
of penalty. Therefore, in this background, it is relevant to understand whether the amounts
recovered in the nature of damages or penalty amounts to supply. The same has been explained
in the submissions made herein below.
54. It is submitted that payment of liquidated damages or penalty is not a consideration for any
supply, as they are merely damages for the breach of contract. It is submitted in this regard that
the stipulation for payment of damages upon breach of contract does not constitute a separate
contract; it is a part of the original contract only. The payment of damages arises on account of
breach of the primary contract, and it would be an incorrect interpretation to say that such payment
is a consideration for any other contract.
55. Without prejudice to the submission made in Para B.13 above, in the present case, there is
only one contract between the Appellant and the borrower, which is the agreement for loan, for
which consideration is payable by the borrower in the form of interest. The penal interest is
payable by the borrower, only upon the breach of conditions of the same contract, and therefore,
such payment does not constitute a second contract. Therefore, the payment of penal interest by
the borrower cannot be treated as a consideration either for the primary contract of loan, or for any
other contract.
56. In view of the submissions, it is submitted that the penal interest is merely damages for the
breach of contract, and therefore, the same cannot be treated as a consideration. Hence, in the
absence of any consideration, the penal interest collected by the Appellant do not amount to a
supply under Section 7 of the CGST Act, and therefore, the same shall not be leviable to GST.
57. The Ld. AAR has failed to consider the above submissions, and has proceeded on the
presumption that the penal interest is consideration for the toleration of the default committed by
the borrowers. However, as explained above, the penal interest is nothing but damages for the
breach of contract committed by the borrowers, and such damages do not constitute consideration
for any supply. Further, the said breach does not constitute toleration of act, as explained in detail
in the submissions made in below.
Penal interest collected by the Appellant for the breach of contract by the customer, is not covered
under the ambit of clause (e) of Entry 5 of Schedule II to the CGST Act.
58. As submitted above, clause (d) of Section 7(1) of the CGST Act states that the activities
specified in Schedule II shall be treated as supply of goods or supply of services. Without
prejudice to the above submissions, that the penal interest collected by the Appellant do not
amount to consideration for any supply, it is submitted that even such amount does not fall under
the ambit of activities specified in Schedule II to the CGST Act.
59. The Ld. AAR in the impugned AAR order has held that the default committed by the borrowers
by way of delay in payment of EMI/ installment is being tolerated by the Appellant and is therefore
covered under clause (e) of Entry 5 of Schedule II to the CGST Act.
60. For the sake of reference, the above said entry is reproduced herein below:-^
"5. Supply of services
The following shah be treated as supply of services, namely:

.............................
(e) agreeing to the obligation to refrain from an act; or to tolerate an act or a situation, or to do an
act; and"~
61. It is submitted that the Ld. AAR has misinterpreted the above clause to allege that any act of
tolerating would fall under the ambit of the said clause. The correct interpretation of the law would
be to read the above said clause as under:-^
(i) agreeing to the obligation to refrain from an act;
(ii) agreeing to the obligation to tolerate an act or situation;
(iii) agreeing to the obligation to do an act.~
62. It is submitted that the expression "agreeing to the obligation" is a prefix to all the three entries,
viz. 'to refrain from an act', 'to tolerate an act or a situation', and 'to do an act'. Therefore, to attract
the above said clause, there must be an agreement to the obligation in respect of any of the three
entries. In other words, the act of tolerance requires the wilful agreement of certain situations
wherein the party agrees to suffer or restrain from doing something for some pre-fixed
consideration.
63. In the present case, there is no agreement between the Appellant and the borrower to tolerate
the default committed by the borrowers. The only agreement between the Appellant and the
borrower is in respect of agreement for loan, for which consideration is payable by the borrower in
the form of interest. The penal interest is payable by the borrower, only upon the breach of such
contract, and therefore, such payment does not constitute a second contract.
64. However, the Ld. AAR has erroneously recorded various findings in the impugned AAR order
that the loan agreements entered into by the Appellant with the customers provide that in case of
any breach as mentioned in agreement, the Appellant would tolerate the same subject to receipt of
consideration in the form of penal interest in return.
65. The above findings of the Ld. AAR are completely erroneous, in as much as none of the
clauses in the loan agreements entered into by the Appellant with the customers provide that in
case of any breach, the Appellant would tolerate the same subject to receipt of consideration in
the form of penal interest in return. As submitted in the ground above, the penal interest is only in
the nature of liquidated damages or penalty payable by the borrowers for the breach of the terms
of the loan agreement. Such penal interest does not amount to consideration for any supply.
66. It is further submitted that the above said clause 5(e) of Schedule II uses the word 'obligation'.
Therefore, it is important to understand the meaning of the said term to give correct interpretation
to the entry. The said term has not been defined in the GST law, therefore, reference is being
made to the meaning given to it in other Statutes, and its dictionary meaning, as under:-^
• Section 2(a) of the Specific Relief Act, 1963:
"Obligation" includes every duty enforceable by law.
• Commentary on Section 2(a) of the Specific Relief Act, 1963, by Pollock & Mulla, at Pg. No.
1837 of Volume II, 14th Edition, reads as under:
"Clause (a): Obligation
An obligation is a bond or tie, which constrains a person to do or suffer something; it implies a right
in another person to which it is correlated, and it restricts the freedom of the obligee with reference
to definite acts and forbearances; but in order to be enforceable, it must be an obligation
recognised by law; and not merely a moral, social or religious one. An obligation may not be a
legal one, where it cannot be reduced to a money value; legal obligation includes every duty
enforceable by law so that when a legal duty is imposed on the person in respect to another, the
other is invested with a corresponding legal right. This definition is used in its wider juristic sense
as covering duties arising ex contract or ex delicto, and may cover any other enforceable duty
under any statute."
• Black's Law Dictionary:
"Obligation, (n.)
1. A legal or moral duty to do or not do something. • The word has many wide and varied
meanings. It may refer to anything that a person is bound to do or forbear from doing, whether the
duty is imposed by law, contract, promise, social relations, courtesy, kindness, or morality.
2. A formal, binding agreement or acknowledgement of a liability to pay a certain amount or to do

a certain thing for a particular person or set of persons; esp., a duty arising by contract.
3. Civil law. A legal relationship in which one person, the obligor, is bound to render a performance
in favour of another, the obligee."
• Oxford Dictionary:
"obligation >n.
1. an act or course of action to which a person is morally or legally bound. the condition of being
so bound.
2. a debt of gratitude for a service or favour."~
67. In view of the above, it is submitted that the word 'obligation' can be understood to be an act or
course of action to which a person is morally or legally bound. It is a bond or tie, which constrains
a person to do or suffer something and it implies a right in another person to which it is correlated.
As defined in the Specific Relief Act, 1963, 'obligation' includes every duty enforceable by law, so
that when a legal duty is imposed on the person in respect to another, the other is invested with a
corresponding legal right. Therefore, an obligation comes into existence, only when there is a duty
or a liability on the person making the obligation, with a corresponding right to the other person to
enforce such obligation.
68. However, in the present case, there is no obligation upon the Appellant to tolerate an act of
non-payment or delayed payment by the borrower, in as much as, neither the Appellant has any
duty or liability towards the borrower, nor the borrower has any right on the Appellant. The
payment of penal interest neither obligates the Appellant not to take any legal action against the
borrower, nor the borrower gains any right to sue the Appellant for any legal action taken by the
Appellant. On the contrary, the borrower is under the contractual obligation to make timely
repayment of the loan to the Appellant, and upon the breach of such obligation, the Appellant is
legally entitled to recover damages for such breach and also sue the borrower for such breach.
69. It is further submitted that a sum which is payable in pursuance of a contractual obligation is
different from a sum payable on a breach of contractual obligation.
Therefore, the penal interest payable by the borrower on breach of its contractual obligation
cannot be treated as a payment for any obligation on the Appellant towards the borrower.
70. In view of the above discussion, it is submitted that in the absence of an agreement by the
Appellant to any obligation to tolerate an act of non-payment or delayed payment of loan
installments by the borrowers, the mere recovery of penal interest for breach of the contract does
not constitute a supply of service by the Appellant to the borrower.
71. It is therefore submitted that the findings of the Ld. AAR that the Appellant has tolerated the
act of default of the borrower which falls under clause 5(e) of Schedule II, is based on an incorrect
interpretation of the law, without considering the meaning of the expression 'agreeing to an
obligation' used in the said provision.
72. Hence, the impugned AAR order holding that the penal interest is consideration for tolerating
by the Appellant is bad in law and is liable to be set aside.
Even internationally, the damages for breach of contract are not taxed.
73. It is further submitted that internationally, the damages received by way of compensation for
termination or breach of a contract are not treated as a supply and therefore not subjected to
GST/VAT levy.
74. In Australian Law, the GST is levied on supply under 'A New Tax System (Goods and Services
Tax) Act, 1999'. The term 'supply' is defined under Section 9(10) of the said Act. Clause (g) of sub-
section (2) is pari materia the provisions of clause (e) of Entry 5 of Schedule II to the CGST Act,
which reads as under;-^
"9-10 Meaning of Supply
(1) A supply is any form of supply whatsoever.
(2) Without limiting subsection (1), supply includes any of these:
.................
(g) an entry into, or release from, an obligation:-^
(i) to do anything; or
(ii) to refrain from an act; or
(iii) to tolerate an act or situation."~~
75. In the above context, reference is made to GSTR 2001/4, issued by the Australian Tax Office
(ATO), explains the GST treatment of court orders and out-of-court settlements. In the said ruling
at Para 73, it has been clarified that the damages are the most common form of remedy arising
out of the termination or breach of contract. The damage, loss or injury, being the substance of the
dispute, cannot in itself be characterized as a supply made by the aggrieved party. This is
because the damage, loss or injury in itself does not constitute a supply under the provision of
Australian GST.
76. It is pertinent to bear in mind that the definition of "supply" under the Australian GST legislation
includes within its ambit "an obligation to tolerate an act". Thus, when the aforesaid GSTR namely
GSTR 2001/4 states that payment of liquidated damages is not towards any supply, it is
reasonable to conclude that the GSTR has also considered the clause "an obligation to tolerate an
act". In other words, the GSTR impliedly concludes that the acceptance of liquidated damages
does not amount to tolerating an act and hence would not fall within the ambit of "supply" for the
purposes of GST.
77. Similarly, reference is also made to GSTR 2003/11, pertaining to 'payment on early termination
of a lease of goods'. It has been clarified therein that a payment received to compensate the lessor
for damage or loss flowing from early termination as a result of a default by the lessee is not
consideration for a supply, even though the lessor brings the lease to an end by exercising the
right to terminate the lease. The Ruling further provides that in such cases, there will be no taxable
supply because a payment for genuine damages, which is not consideration for any earlier or
current supply, cannot be said to be made in connection with any supply. The lessor merely
exercises his right to terminate and the payment is in the nature of damages for the lessee's
breach of the lease which gave rise to the lessor's right to terminate. Thus, in the above Ruling
issued under Australian GST, it has been clarified that mere payment of an amount under a
damages claim is not a 'supply' and hence, GST is not payable on such supplies.
78. Further, reference is made to GST Determination No. 2005/6 which has been issued to answer
the question as to whether a club, association, trade union, society or cooperative (referred to as
"association" in the Determination) makes a supply when it imposes a non-statutory fine or penalty
on a member for a breach of the association's membership rules. The said GSTD clarifies that
there is no supply made by an association when it imposes a fine or penalty on its member for a
breach of its membership rules, and the payment of the fine or penalty is therefore not a
consideration for a supply and hence not leviable to GST. It has been clarified in the above GSTD
that if the true nature of fine or penalty is a punishment and/or to act as a deterrent, it does not
accord with that nature to suggest that there is a supply to the member in return for its payment.
79. Reference is also made to the New Zealand case S65 (1996) 17 NZTC 7408, wherein it has
been held that an association, in accepting the payment of fine or penalty, does not enter into an
obligation with the particular member to tolerate the misconduct, but rather is fulfilling its obligation
to all members to enforce the rules. The member does not gain rights additional to those which are
already enjoyed by virtue of being a member. That is, upon payment of the fine or penalty, the
member continues to enjoy the same rights and privileges and it follows that the association is
required to continue to provide the benefits of membership. In this sense, it cannot be said that the
association 'makes' a supply where it already has a pre-existing obligation to continue to provide
the benefits of membership.
80. Reference is further made to the decision of the European Court of Justice in the case of
SocieteThermale v. Ministere de I'Economie [2007] S.T.I 1866, Celex No. 605J0277, wherein the
issue was whether a sum paid as deposit in a contract related to the supply of hotel services was
subject to tax or not. The Court held that where the client exercises the cancellation option
available to him and that sum was retained by the hotelier as a fixed cancellation charge paid as
compensation for the loss suffered and which has no direct connection with the supply of any
service for consideration, it was not subject to tax.
81. Further, in a decision of the Court of Appeal (UK) in case of M/s.Vehicle Control Services
Limited reported at (2013) EWCA Civ 186, it has been observed that payment in the form of
damages/penalty for parking in wrong places/wrong manner is not a consideration for service as
the same arises out of breach of contract with the parking manager.
82. In view of the above discussed rulings, the Appellant would like to submit that the very purpose
of liquidated damages / penalty is to restitute or make good, the loss incurred by a person
because of a default, non-compliance, etc. of the other person. Such liquidated damages/penalty
may be in relation to some other supply of service or goods which would have a separate
consideration and would be subject to certain terms and conditions between the borrower and the
Appellant. When such terms and conditions are not fulfilled, the defaulting party is obligated to
make good the loss by paying liquidated damages. Such liquidated damages/penalty cannot itself
become consideration for continuing with the main supply of service/goods by terming the same
as towards tolerating the acts of the defaulting party.
83. Thus, liquidated damages/penalty are merely for making good the loss suffered by a
contracting party due to breach of terms of the contract by other contracting party. There is no
additional benefit given under the main contract of supply of service, in return for the liquidated
damages/penalty.
84. The ratio laid down in the above discussed rulings shall be equally applicable for determining
the taxability of penal interest in the present case, as the provisions of Entry 5(e) of Schedule II to
the CGST Act are similar to the GST/VAT laws of other countries, and the scope of 'supply' in such
laws is wide enough to cover an obligation to tolerate an act or situation.
85. Hence, by applying the above rulings, it can be concluded that the penal interest collected by
the Appellant in the present case, being penalty/liquidated damages for breach of contract, are not
taxable, as the same does not amount to consideration for any supply.
Personal Hearing
86. A personal Hearing in the matter was conducted on 07.03.2019, wherein Shri Sandeep
Sachdeva, Advocate, representative of the Appellant, reiterated their written submissions. Shri
HarshalKotale, Dy. Commissioner of State tax, appearing as jurisdictional officer, reiterated the
submissions, which had been made earlier before the Advance Ruling Authority.
Discussion and Findings
87. We have gone through the record, the facts of the case and have also taken on record the
written and oral submissions made by the appellant as well as by the department. We have also
gone through the impugned order issued by the Advance Ruling Authority, according to which the
quantum of penal charges / penalty defined in the loan agreement is being collected by the
Appellant for the reason that the customers have delayed the payment of EMI and the Appellant
has tolerated the said act of the delay in payment in lieu of such penal charges / penalty, thereby,
such act of the Appellant falls under Sr. No. 5(e) of Schedule II to the CGST Act. According to the
said order of the Advance Ruling Authority, the penal / penalty collected by the appellant is also
not covered in exemption under Sr. No. 27 of the Notification No. 12/2017-Central Tax (Rate)
dated 28.06.2017 as it is over and above the interest amount received by the appellant on account
of extending deposits, loans, advances in so far as the consideration is represented by way of
interest or discount. Thus, the Authority for Advance Ruling held it as a supply as per Sr. No. 5(e)
of Schedule II to the CGST Act. The Authority for Advance Ruling also relied on the loan
agreements between the Appellant and the customers, which define the penal charges as overdue
charges for non-payment on due dates. The definition nowhere mentions that the said charges are
additional interest costs to be incurred by the customers. The clauses of the loan agreement show
that the Appellant itself is treating the Penal Charges collected by it as "Penalty". The contention of
the appellant that the amount of overdue loan installments amounts to a new loan transaction, is
also held as fallacious and devoid of merits, as the rate of interest of loan advanced and the rate
at which the penal charges are collected on the so called new loan amount (i.e. the defaulted EMI)
are different.
88. On perusal of the above, the issue before us, to decide, is whether the penal charges / penalty
collected by the Appellant from their borrower customers who have defaulted EMI and delayed the
payment of EMI, is for tolerating any act as envisaged under the entry 5 (e) of the schedule II to
the CGST Act, 2017, or is in the nature of additional interest, and therefore, covered under the
entry 27 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017 and not subjected to
GST levy.
89. To decide this issue, we have closely examined the copies of the agreements placed before us
and we find certain clauses are necessary in order to determine the nature of charges collected by
appellant for delay in payment of EMI. The relevant extract of clauses of a sample auto loan
agreement in respect of penal charges is reproduced below for ease of reference:-^
1. Definitions and abbreviations:-^
e. "Default Interest" means interest levied by BFL from the due date till payment on happening of
any event of Default as set out in douse 3 (iv) of this agreement.
g. "Penal Charges" mean and include over-due charges on non-payment of installment on the due
date.
r. ..........................................."~
3. The Borrower agrees and confirms that:-^

(iv) BFL is entitled to levy penalty as follows on default:
(b) for continuing non-payment of amount due, a penalty not exceeding 3% per month on amount
due calculated on pro-rata basis from due date till actually paid as per clause B of the schedule.~~
16. In respect of any delayed payments, without prejudice to all other rights of BFL under this
agreements:-^
a. BFL shall be entitled to recover a sum described in 'A&B'of the schedule.
b. ...........................~
SCHEDULE FORMING PART OF AUTO LOAN AGREEMENT
A. a. Bounce charges ........................
B. Penal Charges b. For continuing of non-payment of

amount due, a penalty not exceeding 3%
per month on amount due calculated on
pro-rata basis from due date till actually
paid as per clause B of the schedule
.
From the nomenclature adopted by appellant, it is evident that the agreement between appellant
and customers has clearly defined the terms therein and the terms 'Default Interest', 'Penal
Charges' and 'Bounce Charges' are defined separately and therefore are exclusive of each other.
A further reference to the clause 16 and schedule referred therein shows that the appellant
recovers the charges for delay in payment of EMI and for continuing of non-payment as a penalty
not exceeding 3% per month on amount due calculated on pro-rata basis from due date till date of
actual payment. In clause 3 (iv) of the agreement also the appellant mentioned that he is entitled
to recover the penalty as above in the event of default and delay in payment of EMI. Thus, it is
evident that although the agreement between appellant and customer has defined separately the
terms 'Default Interest', 'Penal Charges' and 'Bounce Charges', but they are exclusive and what
appellant recovered or recovers from his customer is only the penalty for delayed payment of EMI
under the term 'Penal Charges'. Therefore, we are also of the opinion that the penalty recovered
by the appellant does not get covered by the term 'penal interest' as used by the appellant in his
grounds of appeal, as per seit is not interest but it is penalty / penal charges.
90. Though, it is an undisputed fact that the Appellant is an NBFC which is engaged in providing
various types of loans to the customers the interest on loans have been kept outside the levy of
GST, under Serial No. 27 of the Notification No. 12/2017-Central Tax (Rate) dated 28.06.2017.
The above said entry 27 of Notification is reproduced herein below:
SI. No. Chapter, Description of Services Rate (per Condition

Section, cent.)
Heading,
Group or
Service Code
(Tariff)
(1) (2) (3) (4) (5)
27 Heading 9971 Services by way of- Nil Nil
(a) extending deposits, loans or

advances in so far as the
consideration is represented by
way of interest or discount
(other than interest involved in

credit card services);
In view of the above, it is evident that services of providing loans are exempt, in so far as the
consideration of the said services is represented by way of interest. The term 'interest' has been
defined under clause (zk) of para 2 of the above said Notification, which reads as under:-^
"(zk) "interest" means interest payable in any manner in respect of any moneys borrowed or debt
incurred (including a deposit, claim or other similar right or obligation) but does not include any
service fee or other charges in respect of the moneys borrowed or debt incurred or in respect of
any credit facility which has not been utilised;"~
91. We have observed that when the term "means" is used while defining an expression, it gives a
restrictive meaning to the expression defined. There is no doubt that the definition is not inclusive
of specifically mentioned therein service fees or other charges. The agreed amount payable by the
borrower for delay in payment of EMI cannot be characterized as 'interest payable in any manner'.
The penalty / penal charges recovered by the appellant for delay in payment of EMI are though in
respect of money borrowed by the customers, get covered by the term other charges used in the
said definition. This further proves that the intention of the legislature is to exempt only that
'interest' which is covered under term 'interest' defined in clause 2 (zk). In view of the above
background, the penalty / penal charges charged/collected by the appellant does not qualify as
"interest", thereby do not qualify for exemption under entry 27of the Notification No. 12/2017-
Central Tax (Rate) dated 28.06.2017.
92. The appellant while relying on various judgments contended that any consideration received in
lieu of or for the use or retention of a sum of money or other property belonging to another is
nothing but interest only. And, interest when considered in relation to money denotes the return or
consideration or compensation, and any amount repaid over and above the principal sum of
money is interest only. In this connection, we are of view that the term 'interest' is defined in the
notification and the settled position of law in this regard is that it is open to the Legislature to define
words and, if the Legislature has defined it, one cannot go by the meaning in common parlance or
what may be called as its "natural meaning". In case the term has not been defined in the Act, then
it can be construed in its common parlance as it is understood. Further, Hon. Apex Court of India
in many cases held that different statutes may use the same term for different purposes. A term or
a word may be interpreted in the statute itself for fulfilling the purport and object mentioned therein
whereas in another statute it may be defined differently. Interpretation of a term in one statute,
however, cannot be done with reference to its definition contained in another. In view of this,the
reliance placed by appellant is said to be is misplaced. On the other hand, we have to strictly
abide by the meaning given to it by the Legislature, as in the present case. The definition provided
in clause 2 (zk) of the notification defines interest only to mean interest in respect of any moneys
borrowed or debt incurred but does not include any other charges in respect of the moneys
borrowed or debt incurred. Hence, we cannot give it an extended meaning as contended by the
appellant.
93. A perusal of the method of calculation furnished by appellant shows that it is calculated on the
entire due amount of EMI, including interest already included therein EMI. But, as claimed the
interest cannot be levied on interest, but only penalty can be levied on the interest not paid within
the due date prescribed for it. The real substance of the transaction is that the payment of
penalty / penal charges is on account of the failure of the customer to adhere to the conditions of
repayment of EMI as stipulated in the Agreement. Thus, the nomenclature provided in the
agreement is not the only deciding factor to construe it as penalty / penal charges, but the nature
of it as defined in agreement is important- the nature being that the appellant is entitled to recover
and the borrower agreed to pay it. One of the important test to determine whether the levy is penal
in nature is to see whether it is for the non-compliance of provisions and if any criminal liability or
prosecution is provided, the levy is surely penal in nature. The said test is surely passed by the
penalty / penal charges in the present case as consequences provided therein agreement for non-
compliance of it may be prosecution under the Negotiable Instruments Act. Hence, the penalty
levied by the appellant cannot be termed as 'additional interest' but are penal charges.
94. The Appellant have also relied upon the various overseas rulings, viz. UK VAT Notice 701/49,
GSTR 2001/4, GSTR 2001/4, GSTR 2003/11, GST Determination No. 2005/6, to substantiate their
contention that the charges for deferment of payment are treated as consideration for exempt
supply of credit. As regards these international ruling pronounced in overseas countries, we are of
the view that the aforementioned rulings cited by the Appellant are not binding on us. We have
interpreted the entire issue on the basis of the provisions laid out in the CGST Act, 2017.
95. The Appellant have, inter-alia, contended on the ground that, in view of clause (d) of sub-
section (2) of Section 15 of the CGST Act, any interest or late fee or penalty charged/levied or
collected for delayed payment of any consideration for a supply, shall be includible in the value of
the said supply. Therefore, the penal charges / penalty so levied by the Appellant would be treated
at par with interest, and any treatment given to the main consideration (i.e. interest) shall also be
equally applicable to such amount (i.e. penal interest). Hence, the penal interest would be exempt
from GST under Serial No. 27 of the Notification No. 12/2017-Central Tax (Rate) dated
28.06.2017. In this regard we are of view that what is exempted vide above notification is the
interest as construed under definition provided in the said notification. By abiding to the correct
interpretation of term 'interest' as discussed herein above, the penal charges / penalty being not
construed as interest, will not qualify for such exemption. The provisions of clause (d) of sub-
section (2) of Section 15 of the CGST Act would apply in these cases where interest is not defined
separately anywhere else in a specific context. A separate carving out of the word 'interest' in the
notification in the context of this case sets it apart from drawing a general meaning from Section
15.
96. Having rejected the above contention of the appellant, the true nature of the issue has to be
seen now in the light of the entry 5 (e) of the schedule II to the CGST Act, 2017. Therefore, we will
go through the entry 5 (e) of the schedule II to the CGST Act, 2017, which has been reproduced
herein under:-^
"(e) agreeing to the obligation to refrain from an act; or to tolerate an act or a situation, or to do an
act;"~
In the instant case, the Appellant enters into loan agreement with the borrower. On perusal of the
sample agreement, it is observed that it contains specific clauses namely 'Events of Defaults' and
'Remedies in case of Defaults'. The relevant portion of these clauses from sample auto loan
agreement are reproduced herein below:
25. Events of Defaults:
A default shall be deemed to have been committed if the borrower does not comply with its
obligation covenants contained in this agreement, and also if:-^
a. Any default shall have occurred in payment of Monthly Installment or any port thereof and /or in
payment of any amount due and payable to BFL in terms of this agreement~
26. Remedies for Default:
The following are without prejudice to the other as also to other rights and remedies under law or
in enquiry or under this agreement:-^
a. BFL has full right to recall the entire loan and proceed against the borrower.
b. In case of default by reason of PDCs, ECS Mandate / ADM / any other electronic or other
clearing mandate transaction being dishonored, BFL shall initiate legal proceeding under section
138 of the Negotiable Instrument Act 1881 for dishonor of cheques issued by borrower or under
Payment and Settelement System Act, 2007.
c. BFL shall be entitled to take possession of the product without prejudice to any other remedy
available with BFL~
97. From the above referred clause 25 of the agreement it is clear that the default in payment of
EMIs is hereby deemed to be default under the provisions of agreement entered between
appellant and customers. From the above referred clause 26, on any default or breach of the
agreement the remedies available with the appellant are either to recall loan or cancellation of
agreement, initiation of legal proceedings under Negotiable Instruments Act or as the case may be
under Payments and Settlement Act, taking possession of the product, etc. However, the appellant
instead of taking recourse to the remedial provisions in the agreement itself is tolerating the act or
the situation of delay in payment of EMI by customers, by imposing / recovering penalty as
envisaged under the terms of the agreement. Hence, such an activity of tolerance of situation of
delay in payment of EMI is adequately covered in the second expression provided therein above
said clause 5 (e) of Schedule II. Such a tolerance of an activity of delay in payment is against the
agreed consideration arid it is in the form of penal charges / penalty as discussed herein before
para 4. It is agreed between appellant and borrower/ customer that in case any delay has
occurred, the Appellant is entitled to recover the penal charges /penalty from such defaulting
borrowers. Thus, from the language of the above mentioned clause, it is adequately clear that
there is mutual agreement between the Appellant and the borrower. Thus, here it can be said that
the Appellant have tolerated an act or situation of default by the borrowers, for which they are
recovering some amount in the name of the penal charges / penalty. Hence, such activity of
tolerance is against consideration. As regards the contention of the appellant that there is no
separate agreement, we are of the view that though there is no separate agreement between the
Appellant and the borrower, for the said act of tolerance of the delay by the borrower, there is clear
provision laid out at entry 3 (a) of the above discussed agreement, in this regard, in the loan
agreement itself which clearly proposes the remedy available for the default by the borrower.
Thus, this argument of the Appellant is devoid of any rationale or merit, and hence is not worth
considering.
98. The appellant further contended that it is relevant to first determine whether a particular activity
of the appellant is covered within the scope of clause (a), (b) or (c) of Section 7(1) of the CGST
Act as the Clause (d)only provide to treat said activity as either supply of goods or as the case
may be supply of services. The appellant has made this submission with reference to the
provisions of scope of supply, the appellant submitted that the clause (a), (b) and (c) of section 7
of CGST Act define the scope of supply, whereas, clause (d) classifies certain activities specified
in Schedule II as supply of goods or supply of services. The said section is reproduced herein
below:-^
"Section 7.(1) For the purposes of this Act, the expression ''supply" includes:-
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange,
licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the
course or furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule
II.~
From above said scheme of scope of supply it is evident that Clause (a) covers all kinds of supply
of goods or services made or agreed to be made for a consideration by a person in the course or
furtherance of business. The wording provided in Clause (a) start with "all forms of supply such
as ..." It means that the form of supplies enlisted there in as an example and it is inclusive of all
other than those of enlisted. Clause (b) specifically includes import of services for a consideration,
whether or not in the course or furtherance of business. Clause (c) expands the scope of supply
by including activities specified in Schedule I, made or agreed to be made without consideration.
99. Whereas, Clause (d) of the section 7 (1) of the CGST Act is very clear and provides for
inclusion of activities enlisted in Schedule II to be treated as supply of goods or as the case may
be supply of services in the scope of supplies. Schedule II of the CGST Act provides the list of
activities to be treated as supply of goods or services. The Clause (a) of section 7 (1) covers in its
scope all forms of supplies for consideration, irrespective of the fact that such activity is be treated
as supply of goods or supply of services by virtue of Clause (d) of said section 7 (1). Clause 5 (e)
of the Schedule II of the CGST Act includes the activities to be treated as services and it covers
the very activity in the form of expression "to tolerate an act or a situation" and thereby an act of
tolerating delay in payment of EMI is brought into ambit of supply by treating it as supply of
services. There shall not be confusion in the mind of anyone that legislature intentionally brought
this activity of tolerating an act in the scope of supply of services.
100. As explained herein above paras the appellant received the consideration and tolerated the
act or situation of delay in payment of EMI. In view of these facts the harmonious and purposive
interpretation of the above referred Clauses under subsection (1) of Section 7 of CGST Act is that
they are dependent upon the other and conjoint reading of Clause (d) and (a) of the section 7 (1)
remove all clouts of doubt and make it absolute clear that such an act of tolerating delay in
payment of EMI is nothing but supply as mandated under Section 7 of the CGST Act.
101. The Appellant has repeatedly submitted that the penal interest recovered by them from their
borrower cannot be considered as consideration, as the same is not received by them for
supplying any specific service to the borrowers. It is rather in nature of damage or compensation
for the loss incurred to them on account of the delay by the borrower and the borrower is under the
contractual obligation to pay the said amount. As regards this contention of the Appellant, it is
opined that as long as the Appellant is tolerating the delay in payment by the borrower, this act of
tolerance would be construed as supply of service in terms of the provision of Section 7 (1) (a) of
the CGST Act read with the entry 5 (e) of the Schedule II to the CGST Act, 2017. The bounce
charges are recovered by the appellant for tolerating the act of delay and it is nothing but
consideration. It is clearly from the meaning of the "consideration" provided under Section 2(31)
that it includes the impugned charges. The definition is reproduced herein:-^
..''consideration" in relation to the supply of goods or services or both includes,-
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response
to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by
any other person but shall not include any subsidy given by the Central Government or a State
Government;
(b) the monetary value of any act or forbearance, in respect of, in response to, or for the
inducement of, the supply of goods or services or both, whether by the recipient or by any other
person but shall not include any subsidy given by the Central Government or a State
Government:"~
The consideration also includes the monetary value of any act or forbearance, in respect of, in
response to, or for the inducement of, the supply of goods or services or both. Here, the bounce
charges recovered by the Appellant from their borrower can be construed as the monetary value
of the act of the tolerance from the side of Appellant in the case of default by the borrower. Thus,
this argument of the Appellant is not tenable.
102. The appellant has also contended that the clause (e) of Entry 5 of Schedule II to the CGST
Act can be made applicable only when there is an agreement to the obligation to tolerate an act or
situation, and the word 'obligation' implies a duty or a liability on the person making the obligation,
with a corresponding right to the other person to enforce such obligation. However, there is no
obligation upon the Appellant to tolerate the act of non-payment or delayed payment by the
borrower. The payment of penal interest neither obligates the Appellant not to take any legal
action against the borrower, nor the does the borrower gain any right to sue the Appellant for any
legal action taken by the Appellant. In this respect the appellant in his grounds of appeal has also
submitted that the Ld. AAR has misinterpreted the above clause 5 (e) of Schedule II and
interpretation of clause 5 (e) submitted by Appellant in this regard is that it shall be read as under:-
^
(i) agreeing to the obligation to refrain from an act;
(ii) agreeing to the obligation to tolerate an act or situation;
(iii) agreeing to the obligation to do an act.~
Being, the expression "agreeing to the obligation" is a prefix to all the three entries.
103. We believe that the here the appellant has tried to play with words and coined a new theory
of interpretation the law. In common parlance the prefix is a group of letters placed before the root
or stem of a word or part of a word that is placed at the beginning of another word to change its
meaning. By this logic prefix cannot be said as group of words as stated in submission by
appellant. However, the construction of the clause 5 (e) of the Schedule II is very clear in regards
to separate expressions mentioned therein and separated by semicolon. It is evident from the
construction of the said entry that it contains three expressions and that all three expressions
namely "agreeing to the obligation to refrain from an act; or to tolerate an act or a situation; or to
do an act" are separated with semicolon followed by word "or". It shows that semicolon and "or"
separates the above said three expressions showing that they are not inextricably connected.
Therefore, the theory of interpretation coined out by the appellant by connecting group of words of
first expression "agreeing to obligation" with rest of two expressions is not the correct legal
interpretation.
104. The relevant extract of Hon. Supreme Court judgment in the case of PIL of Shri. Jayant
Verma Vs. Union of India, dated 16/02/2018 related to the expressions separated by semicolon is
as under:
"We are afraid we cannot agree for several reasons.
Firstly, purely grammatically, a semicolon separates the two expressions showing that they are not
inextricably connected ..................... Entry 5, List III deals with seven completely different subjects,
all banded together under Entry 5 and separated by semicolons, making it clear that each subject
matter is separate and distinct from what follows each semicolon ........................ "
The first expression "agreeing to the obligation to refrain from" is followed by 'semicolon' and word
'or' itself indicates that the legislature intended to read these expressions separately in a
disjunctive manner. This has been discussed by the Hon. High Court of Kerala in case of Mr.
Vincent Mathew Vs. LIC of India dated 15/01/2013. The relevant portion of said judgment is as
under:
" .................... But, what is more relevant and crucial for the purpose of deciding the issue is that
each of the earlier clauses viz., (a) to (bbb) ends up with semicolon. It is to be noted that
semicolon (;) is a punctuation mark indicating a greater degree of separation than the 'comma' and
it is being used to separate parts of a sentence. It is also worthy to note that in addition to
semicolon, the conjunction 'or' is also used immediately after semicolon. Thus, the very syntax of
the proviso to Rule 44(1} of the Act carrying different clauses would reveal that the punctuation
'semicolon' and the conjunction 'or' are used in between the clauses carrying different eligibility
criteria for renewal commission, not without any purpose. In fact, they would indicate that in troth,
they form a single sentence carrying different clauses...."
Therefore, the correct interpretation of expressions separated by "semicolon" followed by word "or"
is that they are distinct and carry separate meaning. Thus, the words mentioned in first expression
are separate and have limited applicability to the extent of first expression only. The second
expression "to tolerate an act or situation" is clearly distinct and separate. In view of this, the group
of words "agreeing to the obligation" from first expression of clause 5 (e) mandating for agreement
and obligation are not applicable to the expression "to tolerate an act or situation". Hence, it is
concluded that the very activity of tolerating act or situation of delay in payment of EMI is covered
under clause 5 (e) of the Schedule II without such obligation as contended by the appellant.
105. In view of the above observations, we are of the opinion that the penal charges / penalty
recovered by the Appellant from their borrowers on account of the delay in payment of EMI by
borrowers are adequately covered under clause 5 (e) of the Schedule II of the CGST Act, and will
attract GST.
Thus, we pass the following order:
ORDER
We do not find any reason to interfere with the ruling pronounced by the Authority for Advance
ruling vide their order No. GST-ARA-22/2018-19/B-85 dated 06.08.2018.
(RAJIV JALOTA) (SUNGITA SHARMA)

MEMBER MEMBER
NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI
Company Appeal (AT) (Insolvency) No. 616 of 2018
[Arising out of order dated 31st August, 2018 passed by the Adjudicating
Authority (National Company Law Tribunal), Mumbai Bench in Company
Petition No. (1732/I&BP/2018]
IN THE MATTER OF:
Shailesh Sangani
D/10, Ananta Building,
Dr. Rajjabali Ali Pater Road,
Breach Candy,
Mumbai – 400 026.
…Appellant
Vs
1. Joel Cardoso
601, 6th Floor, Colden Ferns,
Opp. Supari Talao Rebello Road,
Bandra (West),
Mumbai – 400 050.
2. Priority Marketing Private Limited

Having its registered office at
Gala No. 423-B, 4th Floor,
Shah & Nahar Industrial Premises,
Dhanraj Mills Compound,
S. J. Marg, Lower Parel (W),
Mumbai – 400 013.
Represented through its
Resolution Professional Mr. Pranav Damania.
….Respondents
Present:
For Appellant: Dr. U. K. Chaudhary, Senior Advocate assisted by

Mr. Srisabri, Mr. Mahesh Agarwal, Mr. Rajeev Kumar
and Ms. Swati Sinha, Advocates.
For Respondents: Mr. Gaurav Mitra and Mr. Rohan Ganpathy,

Advocates.
-2-
J U D G M E N T
BANSI LAL BHAT, J.
Appellant is Promoter/Shareholder/Director of Respondent No.2
Company ‘Priority Marketing Private Limited’ (Corporate Debtor). Being
aggrieved of the impugned order dated 31st August, 2018 passed by the
Adjudicating Authority (National Company Law Tribunal) Mumbai Bench in
Company Petition No. 1732/I&BP/2018 by virtue whereof petition filed by
Respondent No. 1 – ‘Mr. Joel Cardoso’ as a ‘Financial Creditor’ under
Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred
to as ‘I&B Code’) has been admitted, moratorium slapped and Interim
Resolution Professional appointed with certain directions, has assailed the
impugned order primarily on the ground that the amount claimed by
Respondent No. 1 is not a ‘Financial Debt’ within the meaning of Section
5(8) and Respondent No. 1 cannot be treated as a ‘Financial Creditor’ for the
purposes of I&B Code.
2. For better understanding of the controversy involved in this appeal it
would be apposite to refer to the factual matrix of the case. Respondent
No.1, claiming to be a Shareholder of Respondent No. 2 (hereinafter referred
to as Corporate Debtor), filed an application under Section 7 of I&B Code

-3-
before the Adjudicating Authority (National Company Law Tribunal) Mumbai
Bench, seeking initiation of Corporate Insolvency Resolution Process against
the Corporate Debtor on the ground that the Respondent No. 1 had granted
unsecured loan repayable on demand from time to time to the Corporate
Debtor which stood at Rs.3,23,46,475/- as on 31st March, 2008, major
portion whereof was repaid by the Corporate Debtor from year 2008 to 2010
leaving an amount of Rs.1,45,36,475/- as outstanding which was duly
reflected in the financial statements of Corporate Debtor and in respect
whereof the Corporate Debtor issued balance confirmation as on 1st April,
2016 which was confirmed by the statutory auditor in terms of email dated
5th October, 2017 and since the Corporate Debtor did not repay the
aforesaid loan amount, Respondent No. 1 served a notice of demand upon
the Corporate Debtor, which was not complied. Corporate Debtor raised the
plea before the learned Adjudicating Authority that there were cross
holdings inter-se the respondents in various companies and the amounts so
arrived at was a settlement amount which had not ended in compliance of
mutual obligations between the parties. The Corporate Debtor further
stated that the unsecured loan of Rs.1,45,36,475/- was a part of overall
settlement and it was ready to settle the cross holding of shares and loans
inter-se the Respondents. Respondent further contended that none of the
loans under the quasi partnership arrangement inter-se the Respondents
had any term for repayment or interest. The learned Adjudicating Authority
found that the contention raised on behalf of Corporate Debtor was not
plausible as the factum of amount advanced as loan by Respondent no.1 to

-4-
Corporate Debtor was admitted and reflected in the accounts and confirmed
by the Corporate Debtor. Learned Adjudicating Authority was of the view
that the said amount was arrived at after the parties mutually agreed and
the same was reflected in the books of the Corporate Debtor under the head
‘long term borrowings’, the amount of debt fell within the purview of
‘financial debt’ notwithstanding the fact that no interest was payable. The
contention raised by the Corporate Debtor was accordingly repelled.
3. Learned counsel for the Appellant submits that the learned
Adjudicating Authority landed in error in holding that the amount claimed
by Respondent No.1 for triggering Corporate Insolvency Resolution Process,
in respect whereof default on the part of Corporate Debtor was alleged, was
not a ‘Financial Debt’ as defined under Section 5(8) of the I&B Code despite
the admitted position that there was no consideration for the time value of
money in the transaction. It is further submitted that learned Adjudicating
Authority failed to notice that no interest was ever claimed by the
Respondent No.1 or paid by the Corporate Debtor to Respondent No.1, that
no TDS amount was ever deducted in respect of the part payments made,
that there was no tenure for the repayment of amounts granted by
Respondent No.1 to Corporate Debtor and that there was no time value of
money in the transaction and no consideration for the time value of the
money was agreed between the parties at the time of disbursement of
moneys by Respondent No.1.

-5-
4. Per contra it has been argued on behalf of Respondent No.1 that he
had provided moneys to the Corporate Debtor by way of interest free
unsecured loans between the period starting on 1st April, 2002 and ending
on 29th November, 2007, totalling to Rs.3,23,46,475/-, portion whereof to
the tune of Rs.1,78,10,100/- stands repaid by the Corporate Debtor leaving
a balance amount of Rs.1,45,36,475/- as outstanding, which is reflected in
the balance sheet of the Corporate Debtor as unsecured loan. It is further
submitted that by way of confirmation of accounts dated 1st April, 2016, the
Corporate Debtor has admitted the outstanding loan amount being due to
Respondent No. 1 which is further clarified by the statutory auditor of the
Corporate Debtor vide its email dated 5th December, 2017. It is further
submitted that there was no partnership or quasi-partnership between the
Appellant and Respondent No. 1 and moneys advanced by the Appellant
himself to the Corporate Debtor by way of unsecured loans in similar
fashion have been repaid by the Corporate Debtor. It is further submitted
that the ledger account maintained by the Corporate Debtor clearly reflects
the loan amounts provided by Respondent No.1 at different intervals and
repayments made to him by the Corporate Debtor. It is further submitted
that interest is not the mandatory factor to determine the nature of debt and
in the instant case loan provided by Respondent No. 1 to Corporate Debtor
being against the consideration for time value of money falls within the
purview of ‘Financial Debt’. It is submitted that the Corporate Debtor owes
a ‘financial debt’ since the borrowing by the Corporate Debtor from
Respondent No.1 is ‘an amount raised under any other transaction....xxx...

-6-
having the commercial effect of a borrowing, covered under Section 5(8)(f) of
the I&B Code.’
5. We have gone through the record and given our anxious consideration
to the submissions made at the Bar. For determination of the issue whether
the amount claimed by Respondent No. 1 from the Corporate Debtor, default
in payment whereof culminated in initiation of Corporate Insolvency
Resolution Process, falls within the purview of ‘financial debt’ as defined
under Section 5(8) of the I&B Code, be it seen that the legal expression
‘debt’, defined under Section 3 (11) 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 manifestly clear that the liability or obligation to pay
must arise out of a claim due from a debtor/ borrower. The nature of
obligation and from where it springs is immaterial. The obligation may be
contractual or otherwise. Since, the legal expression ‘debt’ includes a
‘financial debt’ across the ambit of I&B Code, it would be appropriate to refer
to the definition of legal expression ‘financial debt’ as engrafted in Section
5(8) of I&B Code, which is reproduced hereinbelow:
“5(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;

-7-
(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;
(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;
(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

-8-
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;”
6. A plain look at the definition of ‘financial debt’ brings it to fore that the
debt alongwith interest, if any, should have been disbursed against the
consideration for the time value of money. Use of expression ‘if any’ as
suffix to ‘interest’ leaves no room for doubt that the component of interest is
not a sine qua non for bringing the debt within the fold of ‘financial debt’.
The amount disbursed as debt against the consideration for time value of
money may or may not be interest bearing. What is material is that the
disbursement of debt should be against consideration for the time value of
money. Clauses (a) to (i) of Section 5(8) embody the nature of transactions
which are included in the definition of ‘financial debt’. It includes money
borrowed against the payment of interest. Clause (f) of Section 5(8)
specifically deals with amount raised under any other transaction having
the commercial effect of a borrowing which also includes a forward sale or
purchase agreement. It is manifestly clear that money advanced by a
Promoter, Director or a Shareholder of the Corporate Debtor as a
stakeholder to improve financial health of the Company and boost its
economic prospects, would have the commercial effect of borrowing on the

-9-
part of Corporate Debtor notwithstanding the fact that no provision is made
for interest thereon. Due to fluctuations in market and the risks to which it
is exposed, a Company may at times feel the heat of resource crunch and
the stakeholders like Promoter, Director or a Shareholder may, in order to
protect their legitimate interests be called upon to respond to the crisis and
in order to save the company they may infuse funds without claiming
interest. In such situation such funds may be treated as long term
borrowings. Once it is so, it cannot be said that the debt has not been
disbursed against the consideration for the time value of the money. The
interests of such stakeholders cannot be said to be in conflict with the
interests of the Company. Enhancement of assets, increase in production
and the growth in profits, share value or equity enures to the benefit of such
stakeholders and that is the time value of the money constituting the
consideration for disbursement of such amount raised as debt with
obligation on the part of Company to discharge the same. Viewed thus, it
can be said without any amount of contradiction that in such cases the
amount taken by the Company is in the nature of a ‘financial debt’.
7. Adverting to the facts of the instant case be it seen that in the balance
sheet of 2009 forming Annexure B of the reply affidavit filed by Respondent
No. 1 under the heading ‘unsecured loans’ name of Respondent no. 1 figures
with particulars of loan. Same is extracted as under:-

-10-

-11-
8. The confirmation of accounts for the period between 1st April, 2015 to
31st March, 2016 forming ‘Annexure C’ to the reply affidavit reflects an
amount of Rs.1,45,36,475/- as balance in the book of accounts in the name
of Respondent No. 1. Same is extracted hereinbelow:-

-12-
9. The balance sheet as on 31st March, 2017 at page 83 of the reply
affidavit filed by Respondent No.1, inter alia, reflects a non-current liability
of Rs.4,72,76,182/- treated as ‘long term borrowings’ and not treated as
shareholder’s funds. Same factual position is reflected in the communication
made by the Company Auditor ‘Ganesh Mehta’, Partner ‘Ganesh and
Rajendra Associates’ addressed to Respondent No.1 in his communication
dated 5th December, 2017 forming Annexure D to the reply affidavit of
Respondent no.1 which is reproduced hereinbelow:-

-13-
This communication reflects total unsecured loan of Rs.4,72,76,182/-
against the Corporate Debtor in the books of the Company as on 31st March,
2017, the breakup showing the loan amount of Rs.1,45,36,475/- in the
name of Respondent No.1.
In the face of this documentary evidence it is abundantly clear that
the amount disbursed by Respondent No.1 to the Corporate Debtor was in
the nature of debt treated as long term loan and not as an investment in the
nature of share capital or equity. Such disbursement cannot either be
treated as largesse. We are convinced that the aforesaid amount outstanding
as against Corporate Debtor, default whereof is not in issue, has all the
trappings of a ‘financial debt’ and falls within the purview of Section 5(8)(f) of
the I&B Code and Respondent No.1 is covered by the definition of ‘Financial
Creditor’.
10. Learned counsel for the Appellant relied upon judgments of this
Appellate Tribunal rendered in ‘Dr. B. V. S. Laxmi Vs. Geometrics Laser
Solutions Pvt. Ltd.’, Company Appeal (AT) (Insolvency) No. 38 of 2017
decided on 22nd December, 2017 and ‘Macksoft Tech Pvt. Ltd. & Ors. Vs.
Quinn Logistics India Ltd.’, Company Appeal (AT) (Insolvency) No. 143,175 &
176 of 2017 decided on 21st May, 2018 to buttress his point that the
Respondent No.1 is not a ‘Financial Creditor’. We have carefully gone
through the aforesaid judgments in ‘Dr. B. V. S. Laxmi (Supra)’, wherein this
Appellate Tribunal noticed that there was nothing on record to suggest that

-14-
the Corporate Debtor borrowed the money and the creditor failed to
establish that the Corporate Debtor had raised the amount under any other
transaction having commercial effect of borrowing. The judgment relied
upon, on facts, is distinguishable and is not attracted to the facts of instant
case. In ‘Macksoft Tech Pvt. Ltd. & Ors. (Supra)’, this Appellate Tribunal held
as under:-
“37. Grant of loan and to get benefit of development is
object of the Respondent - (‘Financial Creditor’), as
apparent from their ‘Memorandum of Association’. Thus,
we find that there is a ‘disbursement’ made by the
Respondent - (‘Financial Creditor’) against the
‘consideration for the value of money’. The investment
was made to derive benefit of development of ‘Q-City’,
which is the consideration for time value of money. Thus,
we find that the Respondent – (‘Financial Creditor’) come
within the meaning of ‘Financial Creditor’ and is eligible to
file an application under Section 7, there being a ‘debt’ and
‘default’ on the part of the ‘Corporate Debtor’.”
This judgment also does not support the Appellant’s case in as much
as it holds that the amount disbursed as loan by a shareholder to derive
benefit of development of assets of the Corporate Debtor would be in the
nature of a loan disbursed against the consideration for time value of

-15-
money. Appellant, therefore, does not gain anything by placing reliance on
this judgment.
11. For the foregoing reasons we find no merit in this appeal. There being
no infirmity in the impugned order, this appeal is dismissed. There shall be
no orders as to costs.
[Justice S. J. Mukhopadhaya] [Justice Bansi Lal Bhat]

Chairperson Member (Judicial)
NEW DELHI
30th January, 2019
AM

MANU/ML/0003/2019
IN THE APPELLATE TRIBUNAL UNDER PREVENTION OF MONEY LAUNDERING
ACT
NEW DELHI
FPA-PMLA-2633/RP/2018
Appellants: Punjab National Bank
Vs.
Respondent: The Deputy Director, Directorate of Enforcement, Raipur
Manmohan Singh, J. (Chairman)
Counsels:
For Appellant/Petitioner/Plaintiff: Rajesh Kumar Gautam, Advocate
For Respondents/Defendant: Atul Tripathi, Advocate
JUDGMENT
Manmohan Singh, J. (Chairman)
FPA-PMLA-2633/RP/2018
1 . The present Appeal has been filed by the Appellants against the order dated
17.09.2018 passed by the Ld. Adjudicating Authority in O.C. No. 952 of 2018 in PAO
No. 03/2018 dated 28.03.2018 in ECIR/RPSZO/01/2015 dated 13.01.2015.
2 . Admitted facts are that the Respondent No. 2 had approached the Appellant for
availing Consortium Finance of Rs. 546.77 Cr i.e. [Term Loan, Working Capital
Limits, Fund Based and Non-Fund Based].
3. The Appellant Bank (Being the lead Bank in the consortium of Banks) pursuant to
the request made by the Respondent No. 2, sanctioned Term Loan, Working Capital
Limits, Fund Based and Non-Fund Based Rs. 546.77 Cr to the Respondent No. 2
Company on 27.06.2008.
4 . The Respondent No. 2 Company had executed memorandum of entry, inter alia,
evidencing the creation of first charge by way of equitable mortgage and
Hypothecation qua the property in issue.
5 . By provisional attachment order No. 3/2018 dated 28.03.2018 passed by
Respondent no. 1 in ECIR/RPSZO/01/2015, inter alia, the following
Moveable/Immoveable asset which has been hypothecated/Equitably Mortgaged to
the Appellant was attached. The details of the same is described herein below:-

Borrowers/mortgagors/guarantors becomes the custodia legis on the institution of the
OA for recovery of dues under the Act. It is admitted fact in the present case that the
OA bearing No. 410/2017 has been filed by the Appellant Bank before the DRT,
Jabalpur and the Ld. DRT has been pleased to issue notice to the Respondent No. 2
Company on the said OA, therefore, the Respondent No. 1 could not have attached
the property in issue as the same is now the custodia legis.
5 5 . The NCLT passed Moratorium order 26.04.2018 under Section 14 of the IBC,
2016, inter alia, prohibiting institution or continuation of pending suits or
proceedings against the Corporate Debtor i.e. M/s. Vandana Vidhyut Ltd. including
execution of any judgment, decree or order in any court of law, tribunal, arbitration
panel or other authority, therefore, in view of the order passed by the NCLT under
section 14 of the IBC, 2016, the Respondent No. 1 i.e. Enforcement Directorate could
not have passed the PAO 03/2018 dated 28.03.2018.
56. In view of the non-obstante clause as contained In Section 238 of the IBC, 2016,
the Adjudicating Authority could not have continued with the Attachment proceedings
under the PMLA after 26.04.2018 and passed the impugned order dated 17.09.2018.
The afore mentioned submissions has been rejected by the Adjudicating Authority on
the ground that the non-obstante clause comes into operation only when there is
inconsistency between the statute and not otherwise.
57. The Reasoning of the Adjudicating Authority is not wholly bias as it is a settled
law that Non-Obstante clause of the later act shall prevail over the non-obstante
clause of the prior act. It is further submitted that the IBC, 2016 being a subsequent
legislation than the PMLA, therefore, the Non-obstante clause of the IBC, 2016 shall
prevail over the PMLA.
58. The proceedings before the Adjudicating Authority is civil in nature, therefore, in
view of the Section 14 of the IBC, 2016 the proceedings before the Adjudicating
Authority cannot continue as there is clear prohibition under the said section of the
IBC, 2016.
59. The Appellant Bank and other consortium members pursuant to the order of the
moratorium have filed their claim before the IRP amounting to Rs. 2677.74 Cr.
60. In earlier matters, it was also observed by this tribunal that the bank if told to
wait for the conclusion of the trial, the economy would collapse.
61. It appears that the said PAO 03/2018 which has been passed by the Respondent
No. 1 is creating an hindrance on the Appellant Bank to recover its legitimate dues.
62. The relevant paragraph of the impugned order dated 17.9.2018 passed by the
Adjudicating Authority reads as under:-
"In view of the legal provisions above referred and the object sought to be
achieved by the PMLA, I humbly and with great respect cannot concur with
the view expressed by the Appellate Tribunal, PMLA in the judgments of the
Appellate Tribunal cited by D-3.
In view of the findings hereinabove, the Provisional Attachment Order issued
is rightly issued and deserves acceptance and confirmation. The Provisional
Attachment Order is therefore, hereby confirmed."

63. The Adjudicating Authority is bound by the law laid down by the higher courts.
No authority has any justification to ignore the law laid down by the Supreme Court
and various High Courts and this Tribunal, who on the basis of decisions of Hon'ble
Supreme Court and various High Courts, has delivered orders. Unless each and every
judgment is distinguished or are on different facts, the different conclusion cannot be
arrived. The facts and legal issues are almost same and the Adjudicating Authority
has incorrectly passed the impugned order by saying that it cannot "Concur" with the
law laid down by this Tribunal. The appellant is a Public Sector Bank. The money
must come to the public forthwith not after the trial of criminal case against the
borrowers which may take many years. The banks are in crisis, no attempt should be
made to block the loan amount in order to avoid worsen positions in the commercial
market. The trial may continue against the borrowers. One is failed to understand
why the bank loan amount be blocked in view of settled law.
64. This Tribunal is of the considered opinion that the proceeding u/s. 8 of PMLA,
2002 before the Adjudicating Authority is a civil proceeding and the Adjudicating
Authority should have stayed the proceedings on passing of the moratorium order by
the NCLT. The continuation of the proceedings from the date of commencement of the
moratorium order is contrary to the intention of the legislature hence the
consequential order of confirmation of PAO is contrary to law. In the facts of the
present case, it appears that hurdle has been created in the process after passing the
order of NCLT which ought not to have been done. The question of registering ECIR
does not arise. The passing of provisional attachment order was not application of
mind and without consulting the facts and law.
65. It is a matter of fact that ED has registered the ECIR and passed the provisional
attachment order after the moratorium order is passed by the NCLT. Thus, on the face
of record, it is evident that the ED and the Adjudicating Authority have not
understood the legal issues involved rather they have ignored the settled law and
passed the impugned order. The serious situation is that ED has registered ECIR on
the basis of FIR which was registered at the request of banks' complaint as borrowers
who failed to pay the loan amount. The banks have now become victim. Therefore,
both the impugned order and provision attachment order are set-aside qua the
appellant bank.
6 6 . The period of continuation of proceedings before the Adjudicating Authority,
PMLA, and before this Tribunal till the passing of the present judgment and order,
from the date of commencement of the moratorium order, be treated as excluded
while calculating limitation of the period of completion of the Corporate Insolvency
Resolution Process.
67. The appeal is allowed.
68. No cost.
69. Copy of Order be given 'Dasti' to both parties.

MANU/SC/0009/2001
Equivalent Citation: AIR2001SC 958, 2001 (Suppl.) AC C 301, [2001]41C LA1(SC ), [2001]104C ompC as569(SC ), (2001)1C ompLJ400(SC ),
JT2001(2)SC 639, 2001(2)RC R(C ivil)198, 2001(2)SC ALE1, (2001)3SC C 71, [2001]1SC R932, 2001(1)UJ582

Appeal (civil) 3760 of 1995
Appellants:Solidaire India Ltd.
vs.
Respondent:Fairgrowth Financial Services Ltd. and Ors.
B.N. Kirpal, Ruma Pal and Brijesh Kumar, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: A. Subba Rao, (Dr. A. Francis Julian) Adv. for M/s.
Arputham Aruna & Co., Advs
For Respondents/Defendant: Altaf Ahmed, Additional Solicitor General, Tara Chandra
Sharma, P. Parmeswaran, Ms. Sushma Suri, Shiraz Rustomjee, Mustafa S. Doctor, K.
Subba Rao, A.T. Rao, Advs.
JUDGMENT
B.N. Kirpal, J.
1. The appellant herein on 3rd March, 1992, 20th March, 1992 and 25th March, 1992
took a loan of Rs. 50 lakhs, Rs. 25 lakhs and Rs. 25 lakhs respectively from
respondent No. 1. According to the appellant, the agreement was to repay the loan
amount within three years together with interest at 18 per cent per annum.
2 . Repayment not having been made and respondent No. 1 having been notified
under Section 3 of the Special Court (Trial of Offences Relating To Transactions And
Securities) Act, 1992 (hereinafter referred to as "Special Court Act"), proceedings
were initiated by the Custodian before the Special Court for the recovery of the said
money.
3 . There was no dispute before the Special Court with regard to the fact that Rs. 1
crore had been taken on loan by the appellant. The claim against the appellant before
the Special Court was for a sum of Rs. 1,57,20,216.24/- consisting of principal plus
interest. The main contention raised before the Special Court related to the rate of
interest. The respondent had claimed interest at the rate of 21.5 per cent on the
amount of Rs. 50 lakhs and 23 per cent on the two loans of Rs. 25 lakhs each. The
Special Court came to the conclusion that the appellant herein had been put to notice
by the Custodian as far back as 3rd June, 1993 that if it did not deposit the amount it
will become liable to pay interest at a higher rate and the payment had not been
made. The Special Court came to the conclusion that the claim of interest made by
the respondent was justified. The suit of the respondent was, accordingly, decreed as
prayed for alongwith costs.

4 . During the pendency of this appeal, a further development had taken place and
that is that the appellant has become sick and proceedings are going on under the
provisions of The Sick Industrial Companies (Special Provisions) Act, 1985.
5 . It is contended on behalf of the appellant that firstly, the Special Court was not
justified in awarding interest in excess of 18 per cent and the second contention was
that in view of the special provisions contained in the Sick Industrial Companies
(Special Provisions) Act, 1985 no proceedings should have been initiated or
continued under the Special Court Act.
6. As far as the question of interest is concerned, it appears that there was no formal
agreement which had been entered into between the parties at the time when the
loan was advanced in March, 1992. The correspondence which has been placed on
record, however, clearly indicates that the respondent had claimed interest at the rate
of 21.5 per cent on the loan of Rs. 50 lakhs first advanced and on the balance
amount the claim was of 23 per cent. There is no document on the record to show
that the amount of interest claimed was immediately refuted, though it was belatedly
refuted by the appellant. We do not find any infirmity in the decision of the Special
Court in coming to the conclusion that the appellant was liable to pay the rate of
interest as claimed by the respondent.
7 . Coming to the second question, there is no doubt that the 1985 Act is a special
Act. Section 32(1) of the said Act reads as follows :-
"32. Effect of the Act on other laws - (1) The provisions of this Act and of
any rules or schemes made thereunder shall have effect notwithstanding
anything inconsistent therewith contained in any other law except the
provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and
the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time
being in force or in the Memorandum or Articles of Association of an
industrial company or in any other instrument having effect by virtue of any
law other than this Act."
8 . The effect of this provision is that the said Act will have effect notwithstanding
anything inconsistent therewith contained in any other law except to the provisions of
the Foreign Exchange Regulation Act., 1973 and the Urban Land (Ceiling and
Regulation) Act, 1976. A similar non-obstante provision is contained in Section 13 of
the Special Court Act which reads as follows :
"13. Act to have overriding effect - The provisions of this Act shall have
effect notwithstanding anything inconsistent therewith contained in any other
law for the time being in force or in any instrument having effect by virtue of
any law, other than, this Act, or in any decree or order of any court, tribunal
or other authority."
9 . It is clear that both these Acts are special Acts. This Court has laid down in no
uncertain terms that in such an event it is the later Act which must prevail. The
decisions cited in the above context are as follows: Maharashtra Tubes Ltd. Vs. State
Industrial & Investment Corporation of Maharashtra Ltd. & Anr. MANU/SC/0427/1993
: [1993]1SCR340]; Sarwan Singh & Anr. Vs. Kasturi Lal MANU/SC/0071/1976 :
[1977]2SCR421]; Allahabad Bank Vs. Canara Bank & Anr. MANU/SC/0262/2000 and
Shri Ram Narain Vs. The Simla Banking Industrial Co, LimitedMANU/SC/0003/1956 :
[1956]1SCR603].

10. We may notice that the Special Court had in another case dealt with a similar
contention. In Bhoruka Steel Ltd. Vs. Fairgrowth Financial Services Ltd.
MANU/MH/0095/1996, it had been contended that recovery proceedings under the
Special Court Act should be stayed in view of the provisions of the 1985 Act.
Rejecting this contention, the Special Court has had come to the conclusion that the
Special Court Act being a later enactment would prevail. The head-note which brings
out succinctly the ratio of the said decision is as follows:
"Where there are two special statues which contain non-obstante clauses the
later statute must prevail. This is because at the time of enactment of the
later statute, the Legislature was aware of the earlier legislation and its non-
obstante clause. If the Legislature still confers the later enactment with a
non-obstante clause it means that the Legislature wanted that enactment to
prevail. If the Legislature does not want the later enactment to prevail then it
could and would provide in the later enactment that the provisions of the
earlier enactment continue to apply.
The Special Court (Trial of Offences Relating to Transactions in Securities)
Act, 1992, provides in Section 13, that its provisions are to prevail over any
other Act. Being a later enactment, it would prevail over the Sick Industrial
Companies (Special Provisions) Act, 1985. Had the Legislature wanted to
exclude the provisions of the Sick Companies Act from the ambit of the said
Act, the Legislature would have specifically so provided. The fact that the
Legislature did not specifically so provide necessarily means that the
Legislature intended that the provisions of the said Act were to prevail even
over the provisions of the Sick Companies Act.
Under Section 3 of the 1992 Act, all property of notified persons is to stand
attached. Under Section 3(4), it is only the Special Court which can give
directions to the custodian in respect of property of the notified party.
Similarly, under Section 11(1), the Special Court can give directions
regarding property of a notified party. Under Section 11(2), the Special Court
is to distribute the assets of the notified party in the manner set out
thereunder. Monies payable to the notified parties are assets of the notified
party and are, therefore, assets which stand attached. These are assets which
have to be collected by the Special Court for the purposes of distribution
under Section 11(2). The distribution can only take place provided the assets
are first collected. The whole aim of these provisions is to ensure that
monies which are siphoned off from banks and financial institutions into
private pockets are returned to the banks and financial institutions. The time
and manner of distribution is to be decided by the Special Court only. Under
Section 22 of the 1985 Act, recovery proceedings can only be with the
consent of the Board for Industrial and Financial Reconstruction or the
Appellate Authority under that Act. The Legislature being aware of the
provisions of Section 22 under the 1985 Act still empowered only the Special
Court under the 1992 Act to give directions to recover and to distribute the
assets of the notified persons in the manner set down under section 11(2) of
the 1992 Act. This can only mean that the Legislature wanted the provisions
of Section 11(2) of the 1992 Act to prevail over the provisions of any other
law including those of the Sick Industrial Companies (Special Provisions) Act,
1985.
It is a settled rule of interpretation that if one constructions leads to a

conflict, whereas on another construction, two Acts can be harmoniously
constructed then the latter must be adopted. If an interpretation is given that
the Sick Industrial Companies (Special Provisions) Act, 1985, is to prevail
then there would be a clear conflict. However, there would be no conflict if it
is held that the 1992 Act is to prevail. On such an interpretation the objects
of both would be fulfilled and there would be no conflict. It is clear that the
Legislature intended that public monies should be recovered first even from
sick companies. Provided the sick company was in a position to first pay back
the public money, there would be no difficulty in reconstruction. The Board
for Industrial and Financial Reconstruction (SIC) considering a scheme for
reconstruction has to keep in mind the fact that it is to be paid off or directed
by the Special Court. The Special Court can, if it is convinced, grant time or
installments.
There can, therefore, be no stay of any proceedings for recovery against a
sick company so far as the Special court under the 1992 Act is concerned."
11. We are in agreement with the aforesaid decision of the case, more so when we
find that whenever the legislature wishes to do so it makes appropriate provisions in
the Act in that behalf. Mr. Shiraz Rustomjee has drawn our attention to Section 34 of
the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 wherein after
giving an overriding effect to the 1993 Act it is specifically provided that the said Act
will be in addition to and not in derogation of a number of other Acts including the
1985 Act. Similarly under Section 32 of the 1985 Act the applicability of the Foreign
Exchange Regulation Act and the Urban Land Ceiling Act is not excluded. It is clear
that in the instant case there was no intention of the legislature to permit the 1985
Act to apply notwithstanding the fact that proceedings in respect of a company may
be going on before the (SIC). The 1992 Act is to have an overriding effect
notwithstanding any provision to the contrary in another Act.
12. For the aforesaid reasons, we do not find any merit in this appeal. The appeal is
dismissed with costs.

MANU/SCOR/25330/2018
Petitions for Special Leave to Appeal C No. 6483/2018 Diary Nos. 4692/2018 XIV
Diary Nos. 4781/2018 XIV
Date of Order: 10.08.2018
Appellants: Pr. Commissioner Of Income Tax
Vs.
Respondent: Monnet Ispat And Energy Ltd.
Hon'ble Mr. Justice Rohinton Fali Nariman, Hon'ble Ms. Justice Indu Malhotra
Counsels:
For Appellant/Petitioner/Plaintiff: , Mr. A.N.S. Nadkarni, ASG, Mr. K.S. Radhakrishnan,
Sr. , Mr. S.A. Haseeb, , Mr. Arijit Prasad, , Mrs. Anil Katiyar, AOR,
For Respondents/Defendant: Mr. Mukul Rohatgi, Sr.
ORDER
Heard. Delay, if any, is condoned.
Given Section 238 of the Insolvency and Bankruptcy Code, 2016, it is obvious that
the Code will override anything inconsistent contained in any other enactment,
including the Income-Tax Act. We may also refer in this Connection to Dena Bank vs.
Bhikhabhai Prabhudas Parekh and Co. & Ors. (2000) 5 SCC 694 and itsprogeny,
making it clear that income-tax dues, being in the nature of Crown debts, do not take
precedence even over secured creditors, who are private persons. We are of the view
that the High Court o f Delhi, i s, therefore, correct in law. Accordingly, the Special
Leave Petitions are dismissed. Pending applications, if any, stand disposed of.
(R. NATARAJAN)
(SAROJ KUMARI GAUR)

NATIONAL COMPANY LAW TRIBUNAL
MUMBAI BENCH
M.A 1280/2018
in
C.P. 405/ 2018
Under Section 60 (5) of the IBC,

2016
In the matter of
SREI Infrastructure Finance Limited
… Petitioner
v/s.
Sterling SEZ and Infrastructure
Limited
.. Corporate Debtor
M.A. No. 1280/2018
Sterling SEZ and Infrastructure
Limited
Represented by Mr. Vishal Ghisulal
Jain, Resolution Professional
… Applicant
v/s.
Deputy Director,
Directorate of Enforcement,
(Prevention of Money Laundering
Act)
Head Office Investigation Unit
10-A, Jam Nagar House, Akbar
Road, New Delhi.
Order delivered on: 12.02.2019

Coram: Hon’ble Bhaskara Pantula Mohan, Member (J)
Hon’ble V. Nallasenapathy, Member (T)
For the Applicant: Mr. Shavez Mukri a/w Ms. Almira Lasrado, Advocates
i/b India Law, Mr. Vishal G. Jain, Resolution
Professional.
Respondent: Mr. Retesh Srivastava, Advocate and Mr. Nitesh
Rana, Advocate
Amicus curie: Mr. Mayur R. S. Khandeparkar, Advocate.
1
NATIONAL COMPANY LAW TRIBUNAL, MUMBAI BENCH
M.A 1280/2018
in
C.P. 405/ 2018
in any other law for the time being in force or any

instrument having effect by virtue of any such law."
18. Shri Dave's ingenious argument that since Section 434
of the Companies Act, 2013 is amended by the Eleventh
Schedule of the Code, the amended Section 434 must be
read as being part of the Code and not the Companies Act,
2013, must be rejected for the reason that though Section
434 of the Companies Act, 2013 is substituted by the
Eleventh Schedule of the Code, yet Section 434, as
substituted, appears only in the Companies Act, 2013 and is
part and parcel of that Act.
This being so, if there is any inconsistency between Section
434 as substituted and the provisions of the Code, the latter
must prevail. We are of the view that the NCLT was
absolutely correct in applying Section 238 of the Code to an
independent proceeding instituted by a secured financial
creditor, namely, the Alchemist Asset Reconstruction
Company Ltd. This being the case, it is difficult to
comprehend how the High Court could have held that the
proceedings before the NCLT were without jurisdiction. On
this score, therefore, the High Court judgment has to be set
aside.
The NCLT proceedings will now continue from the stage at
which they have been left off. Obviously, the company
petition pending before the High Court cannot be proceeded
with further in view of Section 238 of the Code. The writ
petitions that are pending before the High Court have also
to be disposed of in light of the fact that proceedings under
the Code must run their entire course. We, therefore, allow
the appeal and set aside the High Court's judgment”.
8. This Bench has given serious consideration to the submissions

made by the applicant, respondent and amicus curiae and gone through
the pleadings and the judgements and is of the considered view that:-
a. The purpose and object of IBC is for resolution of the
Corporate Debtor by maximizing the value that can be
received by the Creditors and stake holders. The IBC provides
for timelines within which the resolution has to be arrived at.
The PMLA’s object is also to recover the property from wrong
12
M.A 1280/2018
in
C.P. 405/ 2018
doers and compensate the affected parties by confiscation and

sale of the assets of the wrong doer apart from imposing
punishment. Here the beneficiaries are the creditors of the
Corporate Debtor. The criminal proceedings before PMLA will
take a longer time and by the time there will be an eroison in
the value of assets. However, considering the overriding
provisions of Section 238 of IBC which is the later legislation,
when compared to the earlier legislation of PMLA, the
provisions of IBC will prevail and hence considering the
economic interest of the beneficiaries, the IBC will provide
solution at the earliest to the Corporate Debtor as well as to
the Creditors. The case laws cited above also favours a
resolution by IBC instead of waiting for a long period to get the
benefit under the PMLA. Further, the quantum of amount
locked in the assets of the Corporate Debtor can be released at
the earliest when resolution is found through IBC instead of
taking a long route under PMLA. This is the economic aspect of
the case.
b. As per the provisions of Section 14(1)(a) of IBC, where
moratorium on any kind of proceedings is imposed by the
Adjudicating Authority, particularly this attachment is a legal
proceedings which squarely falls under the ambit of the said
Sections of IBC. Since, the attachment order passed by the
PMLA court is hit by the provisions of Section 14 of the Code
and considering the overriding effect of IBC under Section 238
of the Code, this Tribunal is of the considered view that the
attachment order under PMLA Act is a nullity and non-est in
law and hence it will not have any binding force.
c. Section 63 of the IBC provides that, no Civil Court or Authority
shall have jurisdiction to entertain any suit or proceeding in
respect of any matter on which NCLT or NCLAT has jurisdiction
under this Code. In view of the ruling by the Appellate
Authority under PMLA in “Bank of India vs Deputy Directorate
Enforcement, Mumbai” supra, that the proceedings before
Adjudicating Authority under PMLA in respect of attached
properties is a civil proceedings, the Adjudicating Authority
under PMLA does not have jurisdiction to attach the properties
of the Corporate Debtor undergoing Corporate Insolvency
Resolution Process.
13
M.A 1280/2018
in
C.P. 405/ 2018
d. The suggestion made by the amicus curiae that the resolution

professional or other creditors can approach the adjudicating
authority under PMLA for raising the attachment though seems
plausible but will definitely further delay the CIRP which will be
against the spirit of the Code. If that route is followed it may
take a considerable time and the assets were to be locked in
the proceedings. Considering the economic factors associated
with the case and the object of both legislations, it is advisable
to take a route where assets can be utilized in a speedy
manner rather waiting and lose the value of assets over a
period of time.
9. In view of the above discussion the attachment order dated

29.05.2018 and the Corrigendum dated 14.06.2018 issued by
Respondent and as confirmed Adjudicating Authority under PMLA Court
is a nullity and nonest in law in view of Sections 14(1)(a), 63 and 238
of IBC and the Resolution Professional can proceed to take charge of
the properties and deal with them under IBC as if there is no
attachment order. The concerned sub-registrars are directed to give
effect to this order and remove their notings of attachment, if any, in
their file in respect of properties belonging to the Corporate Debtor. It
is needless to mention that the attachments in respect of the properties
of the Corporate Debtor only are covered in this order.
10. Consequently, the sub-registrar at Jambusar is directed to

register and hand over the two Original lease deeds entered into
between Sterling SEZ and Infrastructure Ltd. and P. I. Industries Ltd.
on 28.08.2018, as prayed for in this application.
11. Accordingly, the application is ordered in above terms, but no

cost.
12. We express our gratitude to Mr. Mayur R. S. Khandeparkar

Amicus-curie for spending his valuable time in effectively assisting us in
this matter.
SD/- SD/-
V. Nallasenapathy Bhaskara Pantula Mohan

Member (T) Member (J)
14
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
NEW DELHI
IN THE MATTER OF:
JSW Steel Limited …Appellant
Versus
Mahender Kumar Khandelwal & Anr. …Respondents
Present:
For Appellant : Mr. Kapil Sibal, Senior Advocate
Mr. Arun Kathpalia, Senior Advocate with
Mr. Manmeet Singh, Ms. Nishtha Chaturvedi, Mr.
Anugrah Robin Frey and Ms. Abhilasha Khanna,
Advocates
For Respondents : Mr. Abhinav Vasisht, Senior Advocate with

Ms. Misha, Mr. Shantanu Chaturvedi, Mr. Anoop
Rawat, Mr. Shreyas and Ms. Charu, Advocates
for ‘Resolution Professional’
Mr. Ramji Srinivasan, Senior Advocate with

Mr. Bishwajit Dubey, Mr. Spandan Biswal, Ms.
Srideepa Bhattacharya, Mr. Aditya marwah, Ms.
Neha Shivhare and Ms. Sylona Mohapatra,
Advocates for ‘Committee of Creditors’
Mr. Zoheb Hossain, Advocate for Enforcement

Directorate
Mr. Sanjay Shorey, Director (Legal & Prosecution),

Ministry of Corporate Affairs
ORDER
14.10.2019 The questions arise for consideration in this appeal are:
(i) Whether the ‘Directorate of Enforcement’ has jurisdiction to attach
the property of the ‘Corporate Debtor’ or part thereof which is
undergoing ‘corporate insolvency resolution process’; and
(ii) Whether the ‘Directorate of Enforcement’ comes within the meaning
of ‘Operational Creditor’ in terms of Section 5 (20) and (21) of the

2
‘Insolvency and Bankruptcy Code, 2016’ for the purpose of money
claim (civil matter), which may be generated out of the attached
property/ part thereof of the ‘Corporate Debtor’.
2. Mr. Sanjay Shorey, Director (Legal and Prosecution), Ministry of Corporate
Affairs, Government of India appeared on behalf of ‘Union of India’ and filed
reply-affidavit. He submits that ‘Central Bureau of Investigation (CBI) also
intends to file an affidavit.
3. Mr. Zoheb Hossain, Advocate appears on behalf of the ‘Directorate of
Enforcement’ and submits that in the present case as the ‘proceeds of crime’ is
involved, part/property of the ‘Corporate Debtor’ (Bhushan Power & Steel
Limited) has been attached by the Deputy Director of the Directorate of
Enforcement, New Delhi by order dated 10th October, 2019. He prays for and is
allowed time till 17th October, 2019 to file reply-affidavit. Same time is also
granted to the ‘Central Bureau of Investigation’ to file reply affidavit. Rejoinder,
if any, may be filed by the Appellant by 23rd October, 2019.
4. Mr. Sanjay Shorey, Director (Legal and Prosecution), Ministry of Corporate
Affairs, Government of India submits that the ‘Directorate of Enforcement’ has
no jurisdiction to attach the property of the ‘Corporate Debtor’, which is
undergoing ‘corporate insolvency resolution process’ and particularly when the
appeal is pending consideration of issue of attachment of property of the
‘Corporate Debtor’.
5. Similar plea has been taken by the learned Senior Counsel for the
‘Committee of Creditors’ and the learned Senior Counsel appearing on behalf of
the Appellant (JSW Steel Limited) .

3
6. In the reply-affidavit filed by Union of India through Ministry of Corporate
Affairs in consultation with Department of Financial Services and the Banks, the
following statement has been made in support of stand taken by Union of India:
“3) That pursuant to the captioned notice, the
Ministry had called for meeting of the
officials of Department of Financial Services
and the Banks who were members of the
Committee of Creditors on October 3rd, 2019
to ascertain their views and formalize the
response of this Ministry, in view of rippling
effects it would have in this case as well as
other cases as well. In the meeting, it was
unanimously recognized that the rights of
Secured Financial Creditors are to be
protected in the resolution of the Corporate
Debtor and the incumbent resolution
applicant is bona fide investor who acquires
and takes over the Non-performing Assets
(NPA) company as a going concern and
facilitates maximization of the value of
assets of the corporate debtor, revival of a
failing company and realization of dues of
creditors to the extent possible under an
open, transparent National Company Law
Tribunal (NCLT) supervised process.

4
4) It is submitted that under the process
envisaged under the Insolvency &
Bankruptcy Code, 2016(“IBC”), once a
Resolution Plan is approved by the Ld.
Adjudicating Authority, it is binding on all
stakeholders. Before approving the
Resolution Plan, objections are heard
by the Ld. Adjudicating Authority and
once hearing on the Resolution Plan
and objections is completed before the
Ld. Adjudicating Authority and the
Resolution Plan is approved, such
approved Resolution Plan is binding on
all stakeholders, including all
government agencies. The provision of
the Insolvency and Bankruptcy Code
(Amendment) Act, 2019 by which
Section 31(1) was amended, makes it
amply clear that a resolution plan is
binding on Central Government and all
statutory authorities.
5) It is submitted that if any Corporate Debtor
is undergoing investigation by the Central
Bureau of Investigation (“CBI”), Serious
Fraud Investigation Office(“SFIO”) and/ or

5
the Directorate of Enforcement (“ED”), such
investigations are separate and
independent of the Corporate Insolvency
Resolution Process (“CIR Process”) under
the IBC and both can run simultaneously
and independent of each other. It is
further submitted that the erstwhile
management of a company would be
held responsible for the crimes, if any,
committed under their regime and the
new management taking over the
company after going through the IBC
process cannot be held responsible for
the acts of omission and commission of
the previous management. In other
words, no criminal liability can be fixed
on the successful Resolution Applicant
or its officials.
6) In so far as the corporate debtor or its
assets are concerned, after the
completion of the CIR Process, i.e. a
statutory process under the IBC, there
cannot be any attachment or
confiscation of the assets of the
Corporate Debtor by any enforcement

6
agencies after approval of the
Resolution Plan. The CIR Process is an
open and transparent statutory process
wherein under Resolution Plans are invited
from bona fide Prospective applicants who
are not hit or disqualified under Section 29A
of the IBC.
7) Resolution Plan submitted by the interested
Resolution Applicants are duly examined
and validated by the Resolution
Professional and the Committee of Creditors
(“CoC”). Once the Resolution Plan is voted
upon and approved by the CoC, it is
submitted to the Ld. Adjudicating Authority
for its approval. The Ld. Adjudicating
Authority after hearing the objections, if
any, and being satisfied that the Resolution
Plan is in compliance with the provisions of
the law, approves the Plan. The CIR Process
is desired to ensure that undesirable
persons do not take control of the Corporate
Debtor by virtue of Section 29A of the IBC.
The purpose and scheme of the CIR
process is to hand over the company of
the corporate debtor to a bona fide new

7
resolution applicant. Any threat of
attachment of the assets of the
corporate debtor or subjecting the
corporate debtor to proceedings by
investigating agencies for wrong doing
of the previous management will defeat
the very purpose and scheme of CIR
process, which inter-alia includes
resolution of insolvency and revival of
the company, and the efforts of the
bank to realise dues from their NPAs
would get derailed. Otherwise too, the
money realised by way of resolution plan is
invariably recovered by the banks and
public financial institutions and other
creditors who have lent money to the
erstwhile promoters to recover their dues
which they have lent to the erstwhile
management for creation of moveable or
immoveable assets of the corporate debtor
in question and therefore, to attach such an
asset in the hands of new promoters or
resolution applicant would only negate the
very purpose of IBC and eventually destroy
the value of assets.

8
8) In light of the above, it is respectfully
submitted that the ED while conducting
investigation under PMLA is free to deal
with or attach the personal assets of
the erstwhile promoters and other
accused persons, acquired through
crime proceeds and not the assets of the
Corporate Debtor which have been
financed by creditors and acquired by a
bona fide third party Resolution
Applicant through the statutory
process supervised and approved by the
Adjudicating Authority under the IBC.
In so far as a Resolution Applicant is
concerned, they would not be in
wrongful enjoyment of any proceeds of
crime after acquisition of the Corporate
Debtor and its assets, as a Resolution
Applicant would be a bona fide assets
acquired through a legal process.
Therefore, upon an acquisition under a
CIR Process by a Resolution Applicant,
the Corporate Debtor and its assets are
not derived or obtained through
proceeds of crime under the Prevention

9
of Money Laundering Act, 2002 (“PMLA)
and need not be subject to attachment
by the ED after approval of Resolution
Plan by the Adjudicating Authorities.”
7. Taking into consideration the fact that the stand taken by the ‘Directorate
of Enforcement’, is contrary to the stand taken by the Government of India, the
order of attachment dated 10th October, 2019 passed by the Deputy Director,
‘Directorate of Enforcement’ with regard to part property of the ‘Corporate
Debtor’ (Bhushan Power & Steel Limited) is stayed. The Director, Deputy
Director and other officers of ‘Directorate of Enforcement’ are prohibited from
attachment of any property of the ‘Corporate Debtor’ (Bhushan Power and Steel
Limited) without prior approval of this Appellate Tribunal. The property already
attached by them be released in favour of the ‘Resolution Professional’
immediately. Further, to ensure that the ‘resolution plan’ is not given effect
before deciding the issue, we stay the impugned order dated 5th September,
2019, so far it relates to the payment of the creditors.
Post the case ‘for orders’ on 25th October, 2019 on the top of the list.
[Justice S.J. Mukhopadhaya]

Chairperson
[ Justice A.I.S. Cheema ]

Member (Judicial)
[ Kanthi Narahari ]
Member (Technical)
/ns/gc
IN THE NATIONAL COMPANY LAW TRIBUNAL,
KOLKATA BENCH
KOLKATA
I.A.(IB) No. /KB/2020

In
C.P. (IB) No. 543 /KB/2017
IN THE MATTER OF:

An application u/s. 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the
Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016;
AND
IN THE MATTER OF:
SBER BANK; … FINANCIAL CREDITOR
VERSUS
VARRSANA ISPAT LIMITED (In Liquidation); … CORPORATE DEBTOR
AND
IN THE MATTER OF:

An application u/s 60(5) and 32A of the Insolvency & Bankruptcy Code, 2016;
AND
IN THE MATTER OF:
Mr. Anil Goel the Liquidator appointed in respect of Varrsana Ispat Limited, having his
office at E-10A, Kailash Colony, Greater Kailash-I, New Delhi-110048;
…APPLICANT/LIQUIDATOR
VERSUS
Deputy Director, Directorate of Enforcement, Delhi

…RESPONDENT
amendment cannot reopen the already settled right of the applicant and therefore this
application is not maintainable. He stressed para 20 and 21 of the judgment of the
Hon’ble Supreme Court for stressing the said argument. The Para 20 and 21 is extracted
for a better understanding of the ratio laid down in the said case.
20. In our considered view, in order to take benefit of the amendment, it was
necessary for the appellants (judgment-debtors) to have filed the second appeal
against the decree of the first appellate court and if the second appeal had been
decided after 1973, the impact of the amendment on the rights of the parties
could have been considered in the context of the amendment in the light of law
laid down by this Court in Kesar Sigh case3. It was however, not done because,
as mentioned above, the decree in question had already attained the finality in
1965.
21. If the rights of the parties had already been crystallized then, in our opinion,
subsequent change in law would not take away such rights which had attained
finality due to lis coming to an end inter se the parties prior to such change.
15. Here in this application, though multiple reliefs are sought for by the applicant the Ld.
Liquidator has not pressed for passing an order for deattachment. What he pressed for is
a relief to proceed with the sale of the assets which were under attachment in view of the
non obstante clause as provided under section 32-A . According to him the respondents
are prevented from taking any action against the property of the corporate debtor in
relation to an offence committed prior to the commencement of the corporate insolvency
resolution process of the corporate debtor and therefore he can proceeds with the sale of
the property under attachment and upon confirmation of the sale the buyer can seek
appropriate relief for deattachment in accordance with section 32-A.
16. Having gone through the judgments cited by the Ld. Counsel for the respondents
and upon hearing on both sides at length what we understood is that section 32-A
prohibits any action to be taken by the respondent as against properties of the CD
undergoing CIRP or undergoing liquidation. But it would not have any application to the
designated partner or an officer who is in default or was in any manner in-charge of or
responsible to CD for conduct of its business or associated in any manner who was
directly or indirectly involved in commission of such offence. To sum up the properties of a
CD under liquidation is also to be exempted from the purview of the commission of such
offence. In view of the above said position of law we are of the considered opinion that a
liquidator can proceed with the sale of the assets even if it is under attachment by the
respondent, to continue the time bound process of liquidation under the provisions of the
Code and upon completion of the sale proceedings the buyer can take appropriate steps
to release the attachment. It appears to us that the attachment and confiscation of
properties of a CD undergoing CIRP or liquidation become void under section 32-A of the
Code.
In the result we are inclined to allow this application upon the following orders:
i). The liquidator is permitted to sell the assets of the CD as per the provisions of
the Code and Regulation which were attached by the respondent/ED subject to the right
of the buyer to apply for deattachemt in accordance with section 32-A of the Code from the
appropriate authority.
ii). The respondents are directed to render as much co-operation to the liquidator to
proceeds with the sale of the assets as described above.
IA (IB) No. /KB/2020 is disposed of accordingly.No order as to cost.
The Registry is directed to send e-mail copies of the order forthwith to all the parties.
Certified copy of the order may be issued to all the concerned parties, if applied for, upon
compliance with all requisite formalities.
(Harish Chander Suri) (Jinan K.R.)

Member (Technical) Member (J)
Signed on this, the 22nd day of July, 2020.
hb.
MANU/SC/0849/2018
Equivalent Citation: 2018(6)ABR42, AIR2018SC 3876, 2018(5)ALD162, III(2018)BC 593(SC ), 2018(6)BomC R47, [2018]145C LA447(SC ),
[2018]210C ompC as364(SC ), (2018)4C ompLJ48(SC ), 2019(1)C TC 889, 2018(5)MhLj692, 2018(4)MPLJ23, 2018(4)RC R(C ivil)110,
2018(9)SC ALE597, 2018 (7) SC J 632, [2018]149SC L107(SC )

Civil Appeal Nos. 3595 and 4553 of 2018
Appellants: State Bank of India
Vs.
Respondent: V. Ramakrishnan and Ors.
Rohinton Fali Nariman and Indu Malhotra, JJ.
Counsels:
For Appearing Parties: K.V. Vishwanathan, (A.C.), Chander Uday Singh, Sr. Advs.,
Abhishek Kaushik, Vrinda Bhandari, Dhananjay B. Ray, Ravi Raghunath, Sanjay Kapur,
Megha Karnwal, Sheena Taqui, Shubra Kapur, P.S. Sudheer, Anne Mathew, Bharat
Sood, Shruti Jose, Ayush Anand, Shubhendu Anand, Arvind Kumar Gupta, Henna
George, G. Balaji, Dilpreet Singh, Rajesh Bohra, Dhaval S. Deshpande, Amir Arsiwala,
Arvind Gupta and Rahul Chitnis, Advs.
Case Category:
COMPANY LAW, MRTP, TRAI, SEBI, IDRAI AND RBI : MATTERS ARISING OUT OF
ORDERS OF COMPANY LAW BOARD UNDER SECTION 397 AND 398 OF COMPANIES
ACT, 1956
JUDGMENT
Rohinton Fali Nariman, J.
1 . The present appeals revolve around whether Section 14 of the Insolvency and
Bankruptcy Code, 2016, which provides for a moratorium for the limited period
mentioned in the Code, on admission of an insolvency petition, would apply to a
personal guarantor of a corporate debtor.
2 . The factual backdrop of the present appeals is that the Respondent No. 1 is the
Managing Director of the corporate debtor, namely, the Respondent No. 2 Company,
and also the personal guarantor in respect of credit facilities that had been availed
from the Appellant. The Guarantee Agreement entered into between the Appellant and
the Respondent No. 1 is dated 22.02.2014.
3 . As the Respondent No. 2 Company did not pay its debts in time, the account of
Respondent No. 2 was classified as a non-performing asset on 26.07.2015.
Consequent thereto, the Appellant issued a notice dated 04.08.2015 Under Section
13(2) of the SARFAESI Act demanding an outstanding amount of Rs.61,13,28,785.48
from the Respondents within the statutory period of 60 days. As no payment was
forthcoming, a possession notice Under Section 13(4) of the SARFAESI Act was
issued on 18.11.2016.

commenced against the corporate debtor, be filed only in the National Company Law
Tribunal. However, the Tribunal is to decide such proceedings only in accordance
with the Presidency-Towns Insolvency Act, 1909 or the Provincial Insolvency Act,
1920, as the case may be. It is clear that Sub-section (4), which states that the
Tribunal shall be vested with all the powers of the Debt Recovery Tribunal, as
contemplated under Part III of this Code, for the purposes of Sub-section (2), would
not take effect, as the Debt Recovery Tribunal has not yet been empowered to hear
bankruptcy proceedings against individuals Under Section 179 of the Code, as the
said Section has not yet been brought into force. Also, we have seen that Section
249, dealing with the consequential amendment of the Recovery of Debts Act to
empower Debt Recovery Tribunals to try such proceedings, has also not been brought
into force. It is thus clear that Section 2(e), which was brought into force on
23.11.2017 would, when it refers to the application of the Code to a personal
guarantor of a corporate debtor, apply only for the limited purpose contained in
Section 60(2) and (3), as stated hereinabove. This is what is meant by strengthening
the Corporate Insolvency Resolution Process in the Statement of Objects of the
Amendment Act, 2018.
22. Section 31 of the Act was also strongly relied upon by the Respondents. This
Section only states that once a Resolution Plan, as approved by the Committee of
Creditors, takes effect, it shall be binding on the corporate debtor as well as the
guarantor. This is for the reason that otherwise, Under Section 133 of the Indian
Contract Act, 1872, any change made to the debt owed by the corporate debtor,
without the surety's consent, would relieve the guarantor from payment. Section
31(1), in fact, makes it clear that the guarantor cannot escape payment as the
Resolution Plan, which has been approved, may well include provisions as to
payments to be made by such guarantor. This is perhaps the reason that Annexure
VI(e) to Form 6 contained in the Rules and Regulation 36(2) referred to above,
require information as to personal guarantees that have been given in relation to the
debts of the corporate debtor. Far from supporting the stand of the Respondents, it is
clear that in point of fact, Section 31 is one more factor in favour of a personal
guarantor having to pay for debts due without any moratorium applying to save him.
2 3 . We are also of the opinion that Sections 96 and 101, when contrasted with
Section 14, would show that Section 14 cannot possibly apply to a personal
guarantor. When an application is filed under Part III, an interim-moratorium or a
moratorium is applicable in respect of any debt due. First and foremost, this is a
separate moratorium, applicable separately in the case of personal guarantors against
whom insolvency resolution processes may be initiated under Part III. Secondly, the
protection of the moratorium under these Sections is far greater than that of Section
14 in that pending legal proceedings in respect of the debt and not the debtor are
stayed. The difference in language between Sections 14 and 101 is for a reason.
Section 14 refers only to debts due by corporate debtors, who are limited liability
companies, and it is clear that in the vast majority of cases, personal guarantees are
given by Directors who are in management of the companies. The object of the Code
is not to allow such guarantors to escape from an independent and co-extensive
liability to pay off the entire outstanding debt, which is why Section 14 is not applied
to them. However, insofar as firms and individuals are concerned, guarantees are
given in respect of individual debts by persons who have unlimited liability to pay
them. And such guarantors may be complete strangers to the debtor - often it could
be a personal friend. It is for this reason that the moratorium mentioned in Section
101 would cover such persons, as such moratorium is in relation to the debt and not
the debtor. We may hasten to add that it is open to us to mark the difference in

language between Sections 14 and 96 and 101, even though Sections 96 and 101
have not yet been brought into force. This is for the reason, as has been held in
State of Kerala and Ors. v. Mar Appraem Kuri Co. Ltd. and Anr.,
MANU/SC/0445/2012 : (2012) 7 SCC 106, that a law 'made' by the Legislature is a
law on the statute book even though it may not have been brought into force. The
said judgment states:
79. The proviso to Article 254(2) provides that a law made by the State
Legislature with the President's assent shall not prevent Parliament from
making at any time any law with respect to the same matter including a law
adding to, amending, varying or repealing the law so made by a State
Legislature. Thus, Parliament need not wait for the law made by the State
Legislature with the President's assent to be brought into force as it can
repeal, amend, vary or add to the assented State law no sooner it is made or
enacted. We see no justification for inhibiting Parliament from repealing,
amending or varying any State legislation, which has received the President's
assent, overriding within the State's territory, an earlier parliamentary
enactment in the concurrent sphere, before it is brought into force.
Parliament can repeal, amend, or vary such State law no sooner it is assented
to by the President and that it need not wait till such assented-to State law is
brought into force. This view finds support in the judgment of this Court in
Tulloch [MANU/SC/0021/1963 : AIR 1964 SC 1284: (1964) 4 SCR 461].
80. Lastly, the definitions of the expressions "laws in force" in Article 13(3)
(b) and Article 372(3) Explanation I and "existing law" in Article 366(10)
show that the laws in force include laws passed or made by a legislature
before the commencement of the Constitution and not repealed,
notwithstanding that any such law may not be in operation at all. Thus, the
definition of the expression "laws in force" in Article 13(3)(b) and Article
372(3) Explanation I and the definition of the expression "existing law" in
Article 366(10) demolish the argument of the State of Kerala that a law has
not been made for the purposes of Article 254, unless it is enforced. The
expression "existing law" finds place in Article 254. In Edward Mills Co. Ltd.
v. State of Ajmer [MANU/SC/0106/1954 : AIR 1955 SC 25], this Court has
held that there is no difference between an "existing law" and a "law in
force".
81. Applying the tests enumerated hereinabove, we hold that the Kerala
Chitties Act, 1975 became void on the making of the Chit Funds Act, 1982 on
19-8-1982, [when it received the assent of the President and got published in
the Official Gazette] as the Central 1982 Act intended to cover the entire field
with regard to the conduct of the chits and further that the State Finance Act
7 of 2002, introducing Section 4(1)(a) into the State 1975 Act, was void as
the State Legislature was denuded of its authority to enact the said Finance
Act 7 of 2002, except Under Article 254(2), after the (Central) Chit Funds
Act, 1982 occupied the entire field as envisaged in Article 254(1) of the
Constitution.
24. Thus, for the purpose of interpretation, it is certainly open for us to contrast
Section 14 with Sections 96 and 101, as Sections 96 and 101 are laws made by the
Legislature, even though they have not yet been brought into force.
25. As argued by Shri Viswanathan, the historical background of the Code now needs

1
NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI
(Arising out of Order dated 28th February, 2018 passed by the Adjudicating
Authority (National Company Law Tribunal), Mumbai Bench, Mumbai in MA
12/2018 in CP No. 246/I&BP/NCLT/MAH/2017)
IN THE MATTER OF:
Lalit Mishra & Ors. …Appellants
Vs
Sharon Bio Medicine Ltd. & Ors. ….Respondents
Present:
For Appellants: Mr. Alok Dhir, Ms. Varsha Banerjee, Mr. Milan
Singh, Mr. Kunal Godhwani, Mr. Tarun Mehta
and Ms. Stuti Vatsa, Advocates.
For Respondents: Mr. Sumant Batra, Ms. Honey Satpal, Ms. Srishti
Kapur, Mr. Sanjay Bhatt and Mr. Abhishek
Anand, Advocates for R-2 and Ms. Kiran Sharma,
C.S.
Mr. Bishwajit Dubey, Mr. Kirat Nagra, Ms.

Surabhi Khattar and Mr. Prafful Goyal,
Advocates for Monitoring Agency.
Mr. Ankur Kashyap and Mr. Manan Mehta,

Advocates for R-3.
Ms. Arushi Singh, Advocate.
Mr. Mustafa Mumtaj, Mr. P.V. Dinesh, Mr.

Rajendra Beniwal and Mr. T.P. Sindhu,
Advocates for R- 4 & 5.

4
8. The restructuring of the financial debt as part of the ‘Resolution Plan’
approved by the Adjudicating Authority under the ‘I&B Code’ does not
envisage complete discharge of the liability of personal guarantors of the
‘Corporate Debtor’. This will be evident from Clause 12 of Section 5 of the
‘Resolution Plan’ which deals with ‘treatment of security’. Therein it is
mentioned that all securities/ collaterals/ margin money/ fixed deposit
with lien provided by the Company shall be deemed to be released
immediately on Effective Date. It is subsequently mentioned that the
personal guarantee provided by the existing promoters of the Company,
shall result in no liability towards the ‘Company’ or the ‘Resolution
Applicants’. This ‘treatment of security’ and with regard to personal
guarantee provided by the existing promoters of the Company is alleged to
be in violation of Section 140 and Section 133 of the ‘Indian Contract Act’.
However, the aforesaid submissions cannot be accepted, as on
approval of the ‘Resolution Plan’, the claim of the entire stakeholders stand
cleared and the ‘Personal Guarantor’ thereafter cannot claim that they have
been discriminated. All the stakeholders have already been cleared by the
3rd Respondent- ‘Successful Resolution Applicant’. It was open to them to
say that the personal guarantee will not result into any liability towards the
‘Company’ or the ‘Resolution Applicant’.
9. It was not the intention of the legislature to benefit the ‘Personal
Guarantors’ by excluding exercise of legal remedies available in law by the
creditors, to recover legitimate dues by enforcing the personal guarantees,

5
which are independent contracts. It is a settled position of law that the
liabilities of guarantors is co-extensive with the borrower. This Appellate
Tribunal held that the resolution under the ‘I&B Code’ is not a recovery
suit. The object of the ‘I&B Code’ is, inter alia, maximization of the value of
the assets of the ‘Corporate Debtor’, then to balance all the creditors and
make availability of credit and for promotion of entrepreneurship of the
‘Corporate Debtor’. While considering the ‘Resolution Plan’, the creditors
focus on resolution of the borrower ‘Corporate Debtor’, in line with the
spirit of the ‘I&B Code’.
10. The present appeal has been preferred by the promoters, who are
responsible for having contributed to the insolvency of the ‘Corporate
Debtor’. The ‘I&B Code’ prohibits the promoters from gaining, directly or
indirectly, control of the ‘Corporate Debtor’, or benefiting from the
‘Corporate Insolvency Resolution Process’ or its outcome. The ‘I&B Code’
seeks to protect creditors of the ‘Corporate Debtor’ by preventing promoters
from rewarding themselves at the expense of creditors and undermining the
insolvency processes.
11. For the aforesaid reasons, it will be evident from the ‘I&B Code’ that
the powers of the promoters as the members of the Board of Directors of
the ‘Corporate Debtor’ are suspended. The voting right of the shareholders,
including promoter shareholders, are suspended and shareholders’
approval is deemed to have been granted for implementation of the
‘Resolution Plan’ as apparent from explanation to Section 30(2)(f) of the ‘I&B

United Nations A/CN.9/SER.C/ABSTRACTS/92
General Assembly Distr.: General
3 February 2010
Original: English
United Nations Commission

on International Trade Law
CASE LAW ON UNCITRAL TEXTS

(CLOUT)
Contents
Page
Cases relating to the UNCITRAL Model Law on Cross-Border Insolvency (MLCBI) . . . . . 3

Case 921: MLCBI 2 (a), [2 (b),] 2 (d), 15 (2), 16 (3), 17 (1), 21 (1) – Australia: Federal Court
of Australia - New South Wales District Registry, No. NSD 210 of 2009, Hur v. Samsun Logix
Corporation (17 April 2009). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Case 922: MLCBI 2 (a), 2 (b), 2 (d), 16 (3), 17 (2)(a), 21 (1) – Australia: Federal Court of
Australia - New South Wales District Registry, No. NSD 1285 of 2009, Tucker, In the matter of
Aero Inventory (UK) Limited (No. 2) (10 December 2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Case 923: MLCBI 2 (a), 2 (b), 2 (d), 16 (3), 17 (2)(a) – United Kingdom: High Court of
Justice, Chancery Division, Case Nos. 13338 and 13959 of 2009, In the matter of Stanford
International Bank Limited, et al. (3 July 2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Case 924: MLCBI 2 (a), 2 (b), 2 (d), 6, 16 (3) – USA: U.S. District Court for the Eastern
District of Virginia, No. 07-51040-SCS, In re Jonathan A. Loy (18 December 2007) . . . . . . . . . . 8
Case 925: MLCBI 2 (b), 2 (c), 2 (d), 15, 16 (1), 16 (3), 17 – USA: U.S. District Court for the
Southern District of New York, No. 07-13765 (SMB), In re Oversight and Control Commission
of Avánzit, S.A. (18 April 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Case 926: MLCBI 2 (b), 19, 21 – USA: U.S. District Court for the Central District of
California, No. LA08-17043SB, LA08-17049SB, LA08-17054SB, In re Pro-Fit International
Limited (30 June 2008) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Case 927: MLCBI 2 (a), 2 (b), 2 (e), 8, 15, 16 (3) – USA: U.S. Bankruptcy Court for the
District of Nevada, No. BK-S-08-21594 BAM, In re Betcorp Limited (In Liquidation)
(9 February 2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Case 928: MLCBI 21, 23 – USA: U.S. District Court for the Southern District of Mississippi,
No.1: 08CV639-LG-RHW, In re Condor Insurance Limited (9 February 2009) . . . . . . . . . . . . . . 15
Case 929: MLCBI 2 (b), 2 (c), 2 (f), 8, 16 (3), 17 (1)(a), 17 (1)(b), 17 (1)(c) – USA: U.S.
District Court for the Southern District of Texas, No. H-08-1961, Lavie v. Ran (30 March 2009) 16
V.10-50672 (E) 110210 120210
*1050672*
A/CN.9/SER.C/ABSTRACTS/92
that even on a narrower reading of 11 U.S.C. § 1521(e)20 [Article 21 MLCBI, but no

corresponding paragraph in the MLCBI], the adoption of 11 U.S.C. § 362 for a
Chapter 15 case was not in the nature of issuing an injunction that required an
adversary proceeding and referred to the case of Ho Seok Lee.21
Case 927: MLCBI 2 (a), 2 (b), 2 (e), 8, 15, 16 (3)

USA: U.S. Bankruptcy Court for the District of Nevada
No. BK-S-08-21594 BAM
In re Betcorp Limited (In Liquidation)
9 February 2009
Original in English
Published in English:
400 B.R. 266
Abstract prepared by Susan Block-Lieb
[key words: centre of main interests (COMI), foreign main proceeding-
determination, foreign representative, interpretation-international origin,
presumption-centre of main interests (COMI), purpose-MLCBI]
Effectively put out of business by the United States Unlawful Internet Gambling
Enforcement Act, Pub. L. No. 109-347, 120 Stat. 1884 (codified at
31 U.S.C. §§ 5361 – 67), the debtor, an Australian company, began voluntary
winding-up proceedings (“foreign proceedings”) in Australia, in which insolvency
representatives were appointed (“foreign representatives”). In 2008, the foreign
representatives sought recognition under the law enacting the MLCBI in the United
States.22 A United States company opposed recognition on several grounds. Earlier
in 2008, it had sued the debtor in a court in Nevada for patent infringement. The
foreign representatives’ request for recognition of the foreign proceeding followed
on failed negotiations with that United States company as to whether their patent
infringement claim would be resolved by the litigation pending in the Nevada court
or in the foreign proceeding.
In addressing the request for recognition, the court first assessed whether the foreign
proceeding was a “foreign proceeding” within the meaning of 11 U.S.C. § 101(23)
[corresponds to Art. 2 (a) MLCBI]. Although the United States company argued that
the foreign proceeding was not a “foreign proceeding” because there was no lawsuit
or legal proceeding in Australia in which a judge or other judicial officer directly
supervised the foreign representatives’ actions, the bankruptcy court rejected the
notion that the foreign proceeding amounted to no more than a unilateral cessation
of business followed by a private and unregulated settling of accounts. Noting that
Chapter 15 incorporates the MLCBI and that in its interpretation regard should be
had to its international origin pursuant to 11 U.S.C. § 1508 [Art. 8 MLCBI], the
court looked to the MLCBI’s Guide to Enactment, as well as to the plain language
of 11 U.S.C. § 101(23) [Art. 2 (a) MLCBI], to find that the term “foreign
proceeding” depended upon the existence of seven factors, which it addressed in
turn:
__________________
20 11 U.S.C. § 1521 states that “[t]he standards, procedures, and limitations applicable to an
injunction shall apply to relief under paragraphs (1), (2), (3) and (6) of subsection (a).”
21 In re Ho Seok Lee, 348 B.R. 799 (Bankr. W. D. Wash. 2006), see also CLOUT 754.
22 See supra note 12.
12
(i) There is a “proceeding” — The United States company argued that the
voluntary winding-up proceeding could not be considered a “proceeding”
without a petition or application filed with a court. In rejecting this
argument, the court looked to the EC Regulation on insolvency
proceedings,23 and found that United States insolvency law similarly
defines “proceedings” broadly to include acts and formalities set down in
law so that courts, merchants and creditors could know them in advance.
It concluded that the Australian Corporations Act, which governs
voluntary winding-up proceedings, as well as a multitude of other
procedures used to end a corporation’s existence, constituted a
“proceeding” within the meaning of 11 U.S.C. § 101(23)
[Art. 2 (a) MLCBI].
(ii) That the foreign proceeding has a judicial or administrative character —
Reviewing Australian law in some detail, the court concluded that an
Australian voluntary winding-up proceeding was, generally, a procedure
with an administrative character, although under articulated
circumstances the proceeding may temporarily become more
appropriately characterized as judicial.
(iii) It is a collective proceeding — Defining a “collective proceeding” as one
that considered the rights and obligation of all creditors, the court
concluded that Australian voluntary winding-up proceedings were
collective. To reach this conclusion the court looked both to Australian
case law and legal treatises discussing Australian law.
(iv) Located in a foreign country — The court had found this requirement
satisfied as the first meeting of creditors and investors of the debtor had
been held in Australia and conducted under the auspices of Australian
law.
(v) Authorized or conducted under law related to insolvency or adjustment
of debt — The court found this criterion satisfied based on the fact that
the Australian Corporations Act “regulates the whole of the life-cycle of
an Australian corporation” and the fact that the Australian Parliament had
found that this law qualified under the MLCBI when adopting
implementing legislation of its own.
(vi) Foreign court’s control or supervision of debtor’s assets and affairs —
The court found the term “foreign court” defined broadly in
11 U.S.C. § 1502(3) [Art. 2 (e) MLCBI] as “a judicial or other authority
competent to control or supervise” a foreign proceeding. The court found
that the foreign representatives controlled the debtor’s voluntary
winding-up proceeding and the Australian Securities and Investments
Commission (“ASIC”), controlled the foreign representatives.
Alternatively, the court found that since voluntary winding-up
proceedings were subject to judicial supervision in the event the foreign
representatives or any creditor requested the court to determine any
question arising in the winding-up of a company, that was sufficient to
satisfy this requirement.
__________________
13
(vii) Reorganization or liquidation purpose of the proceeding — Looking at

Australian case law, the court found that a winding-up proceeding clearly
seeks to accomplish the liquidation of a company; it concluded that this
factor had been satisfied.
The court next addressed whether this “foreign proceeding” met the three
requirements for recognition found under 11 U.S.C. § 1517 [Art. 17 MLCBI]:
(i) The “foreign proceeding” is a “foreign main proceeding” or a “foreign
non-main proceeding” within the meaning of section 1502
[Art. 2 MLCBI] — The court noted that 11 U.S.C. § 1502(4)
[Art. 2 (b) MLCBI] defined a “foreign main proceeding” as a “foreign
proceeding pending in the country where the debtor has the centre of its
main interests.” While the United States Bankruptcy Code24 does not
specifically define “centre of main interests” (“COMI”),
11 U.S.C. 1516(c) [Art. 16 (3) MLCBI] provides that, “in the absence of
evidence to the contrary, the debtor’s registered office … is presumed to
be the COMI.” In this case, the debtor’s registered office was at all times
in Australia, but because the United States company had in good faith
introduced evidence questioning this fact, the court concluded that it
could not rely solely on the presumption and must consider all the
evidence. After reviewing both case law decided under Chapter 15 (Basis
Yield Alpha,25 Bear Stearns,26 SpHinX27 and Tradex28) and case law
decided under the EC Regulation on Insolvency29 (Eurofood;30 BRAC
Budget Rent-A-Car;31 Collins & Aikman32), the court found that the
cases analyzing COMI demonstrated that courts do not apply any rigid
formula or consistently find one factor dispositive; instead, courts
analyze a variety of factors to discern objectively, where a debtor had its
principle place of business. Reviewing United States case law, it also
concluded that the determination of the debtor’s COMI should consider
the facts in existence at the time of the filing of the application for
recognition and not just the debtor’s operational history. In this regard,
the court thought virtually all the evidence pointed toward the conclusion
that the debtor’s COMI was in Australia. The only relevant factor to the
contrary — the location of the debtor’s creditors — did not overcome the
fact that 91.4 per cent of the debtor’s shareholders resided in Australia,
that 67.2 per cent of its shares were held by Australian residents, and that
all but five of its directors resided in Australia (and none in the United
States).
__________________
25 In re Basis Yield Alpha Fund (Master), 381 B.R. 37 (Bankr. S.D.N.Y. 2008), see also
CLOUT 789.
28 In re Tradex Swiss AG, 384 B.R. 34 (Bankr. D. Mass. 2008), see also CLOUT 791.
31 In re BRAC Budget Rent-a-Car Int’l Inc., [223] EWHC 128 (Ch), 2003 WL 117146 (Eng.).
32 Collins & Aikman Corp Group, [2005] EWHC (Ch) 1754, P 38, 2005 WL 4829623 (Eng.).
14
(ii) The “foreign representative” applying for recognition was a person or

body — The court concluded that the foreign representative was a
person.
(iii) The application met the requirements of 11 U.S. § 1515 [Art. 15 MLCBI]
— Again, based on the evidence before it, the court concluded that
(a) the foreign representative had filed an application for recognition of
the foreign proceeding in which he had been appointed, (b) that the
foreign representative had established that the foreign proceeding existed
and that he had been appointed as foreign representative in that
proceeding by presenting his own affidavit and a certificate from the
ASIC as to his appointment pursuant to Australian law, and (c) a
declaration from the foreign representative that the voluntary winding-up
proceeding was the only foreign proceeding with regard to the debtor.
Case 928: MLCBI 21, 23

USA: U.S. District Court for the Southern District of Mississippi
In re Condor Insurance Limited
No.1:08CV639-LG-RHW
9 February 2009
Original in English
Published in English:
411 B.R. 314
Abstract prepared by Susan Block-Lieb
[keywords: avoidance actions, purpose-MLCBI]
Following recognition under the law enacting the MLCBI in the United States of
America33 of an insolvency proceeding in the Federation of Saint Kitts and Nevis
(“foreign proceeding”) with respect to a Nevis insurance company, the insolvency
representatives (“foreign representatives”) commenced an action in the bankruptcy
court to avoid, under Nevis law, allegedly fraudulent transfers made to another
company. That company sought to dismiss the action on the grounds that
11 U.S.C. §§ 1521 and 1523 [correspond to Arts. 21 and 23 MLCBI] do not
authorize the foreign representatives to commence avoidance actions, despite
recognition of foreign proceedings, but rather permit a foreign representative to
bring such an action only following commencement of an insolvency proceeding
under United States law. The bankruptcy court dismissed the action.34 The foreign
representatives appealed, arguing that 11 U.S.C. §§ 1521 and 1523 [Arts. 21 and
23 MLCBI] limit the powers of a foreign representative to bring an avoidance action
under United States law only, but do not constrain powers under foreign avoidance
laws.
On appeal, the district court affirmed the decision of the bankruptcy court. The court
noted that the purpose of Chapter 15 is to promote cooperation between the United
States courts and courts in foreign countries during multinational insolvency
proceedings and to promote greater legal certainty for trade and investment pursuant
to 11 U.S.C. § 1501(a)[(1) and(b)] [Preamble, paragraphs (a) and (b)]. Although it
__________________
34 In re Condor Insurance Limited, 2008 WL 2858943 (Bankr. S.D. Miss. 2008).
15
MANU/SC/1609/2017
Equivalent Citation: AIR2018SC 498, 2018(3)ALD87, 2018 2 AWC 1277SC , I(2018)BC 219(SC ), 2018(2)BomC R212, [2018]142C LA1(SC ),
(2018)1C ompLJ270(SC ), (2018)2MLJ552, 2018(1)RC R(C ivil)472, 2017(14)SC ALE509, (2018)2SC C 674, 2018 (1) SC J 646, [2018]145SC L236(SC )

Civil Appeal Nos. 15135, 15481 and 15447 of 2017
Appellants: Macquarie Bank Limited
Vs.
Respondent: Shilpi Cable Technologies Ltd.
Rohinton Fali Nariman and Navin Sinha, JJ.
Counsels:
For Appellant/Petitioner/Plaintiff: Mukul Rohatgi, Arvind P. Datar, Sr. Advs., Rahul
Chitnis, Mustafa Motiwala, Shwetabh Sinha, Ashmi Mohan, Pragya Nalwa, Misha
Rohatgi, Palak Mahajan and Ujjal Banerjee, Advs.
For Respondents/Defendant: Abhishek Manu Singhvi, Shyam Divan, Abhinav Vashisht,
Sr. Advs., Arvind Kumar, Deeraj, Sada Purna, Gaurav Agrawal, C.S. Chauhan, V.S.
Lakshmi, A. Venayagam Balan, Sumit K. Batra and Mohinder Jit Singh Rupal, Advs.
Case Category:
COMPANY LAW, MRTP AND ALLIED MATTERS - MATTERS PERTAINING TO
TRAI/SEBI/IDRAI AND RBI INCLUDING APPEALS U/S 18 OF TRAI ACT, INDIAN ELECT
ACT 1910 AND 2003, ELECT SUPPLY ACT 1948 AND ELECT REFORMS COMMN ACT
1998
JUDGMENT
Rohinton Fali Nariman, J.
1 . The present appeals raise two important questions which arise under the
Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "Code"). The
first question is whether, in relation to an operational debt, the provision contained in
Section 9(3)(c) of the Code is mandatory; and secondly, whether a demand notice of
an unpaid operational debt can be issued by a lawyer on behalf of the operational
creditor.
2 . The facts contained in the three appeals are similar. For the purpose of this
judgment, the facts contained in Civil Appeal No. 15481 of 2017 will now be set out.
Hamera International Private Limited executed an agreement with the Appellant,
Macquarie Bank Limited, Singapore, on 27.7.2015, by which the Appellant purchased
the original supplier's right, title and interest in a supply agreement in favour of the
Respondent. The Respondent entered into an agreement dated 2.12.2015 for supply
of goods worth US$ 6,321,337.11 in accordance with the terms and conditions
contained in the said sales contract. The supplier issued two invoices dated
21.12.2015 and 31.12.2015. Payment terms under the said invoices were 150 days
from the date of bill of ladings dated 17.12.2015/19.12.2015. Since amounts under
the said bills of lading were due for payment, the Appellant sent an email dated

50-51. The statutory Rules cannot be described as, or equated with,
administrative directions. If so, the Police Act and the Rules made thereunder
constitute a self-contained code providing for the appointment of police
officers and prescribing the procedure for their removal.
Equally, in Desh Bandhu Gupta v. Delhi Stock Exchange MANU/SC/0040/1979 :
(1979) 4 SCC 565 at 572, this Court laid down the principle of contemporanea
expositio as under:
The principle of contemporanea expositio (interpreting a statute or any other
document by reference to the exposition it has received from contemporary
authority) can be invoked though the same will not always be decisive of the
question of construction (Maxwell 12th ed. p. 268). In Crawford on Statutory
Construction (1940 ed.) in para 219 (at pp. 393-395) it has been stated that
administrative construction (i.e. contemporaneous construction placed by
administrative or executive officers charged with executing a statute)
generally should be clearly wrong before it is overturned; such a
construction, commonly referred to as practical construction, although not
controlling, is nevertheless entitled to considerable weight; it is highly
persuasive. In Baleshwar Bagarti v. Bhagirathi Dass [ILR 35 Cal 701 at 713]
the principle, which was reiterated in Mathura Mohan Saha v. Ram Kumar
Saha [MANU/WB/0080/1915 : ILR 43 Cal 790 : AIR 1916 Cal 136] has been
stated by Mukerjee, J., thus:
It is a well settled principle of interpretation that courts in construing
a statute will give much weight to the interpretation put upon it, at
the time of its enactment and since, by those whose duty it has been
to construe, execute and apply it. I do not suggest for a moment that
such interpretation has by any means a controlling effect upon the
Courts; such interpretation may, if occasion arises, have to be
disregarded for cogent and persuasive reasons, and in a clear case of
error, a court would without hesitation refuse to follow such
construction.
However, Dr. Singhvi referred to the following three judgments for the proposition
that Rules cannot override the substantive provisions of an Act: D.T.U. v. B.B.L.
Hajelay MANU/SC/0605/1972 : (1972) 2 SCC 744 (para 13);ADM (Rev.) Delhi
Admn. v. Siri Ram MANU/SC/0369/2000 : (2000) 5 SCC 451 (para 16); andIspat
Industries Ltd. v. Commissioner of Customs MANU/SC/4125/2006 : (2006) 12
SCC 583 (para 21). The aforesaid judgments only have application when Rules are
ultra vires the parent statute. In the present case, the Rules merely flesh out what is
already contained in the statute and must, therefore, be construed along with the
statute. Read with the Code, they form a self-contained code being contemporanea
expositio by the Executive which is charged with carrying out the provisions of the
Code. The true construction of Section 9(3)(c) is that it is a procedural provision,
which is directory in nature, as the Adjudicatory Authority Rules read with the Code
clearly demonstrate.
17. There may be situations of operational creditors who may have dealings with a
financial institution as defined in Section 3(14) of the Code. There may also be
situations where an operational creditor may have as his banker a non-scheduled
bank, for example, in which case, it would be impossible for him to fulfill the
aforesaid condition. A foreign supplier or assignee of such supplier may have a

foreign banker who is not within Section 3(14) of the Code. The fact that such
foreign supplier is an operational creditor is established from a reading of the
definition of "person" contained in Section 3(23), as including persons resident
outside India, together with the definition of "operational creditor" contained in
Section 5(20), which in turn is defined as "a person to whom an operational debt is
owed and includes any person to whom such debt has been legally assigned or
transferred". That such person may have a bank/financial institution with whom it
deals and which is not contained within the definition of Section 3(14) of the Code
would show that Section 9(3)(c) in such a case would, if Dr. Singhvi is right about
the Sub-section being a condition precedent, amount to a threshold bar to proceeding
further under the Code. The Code cannot be construed in a discriminatory fashion so
as to include only those operational creditors who are residents outside India who
happen to bank with financial institutions which may be included Under Section 3(14)
of the Code. It is no answer to state that such person can approach the Central
Government to include its foreign banker Under Section 3(14) of the Code, for the
Central Government may never do so. Equally, Dr. Singhvi's other argument that such
persons ought to be left out of the triggering of the Code against their corporate
debtor, despite being operational creditors as defined, would not sound well with
Article 14 of the Constitution, which applies to all persons including foreigners.
Therefore, as the facts of these cases show, a so called condition precedent
impossible of compliance cannot be put as a threshold bar to the processing of an
application Under Section 9 of the Code.
18. However, it was argued that there are various other categories of creditors who
cannot file insolvency petitions, such as government authorities who have pending
tax dues. Such authorities have ample powers under taxation statutes to coercively
collect outstanding tax arrears. Besides they form a class, as a whole, who are kept
out of the Code, unlike persons who are resident outside India who, though being
operational creditors, are artificially divided, if we are to accept Dr. Singhvi's
argument, into two sub-classes, namely, those who bank with an institution that is
recognized by Section 3(14) of the Code and those who do not. This argument also
does not commend itself to us.
1 9 . It is true that the expression "initiation" contained in the marginal note to
Section 9 does indicate the drift of the provision, but from such drift, to build an
argument that the expression "initiation" would lead to the conclusion that Section
9(3) contains mandatory conditions precedent before which the Code can be
triggered is a long shot. Equally, the expression "shall" in Section 9(3) does not take
us much further when it is clear that Section 9(3)(c) becomes impossible of
compliance in cases like the present. It would amount to a situation wherein serious
general inconvenience would be caused to innocent persons, such as the Appellant,
without very much furthering the object of the Act, as has been held in the State of
Haryana v. Raghubir Dayal MANU/SC/0518/1995 : (1995) 1 SCC 133 at paragraph
5 and obviously, therefore, Section 9(3)(c) would have to be construed as being
directory in nature.
20. Even otherwise, the important condition precedent is an occurrence of a default,
which can be proved, as has been stated hereinabove, by means of other
documentary evidence. Take for example the case of an earlier letter written by the
corporate debtor to the operational creditor confirming that a particular operational
debt is due and payable. This piece of evidence would be sufficient to demonstrate
that such debt is due and that default has taken place, as may have been admitted by
the corporate debtor. If Dr. Singhvi's submissions were to be accepted, despite the

MANU/SC/0024/1982
Equivalent Citation: AIR1982SC 1497, 1983(1)ARBLR438(SC ), (1982)3C ompLJ205(SC ), (1982)3C ompLJ205(SC ), 1983()KLT1(SC ),
1982(2)SC ALE875, (1982)3SC C 358, [1983]1SC R561, 1982(14)UJ839

Appellants:Maharashtra State Electricity Board, Bombay
Vs.
Respondent: Official Liquidator, High Court, Ernakulam and Ors.
E.S. Venkataramiah and V. Balakrishna Eradi, JJ.
Counsels:
For Intervenor: A.S. Nambiar, Adv
JUDGMENT
E.S. Venkataramiah, J.
1. This is an appeal by special leave under Article 136 of the Constitution against the
Judgment and order dated November 13, 1978 of the High Court of Kerala in M.F.A.
No. 145 of 1976.
2. The facts leading to this appeal may be briefly stated thus : The appellant is the
Maharashtra State Electricity Board (hereinafter referred to as 'the Electricity Board').
Cochin Malleables (P) Ltd. (in liquidation) (hereinafter referred to as 'the Company in
liquidation') used to enter into contracts with the Electricity Board before it was
ordered to be wound up by the High Court of Kerala to supply goods to the Electricity
Board pursuant to tenders which were being issued from time to time. One of the
terms usually found in such tenders was that the intending supplier of goods should
pay as earnest money and/or security to the Electricity Board alongwith every tender
a sum approximately equivalent to 10% of the estimated price of the goods in
question. There was, however, a provision for exempting payment of such earnest
money or security deposit in the case of those tenderers who would keep a
permanent deposit of Rs. 50,000 either in cash or in any form approved by the
Electricity Board and one such approved form was a bank guarantee to the tune of
Rs. 50,000. The effect of such deposit of Rs. 50,000 made by an intending tenderer
with the Electricity Board under this condition was that he acquired the privilege of
offering his tender for the supply of goods of any value to the Electricity Board and of
such tender being considered along with other tenders made by others who had in
the ordinary course, paid 10% of the estimated cost of goods as security deposit as
per the usual condition. Such privilege was available to him in the case of any tender
that he might make as long as the deposit remained intact with the Electricity Board.
In other words, on depositing a sum of Rs. 50,000 an intending tenderer could offer
to supply goods of any value either under one or more tenders without complying
with the condition which required him to deposit along with with tender a sum
equivalent to 10% of the estimated value of goods which he intended to supply. The
security of Rs. 50,000 thus given did not relate to any specific tender but it was open

to the Electricity Board to appropriate the whole or any part of it towards any amount
due from the tenderer under any supply contract entered into during the relevant
period. Any balance which remained unadjusted became refundable to the person
who had made it on demand provided that there was no other subsisting liability
towards which the said balance could be adjusted and on such refund being made the
person ceased to enjoy the exemption from the requirement of making an earnest
deposit in respect of any future tender. Any bank guarantee given by any such
intending tenderer in lieu of the cash deposit of Rs. 50,000 was deemed to be
equivalent to the cash deposit made on date of the guarantee and the Electricity
Board could realise the bank guarantee amount or any part of it at its will on any day
irrespective of whether any tender had been made by the person concerned during
the period or not. On such realisation of the bank guarantee amount, the Electricity
Board could deal with it in accordance with the terms of the contract as if the said
amount had been deposited with it in cash on the date of bank guarantee. The
liability of the bank which gave the bank guarantee under these terms was
unconditional and did not vary according to the number of tenders offered, the value
of the goods offered for sale under those tenders, and the defaults, if any, committed
by the tenderer in the supply of goods.
3 . Pursuant to the above term, the Company in liquidation offered on September 1,
1966 a bank guarantee for a sum not exceeding Rs. 50,000 given by the Canara Bank
Ltd. (now known as Canara Bank and hereinafter referred to as 'the Bank'). The
relevant part of the said guarantee was as follows
THE CANARA BANK LTD. hereby agrees unequivocally and unconditionally to
pay, within 48 (Forty eight) hours, on demand in writing from the
Maharashtra State Electricity Board or any officer authorised by it in this
behalf, of any amount upto and not exceeding Rs. 50,000/- (Rupees Fifty
thousand only) to the said Maharashtra State Electricity Board, Bombay on
behalf of M/s. Cochin Malleables (Private) Ltd., Trichur, who have tendered
and/or contracted or may tender or contract hereafter for supply of materials
equipment or service to the Maharashtra State Electricity Board and have
been exempted from payment of earnest money and/or security deposit
against such tenders or contracts.
4 . The original period of guarantee was one year. It was, however, extended from
time to time and the guarantee was in force in the year 1973. On August 27, 1973,
the Electricity Board called upon the Bank to pay the guarantee amount of Rs.
50,000. Thereafter reminders were sent and a final demand was made on May 23,
1974. In the meanwhile Company Petition No. 14 of 1973 was filed on July 30, 1973
on the file of the High Court of Kerala for the winding up of the Company in
liquidation. By an order dated September 16, 1974 the High Court ordered the
winding up of the Company in liquidation and directed the Official Liquidator to take
charge of its affairs. In view of these proceedings the Bank wrote to the Official
Liquidator on November 4, 1974 stating that the Company in Liquidation was liable to
the Bank to the extent of Rs. 1,64,353.12 on two heads one of which was the sum of
Rs. 50,000 demanded by the Electricity Board as per the terms of the bank guarantee
referred to above. Thereupon, the Official Liquidator filed an application under
Section 456(2) of the Companies Act, 1956 read with Rule 9 of the Companies
(Court) Rules, 1959 before the Company Judge praying for an order restraining the
Electricity Board from realising the amount covered by the guarantee on the ground
that since the Company in liquidation had been ordered to be wound up the
Electricity Board could not claim the amount of guarantee from the Bank. The

Electricity Board contended that the amount of Rs. 50,000 was not being claimed as a
creditor of the Company in liquidation but on the basis of the bank guarantee, the
liability under which was not affected by the liquidation proceedings The learned
Company Judge upheld the plea of the Official Liquidator and issued an order
restraining the Electricity Board from realising the amount from the Bank on the
ground that since the Bank would have recourse to the securities given by the
Company in liquidation to the Bank for realising the amount paid by it in accordance
with the bank guarantee and such action of the Bank would affect the assets of the
Company in liquidation, it was not open to the Electricity Board to claim the amount
of guarantee from the Bank except as a creditor in the winding up proceedings. An
appeal filed by the Electricity Board before the Division Bench of the High Court was
dismissed. This appeal is filed by the Electricity Board against the order of the
Division Bench.
5. After the petition for special leave was filed in this Court in July 1979, notice was
issued to the Official Liquidator. He has written a letter to this Court stating that the
High Court of Kerala has since sanctioned a scheme for reconstruction of the
Company in liquidation by an order dated November 6, 1979, subject to certain
conditions and that the winding up proceedings are directed to be kept in abeyance
till December 31, 1982. He has further stated that he has handed over all the assets
of the Company in liquidation to the new management as per directions of the High
Court and that he has no funds to participate in these proceedings. The Managing
Director of the Company in liquidation has entered appearance as an intervener and
is represented by a counsel. The learned Counsel for the intervener has been heard in
this appeal. He has also filed his submissions in writing.
6. The principal question which arises for determination in this appeal relates to the
effect of the liquidation proceedings on the right of the Electricity Board to recover
from the Bank the sum of Rs. 50,000 as per the terms of the bank guarantee. It
cannot be disputed that the terms of the document on the basis of which the
Electricity Board has claimed the amount from the Bank constitute a contract of
guarantee and not a contract of indemnity. Under that document the Bank has
undertaken to pay any amount not exceeding Rs. 50,000 to the Electricity Board
within forty eight hours of the demand. The payment of the amount guaranteed by
the Bank is not made dependent upon the proof of any default on the part of the
Company in liquidation. It may be that in order to give the said guarantee, the Bank
had in its turn taken as security from the Company in liquidation certain fixed deposit
receipt and a certain quantity of imported zinc ingots and that the Bank had certain
rights in respect of those securities. There may also be some claims or counter-
claims arising out of the contracts of supply entered into between the Electricity
Board and the Company in liquidation. But the transactions viz. (1) the bank
guarantee executed by the Bank in favour of the Electricity Board, (2) the contracts of
supply entered into between the Electricity Board and the Company in liquidation and
(3) the document under which the Company in liquidation had given a fixed deposit
receipt and certain quantity of zinc ingots as security to the Bank for executing the
letter of guarantee in favour of the Electricity Board are independent of each other in
so far as their legal incidents are concerned.
7 . Under the bank guarantee in question the Bank has undertaken to pay the
Electricity Board any sum upto Rs. 50,000 and in order to realise it all that the
Electricity Board has to do is to make a demand. Within forty eight hours of such
demand the Bank has to pay the amount to the Electricity Board which is not under
any obligation to prove any default on the part of the Company in liquidation before

the amount demanded is paid. The Bank cannot raise the plea that it is liable only to
the extent of any loss that may have been sustained by the Electricity Board owing to
any default on the part of the supplier of goods i.e. the company in liquidation. The
liability is absolute and unconditional. The fact that the Company in liquidation i.e.
the principal debtor has gone into liquidation also would not have any effect on the
liability of the Bank i.e. the guarantor. Under Section 128 of the Indian Contract Act,
the liability of the surety is co-extensive with that of the principal debtor unless it is
otherwise provided by the contract. A surety is no doubt discharged under Section
134 of the Indian Contract Act by any contract between the creditor and the principal
debtor by which the principal debtor is released or by any act or omission of the
creditor, the legal consequence of which is the discharge of the principal debtor. But
a discharge which the principal debtor may secure by operation of law in bankruptcy
(or in liquidation proceedings in the case of a company) does not absolve the surety
of his liability (See Jagannath Ganeshram Aggarwala v. Shivnarayan Bhagirath and
Ors. MANU/MH/0166/1939 : AIR1940Bom247 See also In re Fitzgeorge Ex parte
Robson [1905] 1 K.B. 462. In view of the unequivocal language of the letter of
guarantee, no reliance can be placed by the Company in liquidation on the decision of
this Court in Punjab National Bank Limited v. Bikram Cotton Mills and Anr.
MANU/SC/0032/1969 : [1970]2SCR462 in which the surety's liability was limited to
the 'ultimate balance' found due from the principal debtor and the said balance had
not been ascertained before the institution of the suit.
The facts of this case are distinguishable from the facts in the case before us. As
mentioned earlier the liability of the Bank to pay the amount as per the letter of
guarantee did not depend upon prior proof of any default on the part of the Company
in liquidation. Whether the whole of Rs. 50,000 should be demanded or any lesser
sum should be demanded from the Bank was entirely within the choice of the
Electricity Board. The Bank has, therefore, to pay the amount due under the letter of
guarantee given by it to the Electricity Board. On such payment it is open to the Bank
to have recourse to the securities given by the Company in liquidation for the
purpose of the issue of the letter of guarantee. The Electricity Board is not concerned
with what the Bank does in order to reimburse itself after making payment of the
amount guaranteed by it. It is the responsibility of the Bank to deal with the
securities held by it in accordance with law. It was not, however, open to the
Company Judge to make any order under the Companies Act prohibiting the
Electricity Board from realising the amount guaranteed by the Bank as this had
nothing to do with the assets of the Company in liquidation. The order of the
Company Judge and the Judgment of the Division Bench in appeal are, therefore,
liable to be set aside be and they are accordingly set aside.
8 . Before concluding this Judgment, we place on record the submission made on
behalf of the Electricity Board that it is open to the Company in liquidation to prefer
any claim arising out of the supply contracts as against the Electricity Board. It is
also open to the Electricity Board to claim any sum that may be due to it under such
contracts. In considering the above mutual rights and liabilities of the Electricity
Board and the Company in liquidation the sum to be received by the Electricity Board
from the Bank under the letter of guarantee will have to be taken into consideration
and dealt with in accordance with the terms of the supply contracts.
9. The appeal is accordingly allowed. No costs.

MANU/SGHC/0059/2019
Equivalent Citation: [2019]SGHC 53
HIGH COURT OF SINGAPORE

Originating Summons No. 1391 of 2017
Appellants: In Re: Zetta Jet Pte Ltd and Ors. (Asia Aviation Holdings Pte Ltd,
intervener)
Aedit Abdullah, J.
Counsels:
For Appellant/Petitioner/Plaintiff: Tan Mei Yen, Thenuga Vijakumar, and Oh Teng
Chew, Dennis (Hu Tingchao)(Oon & Bazul LLP)
For Respondents/Defendant: Rajaram Muralli Raja, Jerrie Tan Qiu Lin and Kyle Gabriel
Peters (Straits Law Practice LLC)
[2019] SGHC 53
JUDGMENT
Aedit Abdullah J:
Introduction
1 The present case follows on from my earlier decision in Re Zetta Jet Pte Ltd and
Others [2018] SGHC 16 ("Zetta Jet (No 1) ") , in which I granted only limited
recognition on an application by a US Bankruptcy Trustee for recognition of US
bankruptcy proceedings under the UNCITRAL Model Law on Cross-Border Insolvency
(30 May 1997) ("the Model Law") . The Model Law has the force of law in Singapore
pursuant to s 354B of the Companies Act (Cap 50, 2006 Rev Ed) ("Companies Act") ,
as enacted under the Tenth Schedule of the Companies Act ("the Singapore Model
Law").
2 In Zetta Jet (No 1) at [36], limited recognition was given to allow the US
Bankruptcy Trustee to apply to set aside or otherwise appeal a separate injunction
granted by the High Court that enjoined bankruptcy proceedings in the US. I gave
parties the liberty to revisit the issue of wider recognition upon the conclusion of the
injunction proceedings. As it was, the injunction was discharged by consent. The
applicants now seek full recognition of the US bankruptcy proceedings.
Facts
3 The background to this application is set out in Zetta Jet (No 1) at [2]-[10], and
will be briefly recounted here.
Parties
4 Zetta Jet Pte Ltd ("Zetta Jet Singapore") is a Singapore-incorporated company that
wholly owns Zetta Jet USA, Inc ("Zetta Jet USA") , a company organised under the

laws of the State of California. The principal business of Zetta Jet Singapore and
Zetta Jet USA (collectively "the Zetta Entities") is in aircraft rental and charter.
Jonathan D. King ("King", used interchangeably with "the Trustee") is the Chapter 7
Trustee of the Zetta Entities.
5 The Zetta Entities are part of a wider group consisting of 16 other entities
organised under the laws of the British Virgin Islands ("BVI") . The wider group will
be referred to as "the Zetta Jet Group". [note: 1]
6 The intervener in this application, Asia Aviation Holdings Pte Ltd ("AAH", used
interchangeably with "the Intervener") , is a 34% shareholder of Zetta Jet Singapore.
Zetta Jet Singapore's shareholders are AAH, Truly Great Global Limited ("TGGL") ,
Stephen Matthew Walter ("Walter") and James Noel Halstead Seagrim ("Seagrim") .
Their relationship is governed by a Shareholders' Agreement dated 26 February 2016
("the SHA") .
Background to the dispute
7 In 2017, voluntary Chapter 11 bankruptcy proceedings were filed against the Zetta
Entities in the US Bankruptcy Court in the Central District of California - Los Angeles
Division. A worldwide automatic moratorium in the US came into effect. Shortly
thereafter, AAH and TGGL commenced an action by way of Suit No 864 of 2017 ("S
864/2017") in Singapore against Zetta Jet Singapore, Walter and Seagrim for
commencing the Chapter 11 proceedings in alleged breach of the SHA.
8 On 19 September 2017, AAH and TGGL obtained an injunction to prevent Zetta Jet
Singapore, Seagrim and Walter from taking further steps in relation to the bankruptcy
filings in the US Bankruptcy Court ("the Singapore injunction") . On 1 November
2017, TGGL discontinued its action, leaving AAH as the sole plaintiff in S 864/2017.
9 Notwithstanding the issuance of the Singapore injunction, the US bankruptcy
proceedings continued. On 5 October 2017, King was appointed the Chapter 11
Trustee of the Zetta Entities in the US bankruptcy proceedings. The proceedings were
subsequently converted to Chapter 7 proceedings and King was appointed the
Chapter 7 Trustee in the proceedings. On 11 December 2017, the US Bankruptcy
Court authorised the Trustee to commence recognition proceedings in Singapore. The
Trustee did so on 13 December 2017.
10 In Zetta Jet (No 1) , I found that the flouting of the Singapore injunction
undermined the administration of justice in Singapore: at [25] and [29]. I therefore
ordered that recognition would be denied under Art 6 of the Singapore Model Law,
save for limited recognition only for the purposes of allowing the Trustee to apply to
set aside the Singapore injunction: at [34] and [36].
11 On 9 March 2018, Zetta Jet Singapore filed an application to set aside the
Singapore injunction. On 12 July 2018, the injunction was discharged by consent of
the parties involved. The consequences of such discharge by consent on recognition
is disputed in the present application before me.
The parties' cases
The legal framework
12 The applicants have applied under Art 15 of the Singapore Model Law for

recognition of the US bankruptcy proceedings in which King has been appointed as
Trustee. Under Art 17 of the Singapore Model Law, the court must recognise a foreign
proceeding if the stipulated conditions under Art 17(1) are met. Article 17(1) of the
Singapore Model Law is subject to Art 6, which allows a Singapore court to refuse
recognition if such recognition would be "contrary" to the public policy of Singapore.
13 Under Art 17(2) of the Singapore Model Law, the foreign proceeding must be
recognised as a foreign main proceeding if it is taking place in the State where the
debtor has its centre of main interests ("COMI") ; the foreign proceeding is
recognised as a foreign non-main proceeding if the debtor has an establishment
within the meaning of Art 2(d) in the foreign State.
14 The focus of the parties' cases has been on the location of Zetta Jet Singapore's
COMI. No issue arises in respect of Zetta Jet USA, which was incorporated in the US.
Unless otherwise specified, any references in this judgment to disputed COMI issues
generally should be taken as a reference to Zetta Jet Singapore's COMI only.
Summary of the applicants' case
15 The applicants note that no issue has arisen in relation to Zetta Jet USA's COMI
(see Zetta Jet (No 1) at [20]) . Zetta Jet USA's COMI is the US. On that basis, the US
bankruptcy proceedings in relation to Zetta Jet USA should be granted recognition as
a foreign main proceeding under Art 17(1) read with Art 17(2) (a) of the Singapore
Model Law. [note: 2]
16 The applicants ask the court to revisit the question of where Zetta Jet Singapore's
COMI is located. If found that it is also in the US, the US bankruptcy proceedings in
relation to Zetta Jet Singapore should also be recognised as a foreign main
proceeding under Art 17(1) read with Art 17(2) ( a) of the Singapore Model Law.
[note: 3]
17 The applicants argue that there is no public policy issue which would require the
court to refuse to recognise the US bankruptcy proceedings in relation to Zetta Jet
Singapore and the Trustee appointed for those proceedings. AAH did not enter any
appearance in the US bankruptcy proceedings, despite informing the judge who
granted the injunction in S 864/2017 that it would take steps to resist the US
bankruptcy proceedings in the US Bankruptcy Court. In any event, the most important
public policy consideration in this case is to ensure the orderly and efficient recovery
of assets for the benefit of Zetta Jet Singapore's creditors: In re ABC Learning
Centres Ltd 728 F 3d 301 (3rd Cir, 2013) . Public policy also requires the court to
have regard to the international basis of the Model Law and the promotion of its
uniform application, as required under Art 8 of the Singapore Model Law. [note: 4]
18 Next, the applicants submit that whatever test is applied to ascertain Zetta Jet
Singapore's COMI and whichever date is taken to be operative in this determination,
Zetta Jet Singapore's COMI would be found to be in the US. That said, the applicants
favour the US approach in assessing COMI as at the time of the filing of the
recognition application to the recognising court. [note: 5]
19 In the alternative, the applicants submit that even if the US proceedings in relation
to Zetta Jet Singapore are not a foreign main proceeding, the court had earlier found
that Zetta Jet Singapore had an establishment within the meaning of Art 2(d) of the
Singapore Model Law in the US (see Zetta Jet (No 1)at [20]) . Accordingly, the US

bankruptcy proceedings in respect of it should be recognised as a foreign non-main
proceeding under Art 17(1) read with Art 17(2) (b) of the Singapore Model Law.
[note: 6]
20 Following from these submissions, in the event that the US bankruptcy

proceedings relating to the Zetta Entities are recognised, the applicants submit that
the various orders prayed for should also be granted, including orders under the
Singapore Model Law for:
(a) the Trustee's recognition as a foreign representative within the meaning
of Art 2(i); [note: 7]
(b) the stay of proceedings under Arts 20(1) and 20(2) ; [note: 8]
(c) the Trustee's empowerment to examine witnesses, take evidence and

obtain delivery of information under Art 21(1) (d) ; [note: 9]
(d) the Trustee's entrustment with the administration and realisation of
assets of the Zetta Entities;
(e) the Trustee's empowerment to appoint of a local representative under Art
21(1) (e) ; [note: 10]
(f) the Trustee's standing to make applications under Art 23(1) ; [note: 11]
and
(g) the granting of additional reliefs available to a liquidator appointed in
Singapore under Art 21(1) (g) . [note: 12]
Summary of the Intervener's case
21 In respect of the determination of Zetta Jet Singapore's COMI, the Intervener
relies on its previous arguments in Zetta Jet (No 1) : Zetta Jet Singapore's senior
management, employees, facilities, operations, business and creditors were all
located in Singapore. These factors also indicate that the company had no
establishment in the US. Accordingly, the US bankruptcy proceedings in relation to
Zetta Jet Singapore are neither foreign main nor non-main proceedings under Art
17(2) of the Singapore Model Law. [note: 13]
22 As for the question of recognition, the Intervener argues that the Trustee's breach
of the Singapore injunction in continuing the US bankruptcy proceedings amounted to
contempt, and remained so even after the discharge of the injunction. The Intervener
cites Pertamina Energy Trading Ltd v. Karaha Bodas Co LLC and others [2007] 2
S L R( R) 518 ("Pertamina") , which is to be preferred to contrary authority in
Nikkomann Co Pte Ltd and others v. Yulean Trading Pte Ltd [1992] 2 SLR(R)328
("Nikkomann") . [note: 14] The Intervener also notes that it had consented to the
discharge of the injunction: (a) on the basis that it was accepted that Pertamina was
the correct statement of the law; and (b) in view of the implicit concessions that the
Trustee had made that showed that he was aware or wilfully blind that he had
breached and continued to breach the Singapore injunction. [note: 15]
My decision

23 I accept that Zetta Jet Singapore's COMI is to be determined as at the date of the
recognition application, following the US position. In any event, the evidence before
me indicates that whichever alternative date is considered, its COMI was in the US.
No reason remains to deny recognition on the basis of public policy following the
consensual discharge of the injunction. Accordingly, the US bankruptcy proceedings
in relation to Zetta Jet Singapore are to be recognised as a foreign main proceeding.
24 Aside from the matters examined below, I am satisfied that the other provisions of
the Singapore Model Law are met.
Issue 1: Whether the US proceedings are a "foreign proceeding" under the
Singapore Model Law
25 The US bankruptcy proceedings in relation to the Zetta Entities were originally
restructuring proceedings under Chapter 11 of the Bankruptcy Code 11 USC (US)
(1978) ("the US Bankruptcy Code") , but were subsequently converted to Chapter 7
proceedings, ie, liquidation proceedings. These are clearly a "foreign proceeding"
within the meaning of Art 2(h) of the Singapore Model Law.
Issue 2: Zetta Jet Singapore's COMI
26 There are two issues to be discussed in relation to the determination of Zetta Jet
Singapore's COMI:
(a) The date at which such assessment is to be made, namely, whether the
court should assess the location of the debtor's COMI on the date of the
foreign application commencing foreign insolvency proceedings; the date
when recognition is applied for; or the date the recognising court hears the
issue of whether recognition should be granted.
(b) The approach to be taken in assessing what constitutes the COMI of a
particular debtor company.
27 I am of the view that the determination of the debtor's COMI is to be made as at
the date of the application to this court for recognition, and that in assessing where
the COMI lies, the court's focus would be on where the primary commercial decisions
are made for the debtor. This would generally be the place of registration unless
otherwise shown in a particular case. The enquiry would be dependent on the
circumstances of each case and no general rule can be laid down. In many cases, it
may be that the factors relevant in the assessment essentially balance each other out;
in such cases, the presumption under Art 16(3) of the Singapore Model Law in favour
of the place of the debtor's registered office would have to come into play.
The interpretative approach to be adopted
28 The concept of the COMI lies at the heart of the regime created by the Model Law,
in force in Singapore with certain modifications to adapt it for application in
Singapore, as enacted under the Tenth Schedule of the Companies Act pursuant to s
354B of the Companies Act. The location of the debtor's COMI determines whether
foreign insolvency proceedings qualify as a "foreign main proceeding" within the
meaning of Art 2 of the Singapore Model Law:
Article 2. Definitions
2. For the purposes of this Law -

...
(f) "foreign main proceeding" means a foreign proceeding taking
place in the State where the debtor has its centre of main interests;
(g) "foreign non-main proceeding" means a foreign proceeding,
other than a foreign main proceeding, taking place in a State where
the debtor has an establishment; foreign main proceedings qualify
for automatic reliefs under Art 20(1) of the Singapore Model Law.
29 The term "COMI" is not, however, defined in the Model Law or the Singapore
Model Law. There is only a presumption under Art 16(3) of the Singapore Model Law
that the place of the debtor's registered office is its COMI:
Article 16. Presumptions concerning recognition
...
3 . In the absence of proof to the contrary, the debtor's registered office is
presumed to be the debtor's centre of main interests.
30 While there is reference to a presumption here, I do not read Art 16(3) of the
Singapore Model Law to constitute a rebuttable presumption of law in the typical
sense, which would require the party rebutting the presumption to prove on the
balance of probabilities that the presumption does not apply. I see nothing in the
Model Law itself, as enacted in the legislative materials, or in the commentaries to
the Model Law which would require such an approach.
31 Considering the text of Art 16 of the Model Law and the Singapore Model Law, the
guides to enactment provided by UNCITRAL, and the fact that the Model Law is to
operate across jurisdictions, I am of the view that the usual rule generally requiring
that rebuttal of a legal presumption is to be made out on the balance of probabilities
does not apply here. Instead, I regard the presumption under Art 16 to operate as a
starting point subject to displacement by other factors depending on the
circumstances of the specific case. Art 16 refers to "the absence of proof to the
contrary", which to my mind does not require proof on the balance of probabilities; it
allows for the presumption to be rebutted simply on the presence of proof, ie,
evidence, to the contrary.
32 I do note that the Singapore legislation did not adopt the same language as the
US enactment which does refer to "evidence". US Bankruptcy Code Â§ 1516(c) ,
which incorporates Art 16(3) of the Model Law into US law, reads:
(c) In the absence of evidence to the contrary, the debtor's registered office
... is presumed to be the center [sic] of the debtor's main interests.
I do not, however, understand that difference to mean that the Singapore courts
adopt a stricter standard in respect of the Art 16(3) presumption.
33 I have noted that there is language in the US cases which may seem to require
some weighing of the evidence when considering if the presumption should be
rebutted. In so far as these cases establish that there needs to be consideration and
assessment of the evidence, I would, with respect, agree. I understand the US cases
to require that there be proof of the debtor's COMI, but not that the presumption is
rebutted on the preponderance of the evidence as required in Singapore law

generally. For example, in In re Fairfield Sentry Ltd. 440 BR 60 at 63-64 (Bkrtcy
SDNY, 2010) ("Fairfield Sentry (Bankruptcy Court) ") , Judge Burton R. Lifland at first
instance referred to the applicant's burden in that case to "persuade the Court by a
preponderance of the evidence" that the debtor's COMI was in the BVI. Judge Lifland
noted that although US Bankruptcy Code Â§ 1516 created a rebuttable presumption in
favour of the BVI as the COMI, the court could not "rely solely upon this
presumption, but rather must consider all the relevant evidence": at 64. Judge
Lifland's approach did not appear to be disturbed on appeal: see In re Fairfield Sentry
Ltd. 714 F 3d 127 at 137-139 (2nd Cir, 2013) ("Fairfield Sentry (CA) ") .
34 Given the absence of actual statutory guidance under the Model Law beyond the
presumption in Art 16(3) as to what constitutes the debtor's COMI, resort has to be
had to guidance issued by UNCITRAL as well as case law from other jurisdictions. In
respect of the latter, I am mindful that there may be differences in legislative
backgrounds, particularly as regards European and English cases. These jurisdictions
additionally consider the applicable EU legislative materials:
(a) the Regulation on insolvency proceedings , EC Council Regulation No
1346/2000, [2000] OJ L 160/1 (accessed 19 November 2018) ("the EIR");
and
(b) the Regulation on insolvency proceedings (recast) , EU Parliament and
Council Regulation No 2015/848, [2015] OJ L 141/19 (accessed 19
November 2018) ("the Recast EIR"), which replaced and supersedes the EIR,
and applies to insolvency proceedings opened after 26 June 2017.
35 I note that the Model Law concept of COMI owes much to the EU Convention on
Insolvency Proceedings (23 November 1995) , 35 ILM 1223 ("EU Convention on
Insolvency Proceedings") , which was subsequently adopted by and reproduced as
the EIR: see Cross-Border Insolvency: A Commentary on the UNCITRAL Model Law
vol 1 (Look 'Chan Ho gen ed) (Globe Law and Business, 4th Ed, 2017) ("Cross-
Border Insolvency: A Commentary") at p 171. That being said, there are differences
in the structure of the UNCITRAL and EU regimes, which, on occasion, may lead to
different nuances at least. I am also mindful that there are variations in the
enactment of the Model Law itself, in various jurisdictions, which may be material.
36 Guidance may also be taken from the guides issued by UNCITRAL: the "Cross-
Border Insolvency: Guide to Enactment of the UNCITRAL Model Law on Cross-
(a) the "Cross-Border Insolvency: Guide to Enactment of the UNCITRAL
Model Law on Cross- Border Insolvency", UNCITRAL, 30th Sess, UN Doc
A/CN.9/442 (1997) ("the 1997 Guide"); and
(b) the "UNCITRAL Guide to Enactment and Interpretation of the UNCITRAL
Model Law on Cross-Border Insolvency" (2013) (accessed 19 November
2018) ("the 2013 Guide").
These guides will collectively be referred to as "the Guides".
37 Section 354B(2) of the Companies Act refers to the 1997 Guide as a relevant
document in the interpretation of the Singapore Model Law. This is of course a
deliberate legislative endorsement of the 1997 Guide; the 2013 Guide which
introduced a number of amendments is not given official status in Singapore law.
Nonetheless, the 2013 Guide should not be entirely ignored. Consistency and comity

should be pursued as far as possible in the interpretation of the provisions of the
Model Law. Where there is any conflict between the two Guides, the 1997 Guide
trumps. But where the 1997 Guide is silent, the court may consider the 2013 Guide in
its interpretation of the Singapore Model Law and in assessing its statutory
objectives.
38 Finally, I bear in mind the preamble to the Singapore Model Law, emphasising
cooperation and efficiency between the courts of states involved in cross-border
insolvency, and Art 8 of the Singapore Model Law, which requires regard to be paid
to the Singapore Model Law's international origin and the promotion of uniformity in
its application. I am of the view that the Singapore courts should attempt to tack as
closely as possible to the general interpretive trends taken in other jurisdictions that
apply the Model Law in its various enactments.
Relevant date for determining the COMI
39 Different approaches exist as to the relevant date for determining COMI. The
applicants canvass each approach, arguing that whichever date is chosen, Zetta Jet
Singapore's COMI will be found to be in the US. No issue arises as to Zetta Jet USA's
COMI.
The English (and European) position
40 The English approach is as laid down in cases such as In the Matter of Videology
Limited v. In the Matter of the Cross-Border Insolvency Regulations 2006 [2018]
EWHC 2186 (Ch) ("Videology") and In re Stanford International Bank Ltd and another
[2010] 3 WLR 941. Applying the Model Law as incorporated into English law in
Cross-Border Insolvency Regulations 2006 (SI 2006 No 1030) (UK) Sch 1 and the
Recast EIR, English courts determine the debtor's COMI as at the date of the
application to open insolvency proceedings abroad.
41 The applicants argue that this approach is influenced by the fact that the Recast
EIR uses the COMI concept to determine (a)if the proceeding is one to which the
Recast EIR applies; and (b) which EU Member State the proceeding may be
commenced in. This view is supported by Recital (23) of the Preamble to the Recast
EIR, which states that the "[Recast EIR] enables the main insolvency proceedings to
be opened in the Member State where the debtor has [its COMI]". [note: 16]
Additionally, Art 3(1) of the Recast EIR states:
Article 3. International jurisdiction
1. The courts of the Member State within the territory of which the centre of
the debtor's main interests is situated shall have jurisdiction to open
insolvency proceedings ('main insolvency proceedings') . The centre of main
interest shall be the place where the debtor conducts the administration of its
interests on a regular basis and which is ascertainable by third parties.
42 The applicants thus argue that the COMI concept is used differently in the Recast
EIR and in the Model Law. The Model Law uses the COMI concept at a later stage, as
a means of determining the relief to be granted to the relevant foreign proceedings if
so recognised: see Art 20(1) of the Model Law. Furthermore, citing Cross-Border
Insolvency: A Commentary at p 172, the use of the present tense in Arts 2(f) and
17(2) (a) of the Model Law indicates that "COMI is to be determined at the time of
the application for recognition". [note: 17]

43 I have considered the reasoning in two cases discussed in the applicants'
submissions: [note: 18]
(a) In Videology, Mr Justice Snowden stated that under the Recast EIR, the
date at which the company's COMI must be determined is that at which the
request to open insolvency proceedings is made: at [49], citing Interedil Srl
v Fallimento Interedil Srl Case C-369/09, [2011] ECR I-9939 at [55], [2012]
Bus LR 1582, (accessed 19 November 2018) ("Interedil"), a decision by the
European Court of Justice ("ECJ").
(b) In Interedil at [54], the ECJ noted that in light of Art 3(1) of the Recast
EIR, the last place in which a debtor's COMI was located is to be regarded as
the relevant place for the purpose of determining the court having
jurisdiction to open the main insolvency proceedings. The ECJ at[55] then
referred to the case of Susanne Staubitz-Schreiber Case C-1/04, [2006] ECR
I-701 at [29], (accessed 19 November 2018) ("Staubitz"), which held that
the courts of the Member State in which the COMI was situated at the time
when the request was launched retains jurisdiction to rule on the
proceedings, even where the COMI is transferred after the request to open
insolvency proceedings is lodged. This led to the conclusion that it is the
location of the debtor's COMI at the time the debtor lodges the request to
open insolvency proceedings that is relevant to determine the court having
jurisdiction.
44 In view of this analysis of Interedil and Videology, I am satisfied that the
applicants' submissions are correct. The English position regarding the relevant date
flows from the European position, which utilises the COMI concept to determine
which EU Member State's courts have jurisdiction to open the main insolvency
proceedings. These considerations and requirements do not apply under the Model
Law and in Singapore. There is thus no constraint requiring a Singapore court to
adopt the English position.
The Australian position
45 Australia applies the Model Law as incorporated into Australian law under Cross-
Border Insolvency Act 2008 (Cth) sch 1. The debtor's COMI is determined as at the
time of the hearing of the recognition application, but regard may be had to historical
facts which led to the position at the time: Moore, as Debtor-in-Possession of
Australian Equity Investors v. Australian Equity Investors [2012] FCA 1002 ("Moore")
at [18]-[19], and applied in Legend International Holdings Inc (as debtor in
possession of the assets of Legend International Holdings Inc) v. Legend
International Holdings Inc [2016] VSC 308 ("Legend")at [96], and Wood v. Astra
Resources Ltd (UK Company No 07620218) [2016] FCA 1192 at [12].
46 The basis of the Australian position appears to be that the debtor's COMI is to be
determined at the point the court is required to give a decision on recognition. I
consider the merits of this position in greater detail below.
The US position
47 Chapter 15 of the US Bankruptcy Code incorporates the Model Law into US law.
The US cases are consistently clear that the debtor's COMI should be determined as
at the filing of the application for recognition: In re Betcorp Ltd 400 BR 266 at 290-
292 (Bkrtcy D Nev, 2009) , In re Ran 607 F 3d 1017 at 1025-1026 (5th Cir, 2010)

("Ran") . This approach considers the language adopted in US Bankruptcy Code Â§
1502, which defines a "foreign main proceeding" as "a proceeding in the country
where the debtor has the center [sic] of its main interests". In Ran, the US Court of
Appeals for the Fifth Circuit noted that Congress's use of the present tense required
the courts to view the COMI determination in the present, ie, "at the time the petition
for recognition was filed". [note: 19]
48 The Court in Ran put forward an additional reason for adopting this approach:
examining a debtor's COMI at the time the petition for recognition is filed allows for
the harmonisation of transnational insolvency proceedings. Limiting the inquiry to the
time of filing avoids a detailed examination of the operational history of the
applicant, which may entail conflicting COMI determinations by different courts. [note:
20]
49 The applicants note that this position has been maintained in subsequent cases
including Fairfield Sentry (CA) at 137 and In re Ocean Rig UDW Inc 570 BR 687 at
704 (Bkrtcy SDNY, 2017) . [note: 21] I note that the US position has the advantages of
simplicity and adherence to the plain language of the Model Law.
The 1997 and 2013 Guides
50 The applicants note that the 1997 Guide, which is silent on the relevant date for
the COMI determination, is the guide which the Singapore Parliament considered
when enacting the Singapore Model Law. [note: 22] Conversely, the 2013 Guide
expressly states at para 31 that a debtor's COMI should be determined as at the date
of the commencement of the foreign insolvency proceedings. Taking the date of
commencement to determine the COMI provides a test that can be applied with
certainty to all insolvency proceedings: see paras 159-160 of the 2013 Guide.
51 At this point, I should note that these Guides can provide such guidance as to
promote the uniform and consistent interpretation of the Model Law. However, they
must always be subject to the interpretation of the Model Law provisions as enacted
in each jurisdiction, and the relevant considerations of policy which may point in
favour of one outcome or another. I have reservations about adopting the approach
advocated in the 2013 Guide, which is essentially that adopted by Europe and
England. Certainty is also well-served by the adoption of the US position, though
possibly, with respect, not the Australian position.
The preferred approach
52 The positions regarding the relevant date to determine COMI are:
(a) The English and European position and the position taken in the 2013
Guide: The date of the commencement of the foreign insolvency proceedings.
(b) The Australian position: The date of the hearing of the recognition
application.
(c) The US position: The date the application for recognition is filed.
53 Having considered parties' submissions and the above analyses, I accept that
determining the debtor's COMI as at the date the recognition application is filed, ie,
the US position, provides greater certainty and better accords with commercial

realities and the language of the provisions of the Model Law.
54 The applicants point to three reasons for preferring the US position: [note: 23]
(a) Arts 2(f) and 2(g) of the Singapore Model Law, which define foreign main
and non-main proceedings, refer to proceedings that are "taking place". The
use of the present tense contemplates that foreign proceedings are underway
at the time the debtor's COMI is being ascertained. This is in line with the US
position.
(b) The US position would allow the court to account for shifts in the
debtor's COMI in the period between the commencement of the foreign
insolvency proceeding and the date the recognition application is filed.
(c) The debtor's operational history should not be considered as part of the
COMI determination, so as to avoid a meandering inquiry.
55 Considering the applicants' submissions, I note the following factors that militate
in favour of Singapore's adoption of the US position over the English position.
56 First, the definitions in Art 2 of the Singapore Model Law do not expressly specify
the date at which COMI is to be ascertained. The definitions do, however, use the
present tense, which seems to indicate that what matters is the situation at the point
of the application for recognition.
57 Second, postponing the COMI determination until the application for recognition is
made accepts that, in contemporary practice, various entirely legitimate measures
may be taken to shift a debtor's COMI to another jurisdiction, for instance, to create a
jurisdictional nexus for the opening of insolvency proceedings. Such measures may
not all be in place by the time of the foreign insolvency application, ie, the operative
date under the English and European position. It is not objectionable to grant
companies the discretion to select the jurisdiction that will offer the best prospects
for achieving an effective restructuring solution: see Sundaresh Menon, Chief Justice,
Supreme Court of Singapore, "The future of cross-border insolvency: Some thoughts
on a framework fit for a flattening world", keynote address at the 18th Annual
Conference of the International Insolvency Institute 2018 (25 September 2018) at
paras 32-39
58 That said, this is not to sanction a free-for-all: limits exist. An applicant company
cannot, for instance, seek to evade responsibilities to its employees by seeking
reorganisation in a wholly unrelated jurisdiction, and recognition may be denied in
such a situation. If, for instance, and subject to considered arguments on this issue,
a COMI shift was opportunistically pursued to evade the criminal laws of the
recognising court or to cause prejudice to creditors, then the application for
recognition of the foreign proceedings may be denied. It may also be that such denial
would not turn on whether the conditions for recognition under Art 17(1) of the
Model Law were fulfilled, but rather as being contrary to public policy. We will have
to see how the arguments are made in such a case. But short of evasion of criminal
or similar laws, and generally provided that there are commercial reasons for
choosing one jurisdiction over another, I am doubtful that a Singapore court would
be overly exercised by the applicant's choice of a particular court to commence
insolvency proceedings in.
59 With that consideration in mind, ascertaining the debtor's COMI as at the date of

the hearing for recognition facilitates an applicant's ability to seek restructuring in an
appropriate forum. Jurisdiction may be assumed by the restructuring court on a
number of grounds, not all of which will necessarily establish that the applicant's
COMI is in that jurisdiction. That, however, is a separate analysis; what matters for
the recognising court is that the requirements of the Model Law are met at the point
of the application for recognition.
60 Having preferred the US position to the English position, I now consider the
Australian position vis-Ã -vis the US position. It would seem that the Australian
approach is based on the need to give effect to the language of the Model Law. I am,
however, unable to find in the language of the Singapore Model Law anything that
distinguishes the date of the application from the date of the hearing as the relevant
date for determining the COMI. I am also of the view that the Australian position
leaves the date of the ascertainment of the debtor's COMI uncertain: a bright-line rule
would be preferable. Finally, although the Australian position gives the recognising
court greater leeway in ascertaining the debtor's COMI, I do not think that in practice
there would be much difference in result between the Australian and US positions.
61 All things considered, the ascertainment of COMI as at the date of the application
has the advantage of greater certainty, given the possible vagaries of hearing diaries
in all jurisdictions. I therefore prefer the US position to the Australian position.
>Factors to be considered in determining COMI
62 Having determined the relevant date for the COMI determination, which factors
does the court consider in the COMI assessment? A summary of the approaches taken
in various jurisdictions follows. The English and European approach
63 English and European cases, particularly In re Eurofood IFSC Ltd (Case C-341/04)
[2006] 1 Ch 508 ("Eurofood") and Interedil, provide useful guidance. They highlight
the need for objective criteria that would allow for ascertainment of the COMI by third
parties: Eurofood at [33], Interedil at [49].
64 The English High Court of Justice in Videology took the following approach:
(a) English courts are to apply the ECJ's tests in determining a company's
COMI: at [28]. Eurofood and Interedil were applied to determine if the
presumption of COMI in the place of the debtor's registered office had been
displaced: at [32].
(b) In view of the Recitals and Art 3(1) of the Recast EIR, the factors relied
upon to rebut the presumption had to be both objective and ascertainable by
third parties. The fact that a parent company in another state controlled the
economic choices of a subsidiary was insufficient to rebut the presumption:
at [33], citing Eurofood at [33]-[37].
(c) On the facts of the case, Mr Justice Snowden concluded that the
presumption that the company's COMI was in the place of its registered office
had not been displaced. The UK, the place of the debtor company's registered
office, was also where the company's trading premises and staff were
located; where its customer and creditor relationships were established;
where it administered its relations with trade creditors on a day to-day basis;
and where its main assets, namely, the receivables and cash at bank, were
located. Importantly, representations were made to the company's main

finance creditor that the UK was where its COMI was located: at [72]. These
were all factors that were visible and immediately ascertainable by customers
and trade creditors of the company, and which ultimately displaced the factor
that the company's senior management was located in the US: at [73].
65 I note also that Recital (28) of the Preamble to the Recast EIR, which Videology
considered at [31], states:
(28) When determining whether the centre of the debtor's main interests is
ascertainable by third parties, special consideration should be given to the
creditors and to their perception as to where a debtor conducts the
administration of its interests. This may require, in the event of a shift of
[COMI], informing creditors of the new location from which the debtor is
carrying out its activities in due course, for example by drawing attention to
the change of address in commercial correspondence, or by making the new
location public through other appropriate means.
66 Although the Recast EIR and its Recitals are not part of Singaporean law, the
recognised need for objective criteria ascertainable by third parties and the focus on
the debtor company's place of central administration are clearly applicable to the
Singaporean context.
The Australian approach
67 In Legend, Randall AsJ of the Supreme Court of Victoria considered various factors
in this analysis, including the location of the debtor company's assets; the residence
of its directors; its principal place of business, the activities of its wholly owned
subsidiary; its operations, including its day-to-day activities; and where the auditing
of its accounting was attended to. In the circumstances, it was found that the
preponderance of the debtor company's activities was conducted in Australia, and
Australia was thus the company's COMI. The presumption of COMI in the place of the
company's registered office, ie, Delaware, was therefore displaced: at [98]-[123].
68 The Australian approach also entails consideration of where the debtor conducts
the administration of its interests on a regular basis: Moore at [19]. The COMI should
also be ascertainable by third parties, creditors, and potential creditors; for this to be
the case, the court must have regard to the need for an element of permanence:
Moore at [19], Kapila, in the matter of Edelsten [2014] FCA 1112 at [53], Legend at
[91].
69 I also highlight the broad-ranging approach taken in Young, Jr, in the matter of
Buccaneer Energy Limited v. Buccaneer Energy Limited [2014] FCA 711 at [7]-[14].
Jagot J noted that although the company was registered in Australia, its main
activities and that of its subsidiaries were in the US. Its COMI was thus the US;
ignoring the company's group structure would be to ignore the commercial realities
which the Model Law attempts to address.
The US approach
70 The US courts have adopted the term "nerve centre", focussing on where the
debtor company performs its most important and consequential business decision-
making functions: In re Railpower Hybrid Technologies Corp Case 09-41498-WWB at
8 (Bkrtcy WD Pa, 2009) , Fairfield Sentry (Bankruptcy Court) at 64-65. We have not
had the occasion to consider the US cases in extensive detail, but I am concerned

that the focus on the company's "nerve centre" is perhaps too narrow where the
language of the Model Law is concerned, given that the analysis is concerned more
broadly with where the company's "centre of main interests" is located.
71 That being said, the US cases do look at a similarly broad range of factors in the
COMI determination, as in other jurisdictions, including the location of the debtor's
headquarters; the location of its management; the location of its primary assets; the
location of the majority of its creditors; and the jurisdiction whose law would apply
to most disputes: Fairfield Sentry (CA) at 137, In Re SPhinX, Ltd. 351 BR 103 at 117
(Bankr SDNY, 2006).
The Singaporean approach
72 We have not had the occasion yet, at least in a written judgment, to consider the
interpretation of COMI under the Singapore Model Law. I previously applied a
common law COMI test when deciding recognition issues in Re Opti-Medix Ltd (in
liquidation) and another matter [2016] 4 SLR 312 ("Opti-Medix") and Re Taisoo Suk
(as foreign representative of Hanjin Shipping Co Ltd) [2016] 5 SLR 787. In particular,
I was satisfied in Opti-Medix that despite the debtor companies' incorporation in the
BVI, their common law COMI was in Japan where the companies carried on business.
I thus granted full recognition to the relevant Japanese insolvency orders and the
Tokyo District Court-appointed bankruptcy trustee: at [24] and [25].
73 Singapore has since adopted the Model Law. It would be preferable if the common
law and Model Law conceptions of COMI were aligned as far as possible.
74 Turning to the Guides for reference, the 1997 Guide is quite laconic; para 72 only
states that COMI as used in Art 2(b) of the Model Law is used also in the EU
Convention on Insolvency Proceedings. No commentary is made regarding Art 16(3)
of the Model Law. In comparison, the 2013 Guide describes the COMI concept as
fundamental to the operation of the Model Law; proceedings commenced in a
company's COMI are accorded deference and automatic relief: para 144. The 2013
Guide then states, at para 145:
In most cases, the following principal factors, considered as a whole, will
tend to indicate whether the location in which the foreign proceeding has
commenced is the debtor's centre of main interests. The factors are the
location: (a) where the central administration of the debtor takes place, and
(b) which is readily ascertainable by creditors. ...
This approach echoes the approach taken in the Recast EIR.
75 In addition, the 2013 Guide at para 147 also highlights additional COMI factors
which could be considered by the recognising court as applicable:
... [T]he location of the debtor's books and records; the location where
financing was organized or authorized, or from where the cash management
system was run; the location in which the debtor's principal assets or
operations are found; the location of the debtor's primary bank; the location
of employees; the location in which commercial policy was determined; the
site of the controlling law or the law governing the main contracts of the
company; the location from which purchasing and sales policy, staff,
accounts payable and computer systems were managed; the location from
which contracts (for supply) were organized; the location from which

reorganization of the debtor was being conducted; the jurisdiction whose law
would apply to most disputes; the location in which the debtor was subject
to supervision or regulation; and the location whose law governed the
preparation and audit of accounts and in which they were prepared and
audited.
76 I have noted at [30] and [31] that I do not understand the Singapore Model Law
to require that the Art 16(3) presumption be rebutted on the balance of probabilities.
In determining a debtor's COMI under the Singapore Model Law, the court would first
presume that the place of the debtor company's registered office is its COMI. This
presumption would be displaced if it is shown that the place of the company's central
administration and other factors point the COMI away from the place of registration
to some other location. The COMI factors should be those that are objectively
ascertainable by third parties generally, with a focus on creditors and potential
creditors in particular. This follows the English, European and Australian positions.
77 Eurofood at [33] noted that objectivity and the possibility of ascertainment by
third parties are necessary to ensure legal certainty and foreseeability concerning the
determination of which EU Member State's courts have jurisdiction to open main
insolvency proceedings. Although this consideration does not strictly apply in
Singapore, there remains a need to ensure that creditors especially can predict when
an insolvency proceeding might subsequently be granted recognition as a "foreign
main proceeding", given the automatic reliefs that follow under the Model Law.
78 In this respect, I would also consider it material, in determining which factors to
take into consideration for the COMI determination, to consider how likely it is that a
creditor would weigh a particular factor in his mind. I would focus on those factors
that a creditor would take into account in his deliberations as to whether to afford
credit to the applicant company. For instance, where a company is clearly involved in
cross-border activities, a creditor may not regard the location of assets as being
significant if it is expected that the assets in question, eg, vessels or planes, would
move around as part of the company's operations. It may be in such a situation that
the location of the company's fixed assets plays a greater role.
79 I also accept that there should be an element of settled permanence or intended
permanence in the factors considered, which would assist creditors in their weighing
of the relevant factors and the risks entailed in granting credit. As such, a change in
COMI would be tolerated, even just ahead of an insolvency filing, provided that there
is a clear ascertainable intention to make such a COMI change lasting, rather than
vacillating.
80 The US approach of identifying the company's "nerve centre" is useful, but I
would not regard this factor as determinative. It would be one of several factors that
need to be weighed in the round. I would focus on the centre of gravity of the
objectively ascertainable factors, if that helps the analysis: balancing all the relevant
factors, where does the mass settle in the end? It will be a robust, entirely qualitative
analysis especially since the proceedings will not involve a full trial of the facts, but
that is, I believe, what is intended under the Model Law.
81 Flowing from that, where there are disputed facts, the court will have to make the
best conclusions it can in the circumstances. Where the scale does not clearly tip
either way, the location of the registered office will be taken to be the COMI by
default. And, as is the case here, if there are background disputes between

shareholders affecting questions of management and direction, that again may, on
the facts, lead to the conclusion that the presumption or default position should be
upheld.
82 As the analysis requires a consideration of factors relevant to the creditor's
understanding, the court's focus is on actual facts on the ground rather than on legal
structures. The court's inquiry in this regard is broad-ranging, looking at the
company's activities in and connections to a particular locale. In some situations, it
may be that the actual activities on the ground mean that little distinction is drawn in
reality between a company and other members in its group. That should be taken into
account in determining the company's COMI. This approach may be contrasted to
other situations where the concept of separate corporate identity is maintained: the
purpose of those legal doctrines is different. COMI determination is not concerned
with corporate identity as such, unlike, say, determinations of corporate liability or
attribution.
83 Accordingly, I am of the view that in ascertaining a specific company's COMI,
there is no need to maintain strictly the distinction between different entities within a
group. It is possible for the analysis to be made of the activities of an entire group of
companies, rather than of the specific debtor company in question. In this case, some
of the COMI factors relate to the activities of the Zetta Entities and the Zetta Jet
Group generally, and not Zetta Jet Singapore itself.
84 In any event, I do not think there is a significant difference in the position of the
applicants and the Intervener as to the law on the determination of COMI.
Consideration of factors in the present application
85 I will assess the various factors raised by the parties in the following categories:
(a) the location from which control and direction was administered;
(b) the location of clients;
(c) the location of creditors;
(d) the location of employees;
(e) the location of operations;
(f) dealings with third parties; and
(g) the governing law.
I will also deal briefly with the applicants' argument that the location where the
foreign insolvency representative, ie, the Trustee, operated from should be
considered.
86 The COMI determination takes into account the facts as they were at 13 December
2017, the date of the applicants' recognition application. That said, as noted above at
[23], the analysis will be unchanged regardless of the date considered.
Location from which control and direction was administered
87 The applicants contend that control of Zetta Jet Singapore resided in the US,

particularly after 17 August 2017 when Geoffrey Owen Cassidy ("Cassidy") and June
Tang Kim Choo ("Tang") were removed from their positions in the Zetta Jet Group.
Following their removal, the Zetta Entities were managed exclusively from the US;
[note: 24] operational decisions were also made in the US. [note: 25] The Intervener
relies on the fact that Cassidy was the managing director of Zetta Jet Singapore prior
to his "improper removal" before the commencement of the Chapter 11 proceedings.
[note: 26]
88 I accept that at least following Cassidy's ouster, control and direction of Zetta Jet
Singapore resided in persons located in the US. I note that there was a dispute about
whether Cassidy's removal was proper, but this does not affect my finding. In
determining COMI, the court only needs to consider the question of actual control of
the debtor company, leaving the resolution of any underlying legal dispute to the
appropriate forum and process. Location of clients
89 The applicants argue that the clients were primarily based in the North America
and Europe. [note: 27] The Intervener does not refute this. [note: 28]
90 The presence of clients in a given location does not by itself establish the debtor's
COMI; the relevance of this factor arises primarily through its connection with other
factors such as whether these clients are creditors, and the location of funds, assets
and management. I would not in the circumstances of this case attach much weight
to this factor.
Location of creditors
91 The Intervener contends in submissions that Zetta Jet Singapore has creditors in
Singapore. [note: 29] In contrast, the applicants state that its creditors were largely
based in the US; ten of its top 20 unsecured creditors were located in the US as at 15
September 2017, the date of the commencement of the US Chapter 11 proceedings.
[note: 30]
92 I accept the evidence of the applicants that at least half of the primary unsecured
creditors were located in the US. But that by itself would not be sufficient to lean the
conclusion regarding the COMI towards the US, as the position with respect to the
creditors would appear, on the applicants' own evidence, to be mixed.
Location of employees
93 The Intervener argues that Zetta Jet Singapore employed 176 employees who
were mostly based out of the US. [note: 31] The applicants refute this, saying that
there were only 60 employees based in Singapore, with the remaining employees
based elsewhere. Those in Singapore played primarily back-end functions, in low-
level administrative roles. The applicants' assertion of the limited roles of the
employees in Singapore was not backed up by more than an organisation chart [note:
32] and a page in the Zetta Jet Singapore employee handbook, which directed
employees to direct questions and suggestions to Seagrim or to Eric Rastler, the
Zetta Jet Group's Chief Pilot. [note: 33]
94 I find that there is insufficient evidence as to the level or responsibility of the
employees stationed in Singapore. In the circumstances, this does not play a material
role in the ultimate determination.

Location of operations
95 The applicants rely on the fact that Zetta Jet Singapore's business was conducted
primarily in the US: a large majority of the flights that it and Zetta Jet Group
chartered occurred within the US. These flights could only be operated with US
Federal Aviation Authority certification of the planes, which Zetta Jet USA maintained.
[note: 34] The Intervener argues that no maintenance facility or offices were in effect
maintained in the US: while a flight operation centre was supposedly maintained in
the US, most operations were conducted by the Singapore operation centre, which
housed most of the operations staff; all flight scheduling and operations were
conducted in Singapore. [note: 35]
96 I am of the view that in this specific case, the locus of operations was of less
relevance than perhaps in other cases. Where and how the business activities of the
Zetta Entities were conducted would not have been of much relevance and not
appreciable to a creditor, especially since the company was concerned with flights, at
least some of which presumably would be international in nature. Some dispersal of
operations would have been expected. The administration would seem to be split in
some way between the US and Singapore. I cannot conclude that this points clearly
in either direction. I also find that the location of assets would not perhaps be readily
apparent to a creditor, nor would a creditor likely consider it significant, given the
nature of the business of transporting persons. It would have been otherwise had the
business been one of largely domestic inland transport. Accordingly, I give this factor
less weight in the analysis.
Dealings with third parties
97 The applicants rely on the fact that the Zetta Entities were understood to be US-
based by customers and creditors. The Zetta Entities were marketed on their website
and social media as operating out of Burbank, California. [note: 36] The applicants
refer to communications to key customers, vendors and creditors that their points of
contact after 17 August 2017 following the removal of Cassidy and Tang would be
Walter, Michael Maher, the newly-appointed Chief Executive Officer of the Zetta Jet
Group, and Seagrim, who were all US-based. The applicants also point to the Zetta
Jet Group's website which indicated that the US was the location of Zetta Jet Group's
business. [note: 37] These factors are significant pointers which were readily
perceivable by third parties that indicated that the COMI was in the US.
98 The Intervener alleges that Zetta Jet Singapore conducted sales and marketing for
its flights all over the world, implying that it was not US-centred. [note: 38]
99 In so far as dealings with creditors are concerned, I would accept that it is
relevant that representations pointed to the Zetta Jet Group as being located in the
US, reinforcing the expectations of at least some of the creditors that they were
dealing with a company that would have a strong connection to the US. The
governing law
100 Neither side invokes the use of a particular law or choice of jurisdiction. In
general, I would think that this is of less relevance in most situations given the
demise of the rule in Gibbs outside England and its associated jurisdictions.
Location that the foreign representative was operating from

101 The applicants point to the fact that the US-based Trustee undertook efforts to
restructure Zetta Jet Singapore from the date of his appointment to the cessation of
the business of the Zetta Entities, ie, from 5 October 2017 to 30 November 2017.
[note: 39]
102 However, I would not take the foreign representative's actions as being relevant
in the ascertainment of COMI. The work being done by the foreign representative
would flow from the assumption of jurisdiction by the foreign court on whatever
basis it considers appropriate.
103 I am mindful that I differ in this regard from the approach of the US courts in
cases such as Fairfield Sentry Ltd (CA) , which held that "any relevant activities,
including liquidation activities and administrative functions, may be considered in the
COMI analysis": at 137. I am not, however, convinced that it is proper to consider
such activities in determining COMI.
The final assessment
104 On an overall assessment, the following significant factors displace the
presumption that Singapore, the place of Zetta Jet Singapore's registered office, was
its COMI:
(a) central management and direction of Zetta Jet Singapore were conducted
from the US at all relevant times;
(b) corporate representations indicated it operated from the US; and
(c) a substantial portion of its creditors were located in the US.
105 The fact that Zetta Jet Singapore's administration and operations were carried
out at least to some extent in Singapore is outweighed by the abovementioned
factors. I am not sure that any distinction can be drawn between administration and
operations. For that reason, I am the of the view that in these circumstances, the
presence of employees in Singapore will be at best a neutral factor in determining
COMI.
106 I am also of the view that the location of Zetta Jet Singapore's assets, namely,
the planes, is incidental and not indicative of the location of its COMI. It is to be
expected for a business of this nature that its assets may be dispersed in the location
most appropriate from time to time. The fact that US air certification was required for
Zetta Jet Singapore to operate its flights in the US is also a neutral factor, and
ultimately does not assist in the COMI determination.
107 On the facts, the most important factor to my mind is the location of the primary
decision- makers. I am therefore satisfied on the evidence that Zetta Jet Singapore's
COMI was at the material times located in the US.
Issue 3: Whether the public policy exception applies
108 The Intervener argues that there was continued breach of the Singapore
injunction on the applicants' part; this breach was still contempt even if the
injunction was subsequently discharged: Pertamina at [82]. Pertamina is to be
preferred to Nikkomann at [62], which held that the discharge of an order would not
leave the putative contemnor with any liability for penalties. [note: 40]

109 The Intervener had consented to the discharge on the basis that the law was set
out in Pertamina. King had made implicit concessions that he was aware or wilfully
blind that he had breached and continued to breach the Singapore injunction. The
application to discharge the injunction was only made after King had failed to obtain
full recognition in Zetta Jet (No 1) and after the Australian courts observed in parallel
proceedings that the Singapore injunction enjoined him. [note: 41] King accepted on
12 July 2018, at the hearing where the injunction was set aside, that in the event the
injunction was discharged, any breach or contempt that he committed prior to the
discharge would not be excused. [note: 42]
110 The applicants first argue that there is no public policy issue that should lead the
court to refuse to recognise the US bankruptcy proceedings and the Trustee. No
concessions had been made: King had been advised by US counsel that the injunction
"did not bite on him", and thus had not sought to discharge the injunction earlier.
[note: 43]
111 Second, the effect of the Intervener's arguments on continued breach would be
that the Trustee can never obtain recognition in Singapore. The applicants highlight
that the US bankruptcy proceedings are still underway and that the Intervener could
have entered an appearance or resisted those proceedings. Moreover, the Singapore
injunction had been discharged, and the court discharging the injunction had
observed that the basis of the injunction was no longer extant. [note: 44]
112 Third, public policy does not call for recognition to be refused. The first and
most important public policy consideration is to protect the general body of Zetta Jet
Singapore's creditors and to ensure that the Trustee maximises recovery for all of
them, giving priority to creditors over shareholders. The Intervener had cynically
sought to prioritise the rights of shareholders over the rights of creditors in procuring
the Singapore injunction. The Intervener's public policy arguments ought to be
disregarded, or weighed against the overwhelming public policy concerns pointing in
favour of allowing the application. [note: 45]
113 Fourth, the applicants highlight the overwhelming evidence of Cassidy's
wrongdoing and the Intervener's deliberate deception in its ex parte application to
procure the Singapore injunction. The applicants call the court to make a finding with
regard to the Intervener's wrongful procurement of the Singapore injunction. [note:
46]
114 Finally, the applicants argue that the present case is unlike the US decision in In
re Gold &Honey, Ltd. 410 BR 357 (Bankr ED NY, 2009) ("Gold & Honey") , which the
Intervener relied upon in Zetta Jet (No 1) . Gold & Honey involved a situation where
the recognition of foreign receivers would directly contradict local proceedings that
sought to maximise the recovery for the entire pool of creditors. Recognition would
have resulted in an irremediable situation. In comparison, S 864/2017 is a civil suit
brought by one shareholder against two other shareholders of Zetta Jet Singapore,
and Zetta Jet Singapore itself. The recognition of the US bankruptcy proceedings and
the Trustee will not undermine any claim the Intervener may make in the US
proceedings or separately against the other shareholders. [note: 47]
115 Having considered these submissions, I set out my decision as follows.
The allegedly continuing breach

116 The fact that the parties had by consent agreed to the discharge of the Singapore
injunction would seem to point to the conclusion that there was no continuing breach
of the injunction. The Intervener's argument, though, is that the applicants' initial
breach of the injunction was not cured by subsequent discharge of the injunction.
117 This is a question that engages domestic public policy considerations. In
determining these issues, the court is not primarily concerned with the desires or
interests of the body of Zetta Jet Singapore's creditors as a whole or even of those in
Singapore, but with the administration of justice in Singapore.
118 Whether or not breach or contempt continues after an order is discharged would
be a matter dependent on the facts. I am wary of enunciating a general rule. The
Intervener relies on Pertamina at [82], which cites Mark S W Hoyle, Freezing and
Search Orders (Informa, 4th Ed, 2006) ("Hoyle") at paras 9.17:
The following observations in a leading textbook are also apposite (see Hoyle
... at para 9.17) :
It is no defence to contempt proceedings to allege that the order
should not have been made, or has been discharged. An order of
the court must be obeyed while it stands, and a breach is
still contempt even if, at a later stage, the order is in fact
discharged.The same principle applies if the original order was
wrongly made; the defendant's remedy is to apply for its immediate
discharge while keeping to its terms.
[emphasis added in bold italics]
119 The Intervener contrasts Pertamina with Nikkomann at [62]:
... In Hallmark Cards Inc v. Image Arts Ltd [1977] FSR 150, however,
Buckley LJ said:
While the order stands, the party who refuses access to his premises
is in default of the order. But if the party against whom the order is
made were to succeed in getting the order discharged, I cannot
conceive that that party would be liable to any penalties for any
breach of the order of which he may have been guilty while it
subsisted, for if the order is discharged upon the footing that it
ought not to have been made, then the contempt is in truth no
contempt, although technically no doubt there is contempt.
120 I read the extract from Pertamina to mean that an order of the court must be
obeyed while it stands; a breach of a court order is still contempt even if, at a later
stage, the order is in fact discharged. I do not read Nikkomann as taking a different
position, as the Intervener suggests. Indeed, opprobrium attaches at the point of
breach regardless of what happens after.
121 I would, with respect, prefer to weigh the original injunction order, the breach of
the order and the circumstances of any purported rectification to consider the
consequences that follow for a putative contemnor. But while the applicants' wrong
remains a breach of the Singapore injunction after its discharge and may be pursued
as contempt, it does not follow that such failure to comply remains a ground for
refusal of recognition, whether under the Singapore Model Law or the common law.

Recognition was refused in Zetta Jet (No 1) because the US Trustee had flouted an
express order of court; he breached the Singapore injunction by pursuing US
bankruptcy proceedings, which undermined the administration of justice in
Singapore: at [29]. However, if the order is discharged and the court issuing the
order is content to let the order be discharged, recognition no longer undermines the
administration of justice in Singapore. It may be that contempt proceedings may be
continued for such breaches in some situations, but that is a separate matter.
122 Thus the fact that the Intervener may have consented to discharge on the basis
that contempt may still exist does not determine the question of whether recognition
should be granted. The Intervener may indeed pursue contempt proceedings against
the applicants if it wishes, but the fact that contempt may have been committed does
not in itself give rise to grounds for continued non-recognition of the US bankruptcy
proceedings.
The general interests of creditors
123 The other point of public policy raised by the applicants is that there is a
countervailing public policy consideration of ensuring that the general interests of
creditors are protected. I do not accept the applicant's arguments as regards public
policy and do not find this consideration material in the application of Art 6 of the
Singapore Model Law.
124 Briefly, the public policy concern identified in Zetta Jet (No 1) at [29] was simply
that recognition of a foreign insolvency proceeding pursued in breach of an injunction
issued by a coordinate court would undermine the administration of justice in that
co-ordinate jurisdiction. That policy consideration overrides all others, including
those raised by the applicants. On the facts, the objectives of facilitating the uniform
and orderly distribution of assets cannot override the paramount public policy of
upholding the administration of justice in Singapore.
125 Flouting a Singapore order will carry consequences. Those advising in
restructuring and insolvency matters abroad would do well to take note of that. Those
breaching orders issued by Singaporean courts may not need to come to Singapore
and may feel that they can thumb their noses with safety from foreign shores. But
should they ever need to look to assets or information in Singapore, they will have to
answer for their conduct. In the present case, the consensual discharge resolved the
issue for the Trustee. The same result may not arise in other cases.
Orders made
126 Prayer 1 in Originating Summons No 1391 of 2017 ("OS 1391/2017") is for the
US bankruptcy proceedings to be recognised as a foreign main proceeding within the
meaning of Art 2(f) of the Singapore Model Law. For the reasons above, Prayer 1 is
accordingly granted.
127 Prayer 2 in OS 1391/2017 is for the Trustee to be recognised as a foreign
representative within the meaning of Art 2(i) of the Singapore Model Law. No issue
arises on that score, and Prayer 2 is also granted.
128 Automatic stay reliefs flow from the recognition of the US bankruptcy
proceedings as a foreign main proceeding: Art 20(1) of the Singapore Model Law.
Prayer 3 in OS 1391/2017, which covers this, is granted. Prayer 4, which deals with
the situation in which the US bankruptcy proceedings are recognised as a foreign

non-main proceeding, is not in play.
129 Of the other operative prayers in OS 1391/2017, I grant as follows:
(a) I grant Prayer 5 to allow the Trustee to examine witnesses, take evidence,
and obtain delivery of information concerning the Zetta Entities' property. I
regard such powers as necessary for the proper conduct of the insolvency
proceedings whether here or in the US. If any party takes specific objection
to the powers granted to the Trustee in these orders, these objections will be
considered separately.
(b) I also grant Prayer 6 to allow the Trustee to be entrusted with the
realisation of the Zetta Entities' assets located in Singapore, save that the
Trustee should apply to court for leave to repatriate any assets to locations
outside of Singapore. I would also limit realisation of the assets to the extent
that powers granted under Prayer 6 shall not be exercised within Singapore
to prejudice rights granted by Zetta Jet Singapore to any person in respect of
any real property located in Singapore.
(c) Prayer 7(a) seeks to allow the Trustee to apply to the court under Art
23(1) of the Singapore Model Law for orders under or in connection with
avoidance provisions in the Companies Act and s 73B of the Conveyance and
Law of Property Act (Cap 61, 1994 Rev Ed). The applicants highlight the need
to be granted standing to protect the integrity of Zetta Jet Singapore's assets,
and note that there are at present no other insolvency proceedings against
Zetta Jet Singapore. [note: 48] I am satisfied that the Trustee should be able
to pursue claims under Art 23(1) of the Singapore Model Law in the
circumstances. Any potential prejudice faced by Singapore creditors is
addressed by the requirement that the Trustee apply for leave before any
assets are repatriated.
(d) Prayer 7(b) seeks relief under Art 21(1)(g) of the Singapore Model Law
to grant the Trustee powers available to a liquidator under Singapore
insolvency law. I am satisfied that such powers should be granted to the
Trustee to allow him to pursue an orderly liquidation.
130 Several of the other Prayers in OS 1391/2017 are in the circumstances not
necessary and accordingly no orders are made on these.
131 I will see parties to settle the scope of the orders and determine their precise
wording, and will give directions on cost submissions. In the meantime, time for
appeal is extended.
[note: 1] Seagrim's OS 1391 Affidavit at para 21(b).

[note: 2] Applicant's Further Submissions at paras 34-36.
[note: 3] Applicants' Further Submissions at paras 37-39.

[note: 13] Intervener's Submissions dated 12 January 2018 at para 76.
[note: 14] Intervener's Submissions dated 16 November 2018 at paras 15-16.
[note: 15] Intervener's Submissions dated 16 November 2018 at para 17.
[note: 16] Applicants' Further Submissions at para 84.
[note: 24] Seagrim's OS 1391 Affidavit at paras 32, 50 and 51.
[note: 25] Andrew Payne's ("Payne's") 2nd Affidavit at para 94(b).
[note: 26] Cassidy's 1st Affidavit at paras 16 and 20.
[note: 27] Seagrim's OS 1391 Affidavit at para 66.
[note: 28] Intervener's Submissions dated 12 January 2018 at para 76(f).
[note: 29] Intervener's Submissions dated 12 January 2018 at para 76(f).
[note: 30] Payne's 1st Affidavit at para 43(f).

[note: 31] Cassidy's 1st Affidavit at para 12.
[note: 32] Payne's 2nd Affidavit at para 94 and Exhibit "AP-23".
[note: 33] Seagrim's OS 1391 Affidavit at paras 71 and 80 to 82 and Exhibit "JS-1",
Tab 21.
[note: 34] Seagrim's OS 1391 Affidavit at paras 42-46.
[note: 35] Cassidy's 1st Affidavit at para 12.
[note: 36] Seagrim's OS 1391 Affidavit at paras 60, 86 and 87.
[note: 37] Seagrim's OS 1391 Affidavit at para 35.
[note: 38] Cassidy's 1st Affidavit at para 12(e).
[note: 39] Payne's 4th Affidavit at Exhibit "AP-37", Tab 2.
[note: 40] Intervener's Submissions dated 16 November 2018 at paras 15-16.
[note: 44]Applicants' Further Submissions at paras 47-48; Agreed Bundle of
Documents ("ABOD"), Tab 19, Notes of Evidence ("NE") (12 July 2018) p 3 ln 25-31.
[note: 48] Applicant's Further Submissions at paras 201-202.

No. 09-20288
United States Court of Appeals, Fifth Circuit
Lavie v. Ran (In re Ran)

607 F.3d 1017 (5th Cir. 2010)
Decided May 27, 2010
No. 09-20288.
1018 May 27, 2010. *1018
H. Miles Cohn (argued), Sheiness, Scott, Grossman Cohn, L.L.P., Houston, TX, for Lavie.
John Wayne Kitchens, Jr., (argued), Heather Heath McIntyre, Hughes, Watters Askanase, L.L.P., Houston, TX,
for Ran.
Appeal from the United States District Court for the Southern District of Texas.
Before STEWART, DENNIS and HAYNES, Circuit Judges.
1019 *1019
CARL E. STEWART, Circuit Judge:
In a matter of first impression before this court, Zuriel Lavie ("Lavie"), an Israeli bankruptcy receiver, appeals
the district court's denial of his petition for recognition under Chapter 15 of the Bankruptcy Code of an
ongoing, involuntary bankruptcy proceeding pending in Israel, for debtor Yuval Ran ("Ran"). In particular, the
petition sought recognition of the Israeli bankruptcy proceeding as a foreign main or nonmain proceeding. If
granted, that recognition would have entitled Lavie to the protections of a variety of Bankruptcy Code
provisions. For the reasons discussed below, we affirm the district court's denial of Lavie's petition for
recognition under Chapter 15 of the Bankruptcy Code.
I. FACTUAL AND PROCEDURAL BACKGROUND

Ran was a well-known Israeli businessman and promoter when he encountered financial difficulties in the late
1990's. In fact, he was a director or shareholder in almost one hundred Israeli companies, some of them
publicly-traded. The largest company in which Ran had a controlling interest was Israel Credit Lines
Supplementary Financial Services Ltd. ("Credit Lines"), a public company that was co-founded by Ran and for
which he served as CEO. Credit Lines raised millions of dollars from investors and owned interests in
numerous other companies. It is now in liquidation through an Israeli bankruptcy proceeding, and its receiver
has asserted claims against Ran for millions of dollars in damages. On June 16, 1997, an involuntary
bankruptcy proceeding was commenced against Ran, in the Israeli District Court of Tel Aviv-Jaffa. Lavie was
initially appointed as temporary receiver of Ran's assets and later, on November 28, 1998, Lavie was appointed
permanent receiver.
1
Lavie v. Ran (In re Ran) 607 F.3d 1017 (5th Cir. 2010)
In April 1997, before the involuntary bankruptcy proceeding was commenced, Ran left Israel and has never
1020 returned. After leaving, Ran moved to Houston, Texas, *1020 in May or June of 1997, where he and his family
have since resided continuously. Ran's wife and five children are United States citizens, and Ran is a legal
permanent resident of the United States and is currently seeking United States citizenship. Ran and his wife
own a home in Houston and are both employees of a furniture company in the area. After leaving Israel, Ran
temporarily assisted in collecting debts owed to Credit Lines, but ceased doing so when receivership and
liquidation proceedings began for Credit Lines in 1998. Currently, Ran carries out no business activity in Israel,
and has not done so since 1998.
On December 11, 2006, nearly a decade after Ran and his family emigrated from Israel and more than eight
years after being appointed receiver of Ran's estate, Lavie filed a petition seeking recognition of the Israeli
bankruptcy proceeding as a foreign main or nonmain proceeding under Chapter 15 of the Bankruptcy Code in
the U.S. Bankruptcy Court for the Southern District of Texas. On May 22, 2007, the Bankruptcy Court denied
the petition. The Bankruptcy Court's order was the subject of two appeals to the district court, the first resulting
in a remand for additional findings and the second resulting in an order affirming the denial of Lavie's petition
for recognition. This appeal followed.
II. DISCUSSION
A. Standard of Review
"We review a district court's affirmance of a bankruptcy court decision by applying the same standard of review
to the bankruptcy court decision that the district court applied." In re Martinez, 564 F.3d 719, 725-26 (5th Cir.
2009). "We thus generally review factual findings for clear error and conclusions of law de novo." Id. at 726
(quoting In re OCA, Inc., 551 F.3d 359, 366 (5th Cir. 2008)) (internal quotation marks omitted). While a
determination of whether Ran's bankruptcy proceeding is a foreign main or nonmain proceeding is inherently a
fact-driven inquiry, the facts in this case are not in dispute and the appeal to the district court was de novo, as is
the appeal to this court. See, e.g., In re Belsome, 434 F.3d 774, 776 (5th Cir. 2005); see also, William H.
Schrag, William C. Heuer, Robert E. Cortes, Cross-Border Insolvencies and Chapter 15: Recent U.S. Case Law
Determining Whether a Foreign Proceeding Is "Main" or "Nonmain" or Neither, 17 J. BANKR. L. PRAC. 5,
art. 4 (Aug. 2008) (noting that "[t]he determination of whether a foreign proceeding is `main' or `nonmain' is
fact-driven").
B. Chapter 15's Framework
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") enacted Chapter 15 of
the Bankruptcy Code, "so as to provide effective mechanisms for dealing with cases of cross-border
insolvency." 11 U.S.C. § 1501(a). It replaced former Section 304 of the Bankruptcy Code and "incorporate[s]
the Model Law on Cross-Border Insolvency" drafted by UNCITRAL, the United Nations Commission on
International Trade Law, which in turn, is based upon the European Union Convention on Insolvency
Proceedings (the "EU Convention"). See 11 U.S.C. § 1501(a) et seq.; see also In re Tri-Continental Exch. Ltd.,
349 B.R. 627, 633-34 (Bankr.E.D.Cal. 2006). The statutory intent to conform American law with international
law is explicit in the text of Section 1501(a), and also is expressed in Section 1508, which states that "[i]n
interpreting this chapter, the court shall consider its international origin, and the need to promote an application
1021 of this chapter that is consistent with the application of similar statutes *1021 adopted by foreign jurisdictions."
11 U.S.C. § 1508; see also House Report on the Bankruptcy Abuse Prevention and Consumer Protection Act of
2005, H.R. Rep. No. 109-31, pt. I, at 105 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 169 ("[Chapter 15]"
incorporates the Model Law on Cross-Border Insolvency to encourage cooperation between the United States
2
and foreign countries with respect to transnational insolvency cases. . . . [hereinafter "House Report"]; 8 ALAN
N. RESNICK HENRY J. SOMMER, COLLIER ON BANKRUPTCY § 1501.01 (15th ed. rev. 2008)
(explaining the basis for Chapter 15)).
A non-exhaustive list of relief available to a foreign proceeding's representative in a Chapter 15 case includes:
(1) an automatic stay of actions against the debtor under Bankruptcy Code Section 362; (2) the ability to
operate the debtor's business; (3) examination of witnesses; and (4) the entrusting of the administration of the
debtor's United States assets to the foreign representative. See generally 11 U.S.C. § 1520(a)(1)-(3); see also id.
§ 1519(a)(1)-(3). In order for a foreign proceeding to gain recognition within the framework of Chapter 15, the
following prerequisites must be met:
(1) such foreign proceeding for which recognition is sought is a foreign main proceeding or foreign
nonmain proceeding within the meaning of section 1502;
(2) the foreign representative applying for recognition is a person or body; and
(3) the petition meets the requirements of section 1515.
11 U.S.C. § 1517(a); see also In re Betcorp Ltd., 400 B.R. 266, 285 (Bankr.D.Nev. 2009).
This statutory mandate is subject to a narrow public policy exception which permits a court to refuse
recognition "if the action would be manifestly contrary to the public policy of the United States." 11 U.S.C. §
1506. But, the exception is intended to be invoked only under exceptional circumstances concerning matters of
fundamental importance for the United States. See In re Iida, 377 B.R. 243 (9th Cir. BAP 2007); In re Atlas
Shipping A/S, 404 B.R. 726 (Bankr.S.D.N.Y. 2009); In re Ernst Young, Inc., 383 B.R. 773, 781 (Bankr.D.Colo.
2008). Nevertheless, recognition under Section 1517 of the Bankruptcy Code is not a "rubber stamp exercise."
In re Basis Yield Alpha Fund (Master), 381 B.R. 37, 40 (Bankr.S.D.N.Y. 2008). Even in the absence of an
objection, courts must undertake their own jurisdictional analysis and grant or deny recognition under Chapter
15 as the facts of each case warrant. See In re Bear Stearns High-Grade Structured Credit Strategies Master
Fund, Ltd., 389 B.R. 325, 335 (S.D.N.Y. 2008). The ultimate burden of proof on the requirements of
recognition is on the foreign representative. See id. at 334.
Although listed as the third element, the first requirement for recognition under Section 1517 is purely
procedural in nature; that is, the petition must meet the pleading requirements of Section 1515. See 11 U.S.C. §
1517(a)(3). Section 1515 establishes several pleading requirements. First, it requires that the foreign
representative has filed a petition for recognition. Id. § 1515(a). Second, Section 1515 requires the petitioner to
establish that a foreign proceeding exists, and that the petitioner has been appointed as the foreign
representative. Id. § 1515(b). The first two paragraphs of this subsection provide for what constitutes sufficient
evidence, and specify that the petitioner may satisfy this requirement by providing a "certified copy of the
decision commencing such foreign proceeding and appointing the foreign representative" and "a certificate
1022 from the foreign court affirming the existence of the foreign proceeding and the appointment of *1022 the
foreign representative." Id. Third, Section 1515 requires that the petition for recognition must be accompanied
by a statement identifying all foreign proceedings with respect to the debtor that are known to the foreign
representative. Id. § 1515(c). Lavie has satisfied all of these procedural requirements. Thus, Section 1517(a)(3)
has been satisfied. Lavie has also met the requirements of the second element of Section 1517(a) because "the
foreign representative applying for recognition is a person or body[.]" Id. § 1517(a)(2).
3
Because the second and third requirements set forth in Section 1517(a) are indisputably met, the only
substantive issue before the court becomes the first delineated requirement of Section 1517(a)(1) — whether
the foreign proceeding for which recognition is sought, here Ran's ongoing, involuntary bankruptcy proceeding
pending in Israeli, is a foreign main or nonmain proceeding. If the foreign proceeding is neither then it is
simply ineligible for recognition under Chapter 15. See In re Bear Stearns, 389 B.R. at 334; see also In re
SPhinX, Ltd., 351 B.R. 103, 120 n. 22 (Bankr.S.D.N.Y. 2006), aff'd, 371 B.R. 10 (S.D.N.Y. 2007).
C. Determining Status as a Foreign Main Proceeding
A foreign main proceeding is "a foreign proceeding pending in the country where the debtor has the center of
its main interest." 11 U.S.C. § 1502(4) (emphasis added). The phrase "center of main interest" ("COMI") is a
term of art, which the Bankruptcy Code does not define explicitly. Chapter 15, however, does provide that "[i]n
the absence of evidence to the contrary, the debtor's registered office, or habitual residence in the case of an
individual, is presumed to be the center of the debtor's main interests." Id. § 1516(c). This presumption can be
rebutted by evidence to the contrary. See In re Tri-Continental Exch. Ltd., 349 B.R. at 634. Thus, to determine
where Ran's presumptive COMI lies, we must determine the location of his habitual residence and then
determine if any evidence to the contrary was presented by Lavie to rebut the presumption that Ran's habitual
residence is his COMI. If so, our inquiry does not end and we must consider all evidence to determine the
location of Ran's COMI.
The Code does not define "habitual residence," but it has been analyzed recently by foreign courts as virtually
identical to the more commonly used, at least in the United States, concept of domicile. Under our law,
domicile is established by physical presence in a location coupled with an intent to remain there indefinitely.
Texas v. Florida, 306 U.S. 398, 59 S.Ct. 563, 83 L.Ed. 817 (1939). One acquires a "domicile of origin" at birth,
and that domicile continues until a new one (a "domicile of choice") is acquired. Mississippi Band of Choctaw
Indians v. Holyfield, 490 U.S. 30, 109 S.Ct. 1597, 104 L.Ed.2d 29 (1989). To defeat the presumption of
continuing domicile and establish a new domicile, an individual must demonstrate residence in a new state and
an intention to remain in that state indefinitely. Acridge v. Evangelical Lutheran Good Samaritan Soc'y, 334
F.3d 444, 448 (5th Cir. 2003).
Similarly, according to foreign courts, the existence of a habitual residence largely depends on whether the
debtor intends to stay in the location permanently. See, e.g., Pinna v. Caisse d' Allocations Familiales de la
Savoie, [1986] E.C.R. 1 (ECJ 1986) (France). Other factors pertinent to a finding of an individual's habitual
residence include: (1) the length of time spent in the location; (2) the occupational or familial ties to the area;
1023 and (3) the location *1023 of the individual's regular activities, jobs, assets, investments, clubs, unions, and
institutions of which he is a member. See, e.g., id.; see also George A. Rosenberg, Israeli Tax Reform, J. INT'L
TAX'N 31, 2003 WL 1871011 at *31 (April 2003); Geveran Trading Co. v. Skjevesland, 2002 WL 31947334
(Ch. D. Bankruptcy Ct.) (Eng.); Israel Doran Tal Golan, Aging, Globalization, and the Legal Construction of
"Residence:" The Case of Old Age Pensions in Israel, 15 ELDER L.J. 1, 16 (2007).
Here, it is evident that when Lavie filed the petition for recognition, Ran's habitual residence was in Houston,
Texas. Our conclusion is supported by our review of the record which reveals that Ran left Israel nearly a
decade prior to the filing of the petition, has no intent to return, and has established employment and a
permanent residence in Houston. Ran is a legal permanent resident of the United States and his children are
United States citizens. And the record also reflects that Ran maintains his finances exclusively in Texas. The
totality of the circumstances before us indicates that the United States is Ran's habitual residence and thus his
presumptive COMI.
4
Before the district court, Lavie introduced evidence to rebut the presumption that Ran's COMI is located in the
United States. Because of this, we cannot rely solely upon Section 1516(c)'s presumption. Instead, in order to
determine Ran's COMI we must consider all evidence, while keeping in mind that it is Lavie's burden to
persuade the court by a preponderance of the evidence that Ran's COMI is in Israel. See In re Bear Stearns, 389
B.R. at 335-36; see also FED. R. EVID. 301 (explaining that a party's rebuttal of a presumption does not shift
the burden of proof; rather, the risk of nonpersuasion remains upon the party on whom it was originally cast —
in this case, Ran); In re Tri-Continental Exch. Ltd., 349 B.R. at 635 (discussing the 11 U.S.C. § 1516(c)
presumption); Schaflein v. Comm'n of the European Cmtys., (Case 284/87) [1988] ECR 4475 (ECJ 2d Chamber
1988) (noting that although an individual's habitual residence is presumed to be his COMI, this presumption is
not outcome determinative if other evidence suggests the debtor's COMI is elsewhere); see also Guide to
Enactment of the UNCITRAL Model Law on Cross-Border Insolvency § 122 (noting that the presumption does
"not prevent, in accordance with applicable procedural law, calling for or assessing other evidence if the
conclusion suggested by the presumption is called into question by the court or an interested party").
Neither Chapter 15 nor the Model Law on Cross-Border Insolvency describes the factors that may be relevant
to a determination of the debtor's COMI in a case where it is disputed. But, the SPhinX court suggested the
following list of non-exhaustive factors to be considered when a debtor's COMI is in dispute:
Various factors, singly or combined, could be relevant to such a determination: the location of the
debtor's headquarters; the location of those who actually manage the debtor (which, conceivably could
be the headquarters of a holding company); the location of the debtor's primary assets; the location of
the majority of the debtor's creditors or a majority of the creditors who would be affected the case;
and/or the jurisdiction whose law would apply to most disputes.
351 B.R. at 117, aff'd, 371 B.R. 10 (S.D.N.Y. 2007). In SPhinX the court was concerned with the COMI of a
debtor corporation. It noted that in the absence of evidence to the contrary, the COMI of a corporation is
1024 presumed to be the place of its registered office which it equated with *1024 the corporation's principal place of
business. Id. at 116. Considering the above listed factors, the court then determined that the statutory
presumption regarding COMI had been overcome and that the debtor corporation's COMI was not the place of
its registered office. Id.
While the factors set forth in SPhinX offer a useful analytical framework to determine the disputed COMI of a
corporate debtor, the relevant factors to determine the disputed COMI in the case of an individual debtor who
has no registered office, headquarters, or holding company may be somewhat different. Nevertheless, in In re
Loy, 380 B.R. 154, 162 (Bankr.E.D.Va. 2007), the only case to address the concept of COMI with respect to an
individual debtor, the court noted that factors such as (1) the location of a debtor's primary assets; (2) the
location of the majority of the debtor's creditors; and (3) the jurisdiction whose law would apply to most
disputes, may be used to determine an individual debtor's COMI when there exists a serious dispute. In other
words, the Loy court considered factors which are normally applied to the determination of a corporate debtor's
COMI in order to determine the disputed COMI of an individual debtor. After weighing the evidence before it
concerning each factor, the bankruptcy court concluded that Loy's COMI was England. Id.
The applicability vel non of the SPhinX factors to the determination of the disputed COMI of an individual
debtor is an argument that we need not address today. Even assuming arguendo their applicability to the instant
case our review of the record reveals that Lavie's evidence, while sufficient to rebut the presumption that Ran's
COMI was in the United States, was nevertheless insufficient to prove by a preponderance of the evidence that
Israel is the location of Ran's center of main interests.
5
Lavie proffered the following evidence before the district court to establish that Ran's center of main interests
lies in Israel: (1) Ran's creditors are located in Israel; (2) Ran's principal assets are being administered in
bankruptcy pending in Israel; and (3) Ran's bankruptcy proceedings initiated in Israel and would be governed
by Israeli law. These factors, however, when weighed against the following: (1) Ran along with his family left
Israel nearly a decade prior to the filing of the petition; (2) Ran has no intent to return to Israel; (3) Ran has
established employment and a residence in Houston, Texas; (4) Ran is a permanent legal resident of the United
States and his children are United States citizens; and (5) Ran maintains his finances exclusively in Texas, are
insufficient to prove by a preponderance of the evidence that Israel is Ran's COMI. See Pennzoil Co. v.
F.E.R.C., 789 F.2d 1128, 1136 (5th Cir. 1986) (noting that a fact finder can still credit the evidence of the party
in favor of whom the rebutted presumption operates despite the existence of contrary evidence and despite the
resultant destruction of the presumption).
Lavie's reliance upon Loy to provide support for his argument that Lavie's COMI is Israel is misplaced because
it is plainly distinguishable for a number of reasons. First, in Loy the court concluded that the debtor's habitual
residence was the United Kingdom. Loy, 380 B.R. at 163. Thus, the presumption identified in Section 1516(c)
weighed in favor of the court finding that the United Kingdom was Loy's COMI. Id. In contrast, in the instant
case, before being rebutted, the Section 1516(c) presumption weighed in favor of Ran's COMI being in the
1025 United States, the location of his habitual residence. Second, *1025 unlike in the instant case, the debtor in Loy
was involved in the bankruptcy proceedings in the United Kingdom prior to his departure for the United States.
Unlike Ran, Loy never successfully transferred his COMI before the petition for recognition was filed.
Although our review of the objective factors establishes that Ran's COMI is in the United States, Lavie has
another argument. He contends that the COMI determination should be made with reference to Ran's
operational history, and not merely by focusing upon where Ran's COMI lies on the date the petition for
recognition was filed. In other words, Lavie argues that because Ran's COMI was located in Israel at some
point in time before he filed the petition for recognition, we should lookback at Ran's operational history in
Israel to conclude that his COMI lies in Israel. We disagree.
An analysis of the proper COMI timeframe starts with, as it must, the text of Section 1502 of the Code. See
Mark Lightner, Determining the Center of Main Interest Under Chapter 15, 18 J. BANKR. L. PRAC. 5, art. 2
(2009). In the bankruptcy context, the analysis must end with the text if the language is clear and does not lead
to an absurd result. See, e.g., United States v. Ron Pair Enters., Inc. (In re Ron Pair Enters.), 489 U.S. 235,
238, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). While Section 1502 does not expressly discuss a temporal
framework for determining COMI, the grammatical tense in which it is written provides guidance to the court.
Every operative verb is written in the present or present progressive tense. More specifically, Section 1502
defines foreign main proceeding as a "foreign proceeding pending in the country where the debtor has the
center of its main interests." 11 U.S.C. § 1502(4). Congress's choice to use the present tense requires courts to
view the COMI determination in the present, i.e. at the time the petition for recognition was filed. If Congress
had, in fact, intended bankruptcy courts to view the COMI determination through a lookback period or on a
specific past date, it could have easily said so. This is particularly significant because Congress is clearly
capable of creating lookback periods in the Bankruptcy Code. See, e.g., id. § 522(b)(3)(A) (creating a lookback
provision for property exemptions).
Moreover, examining a debtor's COMI at the time the petition for recognition is filed fulfills Congress's
purpose for implementing Chapter 15. As noted above, Chapter 15 was implemented by Congress in an attempt
to harmonize transnational insolvency proceedings. If we were to assess COMI by focusing upon Ran's
operational history, there would be an increased likelihood of conflicting COMI determinations, as courts may
6
tend to attach greater importance to activities in their own countries, or may simply weigh the evidence
differently which may lead to the possibility of competing main proceedings, thus defeating the purpose of
using the COMI construct. See In re Betcorp Ltd., 400 B.R. at 290. In fact, a meandering and never-ending
inquiry into the debtor's past interests could lead to a denial of recognition in a country where a debtor's
interests are truly centered, merely because he conducted past activities in a country at some point well before
the petition for recognition was sought. See Jay Lawrence Westbrook, Locating the Eye of the Financial Storm,
32 BROOK. J. INT'L L. 1019, 1020 (2007).
Additionally, it is important that the debtor's COMI be ascertainable by third parties. If the debtor's main
interests are in a particular country and third parties observe this situation, it should be irrelevant that the
1026 debtor's interests were *1026 previously centered in a different country almost a decade prior to the receiver
attempting to have the foreign bankruptcy proceeding recognized. See In re Betcorp Ltd., 400 B.R. at 290. The
presumption is that creditors will look to the law of the jurisdiction in which they perceive the debtor to be
operating to resolve any difficulties they have with that debtor, regardless of whether such resolution is
informal, administrative or judicial. This is consistent with English cases interpreting the European Union
Regulation, which seem to select a time linked to the commencement or service of the relevant insolvency
proceeding. Shierson v. Vlieland-Boddy, [2005] EWCA (Civ) 974, §§ 39, 55, 2005 WL 1860177 (Eng); Re
Collins Aikman Corp. Group, [2005] EWHC (Ch) 1754, § 39, 2005 WL 4829623 (Eng.).
Lavie urges the court to recognize the Israeli proceeding to effect the principles of comity and deference
encompassed in Chapter 15 by deferring to the jurisdictional choice of the Israeli creditors. This argument has
no merit. The plain language of Chapter 15 requires a factual determination with respect to recognition before
principles of comity come into play. See 11 U.S.C. § 1507. By arguing comity without first satisfying the
conditions for recognition, Lavie urges this court to ignore the statutory requirements of Chapter 15.
Lastly, we note that this case does not involve a recent change of domicile by the party in question. A similar
case brought immediately after the party's arrival in the United States following a long period of domicile in the
county where the bankruptcy is pending would likely lead to a different result.
In sum, the district court's denial of recognition of the Israeli bankruptcy proceeding as a foreign main
proceeding is affirmed.
D. Determining Status as a Foreign Nonmain Proceeding
Although the Israeli bankruptcy proceeding is not a foreign main proceeding, our inquiry does not end there.
We must next determine whether it may be recognized as a foreign nonmain proceeding. While recognition of a
foreign proceeding as a foreign nonmain proceeding may provide the same relief as recognition as a foreign
main proceeding, the relief is not automatic; rather, whether any such relief is appropriate is determined by the
bankruptcy court after notice and a hearing, at the court's discretion, and subject to the requirement that all
creditors be sufficiently protected. See 11 U.S.C. § 1521.
Lavie argues that the administration of Ran's bankruptcy estate in Israel is itself an establishment within the
meaning of Chapter 15 and that it therefore should be recognized as a foreign nonmain proceeding. Notably, no
United States court has decided whether an individual's bankruptcy proceeding pending in another country and
related debts alone are sufficient to constitute an establishment under Chapter 15. A foreign nonmain
proceeding is "a foreign proceeding, other than a foreign main proceeding, pending in a country where the
debtor has an establishment." 11 U.S.C. § 1502(5) (emphasis added). Section 1502(2) defines an establishment
as " any place of operations where the debtor carries out a nontransitory economic activity." Id. § 1502(2)
7
(emphasis added). In contrast to COMI, "[t]he existence of an establishment is essentially a factual question,
with no presumption in its favor." In re Bear Stearns, 389 B.R. at 338. As one court noted, "the bar is rather
1027 high" to prove *1027 that a debtor has an establishment in a particular location. In re Bear Stearns High-Grade
Structured Credit Strategies Master Fund, Ltd., 374 B.R. 122, 131 (Bankr.S.D.N.Y. 2007), aff'd, 389 B.R. 325
(S.D.N.Y. 2008).
Similar to a determination of Ran's COMI, the relevant time period to determine whether Ran has an
establishment in Israel is at the time Lavie filed his petition for recognition. Our conclusion is again supported
by a plain language reading of Chapter 15, which notes that a foreign nonmain proceeding can exist where a
debtor " has an establishment." 11 U.S.C. § 1502(5) (emphasis added). Likewise, Section 1502(2) refers to an
establishment as "any place of operations where the debtor carries out a nontransitory activity." Id. § 1502(2)
(emphasis added). The use of the present tense implies that the court's establishment analysis should focus on
whether the debtor has an establishment in the foreign country where the bankruptcy is pending at the time the
foreign representative files the petition for recognition under Chapter 15. See Mark Lightner, Determining the
Center of Main Interest Under Chapter 15, 17 J. BANKR. L. PRAC. 5, art. 2 (2009).
So in order for Ran to have an establishment in Israel, Ran must have (1) had a place of operations in Israel and
(2) been carrying on nontransitory economic activity in Israel at the time that Lavie brought the petition for
recognition in the United States. Neither Chapter 15 nor its legislative history explain what it means for a
debtor to have "any place of operations" or to have "been carrying on nontransitory economic activity" in a
location. See H.R. Rep. No. 109-31(I), at 107, reprinted in 2005 U.S.C.C.A.N. at 170 (mentioning only that the
definition was taken from Model Law for Cross-Border Insolvency Article 2). However, the Model Law for
Cross-Border Insolvency and the sources from which it emanates provide guidance concerning what it means
for a debtor to have an establishment in a location.
The drafters of the Model Law for Cross-Border Insolvency relied on the EU Convention to define an
establishment. See Guide to Enactment of the UNCITRAL Model Law on Cross-Border Insolvency § 75
(1997). Per the EU Convention's legislative history, in order to have a "place of operations" in Israel Ran must
have had "a place from which economic activities are exercised on the market (i.e. externally), whether the said
activities are commercial, industrial or professional" at the time that Lavie filed the petition for recognition.
COUNCIL REPORT ON THE CONVENTION ON INSOLVENCY PROCEEDINGS, at 49, No. 6500/96. The
mere presence of assets in a given location does not, by itself, constitute a place of operation. Id. at 48. In the
context of corporate debtors, there must be a place of business for there to be an establishment. In re Bear
Stearns, 374 B.R. at 131; see also Daniel M. Glosband, SPhinX Chapter 15 Opinion Misses the Mark, 25 AM.
BANKR. INST. J. 44, 45 (Dec./Jan.2007). Equating a corporation's principal place of business to an individual
debtor's primary or habitual residence, a place of business could conceivably align with the debtor having a
secondary residence or possibly a place of employment in the country where the receiver claims that he has an
establishment. See 11 U.S.C. § 1516(c) (equating a corporate debtor's registered office with the habitual
residence in the case of an individual). At the time Lavie filed his petition for recognition, Ran possessed
neither a secondary residence nor place of employment in Israel.
Even if the court were to conclude that Ran possessed a place of operations in Israel at the time the petition was
1028 filed, *1028Ran did not carry out any nontransitory economic activity in Israel and as a result the second part of
the establishment requirement is not met. Since Ran's departure from Israel in 1997, he has engaged in almost
no economic activity in that country; rather, the evidence suggests that almost all of his economic activities are
centered in Houston and Harris County, Texas. At the time Lavie brought his suit for recognition of the foreign
bankruptcy proceeding the Israeli insolvency proceedings, brought involuntarily and in Ran's absence, and
8
corresponding debts were the only evidence of Ran's purported establishment in Israel. These debts, however,
only represent evidence of previous economic activity and are insufficient to show that Ran carried on
transitory activity in Israel at the time the petition for recognition was filed. Nevertheless, Lavie argues that as
trustee of Ran's estate there exists a principal-agent relationship between himself and Ran and that he has
carried out economic activity in Israel on behalf of Ran, his principal. The law is clear — Lavie as the trustee
of Ran's estate is not Ran's agent and cannot act on behalf of Ran. See 11 U.S.C. § 323.
Further, as the district court noted, recognition based on the existence of the bankruptcy proceeding and debts
alone poses problems. First, a bankruptcy proceeding is by definition a transitory action, but recognition as a
nonmain proceeding requires that the debtor carry out nontransitory activity in a location. WEBSTER'S NEW
INTERNATIONAL DICTIONARY 2692 (2d ed. 1939) (defining "transitory action" as "[a]n action which may
be brought in any country, [such] as actions for debts, etc."). To permit a transitory action, i.e., the existence of
the Israeli bankruptcy proceeding and corresponding debts alone to constitute the basis for finding
nontransitory economic activity, would be inappropriate because it would go against the plain meaning of the
statute. Second, if Ran's bankruptcy proceeding and associated debts, alone, could suffice to demonstrate an
establishment, this would render the framework of Chapter 15 meaningless. There would be no reason to define
establishment as engaging in a nontransitory economic activity. The petition for recognition would simply
require evidence of the existence of the foreign proceeding. But the statute requires more than that — it
requires evidence of a foreign proceeding and that the proceeding meet the definition of foreign nonmain
proceeding. Lavie's argument that Chapter 15 would not apply to any individuals if the Israeli bankruptcy is not
an establishment, making Chapter 15 a nullity, is unconvincing. Debtors with ongoing business operations
located in the country where the foreign proceeding is pending would be subject to Chapter 15. Finding that a
foreign proceeding itself is not an establishment does not make Chapter 15 a nullity.
In sum, the district court's denial of recognition of the Israeli bankruptcy proceeding as a foreign nonmain
proceeding is affirmed.
III. CONCLUSION
This court does not attempt to define the scope of possible activities that would suffice in demonstrating the
existence of an individual debtor's COMI or establishment in a particular location. Rather, we conclude only
that on the record before us today Lavie's petition for recognition is insufficient to support a finding that Ran's
COMI or establishment are located in Israel. Therefore, the district court's denial of recognition of the Israeli
1029 proceeding as a foreign main or nonmain proceeding is AFFIRMED. *1029
9
MANU/SC/0220/1968
Equivalent Citation: AIR1969SC 297, 1969(17)BLJR437, [1969]39C ompC as133(SC ), (1972)1C ompLJ363(SC ), (1972)1C ompLJ363(SC ),
1968(1)PLJR92, [1969]1SC R620

Appellants:Bank of Bihar Ltd.
Vs.
Respondent:Damodar Prasad and Ors.
S.M. Sikri, R.S. Bachawat and K.S. Hegde, JJ.
JUDGMENT
R.S. Bachawat, J.
1 . The plaintiff bank lent moneys to defendant No. 1, Damodar Prasad, on the
guarantee of defendant No. 2, Paras Nath Sinha. On the date of the suit Damodar
Prasad was indebted to the plaintiff for Rs. 11,723.56 nP. on account of principal and
Rs. 2,769.37 nP. on account of interest. In spite of demands neither he nor the
guarantor paid the dues. The plaintiff filed a suit against them in the court of the
Subordinate Judge, First Court, Patna, claiming a decree for the amount due. The trial
court decreed the suit against both the defendants. While passing the decree, the trial
court directed that the " plaintiff bank shall be at liberty to enforce its dues in
question against defendant No. 2 only after having exhausted its remedies against
defendant No. 1 ", The plaintiff filed an appeal challenging the legality and propriety
of this direction. The High Court dismissed the appeal. The plaintiff has filed the
present appeal after obtaining a certificate.
2 . The guarantee bond in favour of the plaintiff bank is dated June 15, 1951. The
surety agreed to pay and satisfy the liabilities of the principal debtor up to Rs. 12,000
and interest thereon two days after demand. The bond provided that the plaintiff
would be at liberty to enforce and to recover upon the guarantee notwithstanding any
other guarantee, security or remedy which the bank might hold or be entitled to in
respect of the amount secured.
3 . The demand for payment of the liability of the principal debtor was the only
condition for the enforcement of the bond. That condition was fulfilled. Neither the
principal debtor nor the surety discharged the admitted liability of the principal
debtor in spite of demands. Under Section 128 of the Indian Contract Act, save as
provided in the contract, the liability of the surety is co-extensive with that of the
principal debtor. The surety became thus liable to pay the entire amount. His liability
was immediate. It was not deferred until the creditor exhausted his remedies against
the principal debtor.
4. Before payment the surety has no right to dictate terms to the creditor and ask him
to pursue his remedies against the principal in the first instance. As Lord Eldon
observed in Wright v. Simpson, [1802] 6 Ves Jun. 714 ; 31 E.R. 1272 "But the surety
is a guarantee ; and it is his business to see whether the principal pays, and not that

of creditor." In the absence of some special equity the surety has no right to restrain
an action against him by the creditor on the ground that the principal is solvent or
that the creditor may have relief against the principal in some other proceedings.
5 . Likewise where the creditor has obtained a decree against the surety and the
principal, the surety has no right to restrain execution against him until the creditor
has exhausted his remedies against the principal. In Lackhman Joharimal v. Bapu
Khandu and Surety Tukaram Khandoji, [1869] 4 Bom. H C R 241 the judge of the
Court of Small Causes, Ahmednagar, solicited the opinion of the Bombay High Court
on the subject of the liability of sureties. The creditors having obtained decrees in
two suits in the Court of Small Causes against the principals and sureties presented
applications for the imprisonment of the sureties before levying execution against the
principals. The judge stated that the practice of this court had been to restrain a
judgment-creditor from recovering from a surety until he had exhausted his remedy
against the principal but in his view the surety should be liable to imprisonment while
the principal was at large. Couch C.J. and Melvill J. agreed with his opinion and
observed :
" The court is of opinion that a creditor is not bound to exhaust his remedy
against the principal debtor before suing the surety and that when a decree is
obtained against a surety, it may be enforced in the same manner as a decree
for any other debt."
6. It is now suggested that under Order XX, Rule 11(1), and Section 151 of the Code
of Civil Procedure, the court passing the decree had the power to impose the
condition that the judgment-creditor would not be at liberty to enforce the decree
against the surety until the creditor has exhausted his remedies against the principal.
Order XX, Rule 11(1), provides that "where and in so far as a decree is for the
payment of money, the court may for any sufficient reason at the time of passing the
decree order that payment of the amount decreed shall be postponed or shall be
made by installments, with or without interest, notwithstanding anything contained in
the contract under which the money is payable." For making an order under Order
XX, Rule 11(1), the court must give sufficient reasons. The direction postponing
payment of the amount decreed must be clear and specified. The injunction upon the
creditor not to proceed against the surety until the creditor has exhausted his
remedies against the principal is of the vaguest character. It is not stated how and
when the creditor would exhaust his remedies against the principal. Is the creditor to
ask for imprisonment of the principal ? Is he bound to discover at his peril all the
properties of the principal and sell them ; and if he cannot, does he lose his remedy
against the surety ? Has he to file an insolvency petition against the principal ? The
trial court gave no reasons for this extraordinary direction. The court rejected the
prayer of the principal debtor for payment of the decretal amount in installments as
there was no evidence to show that he could not pay the decretal amount in one lump
sum. It is, therefore, said that the principal was solvent. But the solvency of the
principal is not a sufficient ground for restraining execution of the decree against the
surety. It is the duty of the surety to pay the decretal amount. On such payment he
will be subrogated to the rights of the creditor under Section 140 of the Indian
Contract Act, and he may then recover the amount from the principal. The very object
of the guarantee is defeated if the creditor is asked to postpone his remedies against
the surety. In the present case the creditor is a banking company. A guarantee is a
collateral security usually taken by a banker. The security will become useless if his
rights against the surety can be so easily cut down.

The impugned direction cannot be justified under Order XX, Rule 11(1). Assuming
that, apart from Order XX, Rule 11(1), the court had the inherent power under
Section 151 to direct postponement of execution of the decree, the ends of justice did
not require such postponement.
7 . In the result, the appeal is allowed, the direction of the courts below that the "
plaintiff-bank shall be at liberty to enforce its dues in question against defendant No.
2 only after having exhausted its remedies against defendant No. 1 " is set aside. The
respondent, Dr. Paras Nath Sinha, shall pay to the appellant costs in this court and in
the High Court.

SCC Online Web Edition, Copyright © 2021
Page 1 Tuesday, January 19, 2021
Printed For: Pratham Pratap Mohanty, National Law University
SCC Online Web Edition: http://www.scconline.com
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2019 SCC OnLine Cal 7288 : AIR 2020 Cal 90 : (2020) 2 ICC 605
In the High Court of Calcutta

(BEFORE DEBANGSU BASAK, J.)
Gouri Shankar Jain … Applicant;

Versus
Punjab National Bank and Another … Respondent.
W.P. No. 10147 (W) of 2019
Decided on November 13, 2019, [Hearing concluded on : September 18, 2019]
A. Insolvency and Bankruptcy Laws — Insolvency and Bankruptcy Code, 2016 — S.7 —
Liability of surety of corporate debtor — Discharge of, upon Insolvency Resolution Plan in
respect of corporate debtor being approved under Code, 2016 — Secured financial creditor
receiving payment of a part of its claim on full and final settlement basis in terms of
Resolution Plan approved by National Company Law Tribunal — In respect of corporate
debtor on guarantee given by guarantor towards due repayment of liability by corporate
debtor — Effect — Held approval of insolvency resolution plan in respect of corporate debtor
on the secured financial creditor receiving payments in terms of Resolution Plan does not
extinguish liability of surety of corporate debtor — In a proceeding under S.7 of Code of
2016, consent of surety is immaterial when creditor is dealing with principal debtor in terms
of Code of 2016 — Hence when Adjudicating Authority sanctions Resolution Plan in respect
of corporate debtor in application under S. 7 — Action taken by creditor in proceeding under
S. 7 is involuntary — Corporate Debtor in proceeding under S. 7 may stand discharged of its
liability to its creditors — Such discharge being had in proceeding for bankruptcy and
insolvency, same does not absolve surety of liability — Sanctioned Resolution Plan cannot
be construed to be variation of terms of contract between principal debtor and creditor
without consent of surety discharging surety as to transaction subsequent to variants or at
all — Further, action of financial creditor applying under S. 7 cannot be construed to be
action of creditor in terms of S. 134 of Act of 1872 — When financial creditor approaches
National Company Law Tribunal under S. 7, it approaches Tribunal for purpose of recovering
its claim — Application under S. 7 cannot be construed to be discharge of surety in terms of
S. 134 of Act of 1872 — On same analogy application under S. 7 cannot be construed to be
discharge of surety under S. 135 of Act of 1872 — Application under S. 7 and consequential
orders that may be passed under Code of 2016 — Cannot also be construed to be discharge
of surety in terms of S. 139 of Act of 1872 — Implied promise recognised under S. 145 of
Act of 1872 is not impaired by any order that may be passed under Code of 2016 — Held
when financial creditor approaches National Company Law Tribunal under provisions of Code
of 2016, it does so in exercise of statutory rights — Contractual obligations between
financial creditor and surety are not obliterated or modified or suspended by eventual
outcome of such proceeding — Contract and Specific Relief — Particular Statutes — Contract
Act, 1872 — Ss.133, 134, 139, 145
(Paras 8, 14, 35, 37 and 39)
Maharashtra State Electricity Board Bombay v. Official Liquidator High Court, Ernakulum, (1982) 3
SCC 358; United Bank of India v. Modern Stores (India) Ltd., AIR 1988 Cal 18; Industrial Finance
Corporation of India Ltd. v. Canonnore Blending and Weaving Mills Ltd., (2002) 4 SCC 571 : AIR
2002 SC 1814 relied on
Shri Kundanmal Dabriwala v. Haryana Financial Corporation (2012) 171 Comp Cas 94 not followed
Commercial Bank of Tasmania v. Jones1893 Appeal Causes page 313 distinguished on fact
Webb. v. Hewitt (1957) 3 Kay and Johnson page 438 discussed
Lalit Mitra v. Sharan Bio Medicine Company Appeal (80) (Insolvency) No. 164 of 2018 cited
B. Insolvency and Bankruptcy Laws — Insolvency and Bankruptcy Code, 2016 — S.14 —
Moratorium — Held, inapplicable to a personal guarantor of a corporate debtor — Code of
-----------------------------------------------------------------------------------------------------------------------------------------------------------
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Adjudicating Authority under the provisions of the Code of 2016 receives an

application under section 7 thereof, it has to ascertain the existence of a default in
respect of the corporate debtor. It may ascertain such existence either from the
records of an information utility or on the basis of the evidence furnished by the
financial creditor when the Adjudicating Authority is considering an application under
section 7 of the Code of 2016.
25. When a financial creditor approaches the Adjudicating Authority under the
provisions of the Code of 2016 and applies under section 7 thereof for initiation of
Corporate Insolvency Resolution process in respect of a corporate debtor, the financial
creditor is trying to recover the defaulted amount from the corporate debtor. It cannot
be said that, the financial creditor when it applies under section 7 of the Code of 2016,
does so with the view to enter into any compromise or composition with the corporate
debtor in respect of the claim. In a given situation, the Resolution Plan submitted with
the resolution professional and accepted by the committee of creditors and ultimately
approved by the Adjudicating Authority, may provide for payment of the entirety of
the claim of the financial creditor applying for initiation of the Corporate Insolvency
Resolution process. In such a situation, no compromise takes place. In a given
situation, the financial creditor applying for initiation of the Corporate Insolvency
Resolution process may receive a portion of the claim as full and final settlement as
against the corporate debtor, in accordance with the Resolution Plan approved under
the Code of 2016. In neither of the two situations, can it be said that, the financial
creditor entered into a voluntary compromise with the corporate debtor with regard to
the quantum of the claim.
26. The Code of 2016 stipulates that, a Resolution Plan in respect of a corporate
debt is required to be approved by a vote of not less than 66% of the voting share of
the financial creditors. In a given case, the financial creditor applying for initiation of
Corporate Insolvency Resolution process in respect of a corporate debtor may be
holding more than 66% of the voting share of the financial creditors in respect of such
corporate debtor. In such case, the best available Resolution Plan in respect of the
corporate debtor may contemplate payment of a portion of the claim of the financial
creditors in full and final settlement. Such Resolution Plan may be approved by the
financial creditor in the meeting of the committee of creditors. Would such an approval
mean that, the financial creditor entered into a composition with the corporate debtor,
thereby impairing the right of the financial creditor to recover the balance amount
from the guarantor of the corporate debtor ? In my view, the answer is in the
negative.
27. An application under Section 7 of the Code of 2016 once admitted under
Section 7(5) thereof has two terminal points for the corporate debtor. The Code of
2016 does not contemplate withdrawal of an application under Section 7 once it is
admitted under Section 7(5). The terminal points are, firstly, the approval of a
Resolution Plan and secondly, the initiation of liquidation proceeding on a Resolution
Plan not being approved. When a financial creditor applies under Section 7 of the Code
of 2016 it is exercising a statutory right. The exercise of such statutory right does not
depend upon the contractual obligations of the parties bound by the respective
contracts between the creditor, principal debtor and the surety. Such contracts cannot
be said to have rescinded, novated, frustrated, modified, altered or affected in any
manner, on an application under Section 7 of the Code of 2016 being filed. After its
admission under Section 7(5) of the Code of 2016, when an order under Section 14 is
passed, then also only the statutory right of a financial institution to proceed under the
SARFAESI Act, 2002 remains suspended for a limited period. The existing contracts
between the surety, principal debtor and the creditor remains unaffected.
28. The Supreme Court in Maharashtra State Electricity Board, Bombay (supra) has
-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
this still more obviously, does not discharge the other Surety.
20. It will appear from Section 137 of the Contract Act that mere forbearance on
the part of the creditor to sue the principal debtor or to enforce any other remedy
against him does not discharge the surety. Therefore, it appears that mere
forbearance on the part of the creditor to sue the principal debtor will not discharge
the surety. It has been held by certain decisions that "mere forbearance" to sue
may spring from a contract or there may be simple forbearance. If such forbearance
springs from a contract that will be a case under Section 135 of the Contract Act
but if the plaintiff forbears to sue the principal debtor within the period of limitation
that itself would not discharge the surety.
21. Therefore, in our view, mere omission to sue the principal debtor or to
proceed against the principal debtor in the suit will not operate as a discharge of
the sureties.”
30. The Supreme Court in Canonnore Spinning and Weaving Mills Ltd (supra) has
considered discharge of liability of a guarantee under the provisions of section 141 of
the Act of 1872. It has held that, a definite volition on the part of the creditor is
required to take place for the guarantor to stand discharged in terms of section 141 of
the Act of 1872. It has held that, the liability of the guarantor cannot but be stated to
be a strict liability and even if the principal debtor is discharged from his liability
unless such discharge is through the act of the creditor without consent of the
surety/guarantor, the creditor's right of action against the surety is preserved.
31. Commercial Bank of Tasmania (supra) has considered a fact situation where,
the original debtor was substituted by another debtor. It is after such substitution
that, the creditor sought to proceed against the surety of the original debtor. In such
factual scenario, the Court has held that, the action by the creditor against the surety
is not maintainable since, the novation of debts operates as a complete release of the
original debtor and secondly of the surety. The factual scenario in the present case is
different.
32. Webb (supra) has recognised that, when, a creditor releases the debtor, he
cannot reserve any right against the surety because the debt is gone at law. In an
insolvency proceedings initiated by a financial creditor under Section 7 of the Code of
2016, the financial creditor, while applying under Section 7 of the Code of 2016, is not
granting any release to the debtor. The financial creditor is exercising a statutory right
to recover its debts. The outcome of the proceedings under Section 7 of the Code of
2016 is a product of statute. The financial creditor cannot be said to have voluntarily
discharged the principal debtor, in the event, the Resolution Plan sanctioned by the
Adjudicating Authority under the Code of 2016, ultimately results in the financial
creditor not receiving any part or portion of its claim.
33. Kundanmal Dabriwala (supra) has considered a show cause notice issued by a
State Financial Corporation, acting under the provisions of the State Financial
Corporation Act, 1951, to a surety for the defaults committed by the
borrower/principal debtor. In the facts of that case, it was found that, a scheme
sanctioned by the Court under Sections 391 and 394 of the Companies Act, 1956 was
binding on the creditors whether such creditors assented to it or not. It has taken note
of Section 135 of the Act of 1872 and held that, a contract between the creditor and
the principal debtor by which the creditor compounds with the principal debtor,
discharges the surety.
34. In the facts of the present case, most respectfully, I am unable to accept and
apply the ratio of Kundanmal Dabriwala (supra). Firstly, Kundanmal Dabriwala (supra)
is not binding precedent upon me. Canonnore Spinning and Weaving Mills Ltd (supra),
Mahara.shtra State Electricity Board, Bombay (supra) and Modern Stores (India) Ltd.
(supra) are binding precedents on me. Secondly, the proposition that, as a binding
-----------------------------------------------------------------------------------------------------------------------------------------------------------
-
arrangement sanctioned by Court under Section 391 of the Companies Act, 1956
being a deemed and binding contract through operation of law and if it extinguishes
the liability of the principal debtor, the same has the effect of preventing the surety
from recovering the amount of debt from the debtor and therefore, the creditor cannot
recover from the surety, as observed by Kundanmal Dabriwala (supra), requires
consideration. Theoretically, as the liability of the surety is coextensive as that of the
principal debtor, the creditor can proceed solely against the surety and recover the
liability of the debtor from the surety. In such a situation, the subsequent reduction of
liability of the debtor to the surety, by virtue of a bankruptcy or insolvency proceeding
or otherwise, will not require the creditor to refund the amount recovered from the
surety on account of the debtor to the surety. Pre bankruptcy and insolvency, the
creditor has the right to recover the entire claim against the debtor from the surety.
Post the bankruptcy and insolvency proceeding of the debtor, the pre bankruptcy and
insolvency right of the creditor does not undergo any metamorphosis on the principle
that, such proceedings emanate out of a statutory right and are involuntary in nature.
35. In a proceeding under Section 7 of the Code of 2016, the consent of the surety
is immaterial when, the creditor is dealing with the principal debtor in terms of the
Code of 2016. Therefore, when, the Adjudicating Authority sanctions a Resolution Plan
in respect of the corporate debtor in an application under Section 7 of the Code of
2016, then, the action taken by the creditor in a proceeding under Section 7 of the
Code of 2016 is involuntary. The Corporate Debtor in a proceeding under Section 7 of
the Code of 2016 may stand discharged of its liability to its creditors. Such discharge
being had in a proceeding for bankruptcy and insolvency, the same does not absolve
the surety of the liability as has been held in Maharashtra State Electricity Board,
Bombay (supra). The sanctioned Resolution Plan cannot be construed to be a variation
of the terms of the contract between the principal debtor and the creditor, without the
consent of the surety, discharging the surety as to transaction subsequent to the
variants or at all. Similarly, the action of a financial creditor applying under Section 7
of the Code of 2016 cannot be construed to be an action of creditor in terms of Section
134 of the Act of 1872. When, the financial creditor approaches the National Company
Law Tribunal under Section 7 of the Code of 2016, it approaches the Tribunal for the
purpose of recovering its claim. An application under Section 7 of the Code of 2016
cannot be construed to be a discharge of the surety in terms of Section 134 of the Act
of 1872. On the same analogy, an application under Section 7 of the Code of 2016
cannot be construed to be a discharge of the surety under Section 135 of the Act of
1872. An application under Section 7 of the Code of 2016 and the consequential
orders that may be passed under the Code of 2016 cannot also be construed to be a
discharge of the surety in terms of Section 139 of the Act of 1872. The implied
promise recognised under Section 145 of the Act of 1872 is not impaired by any order
that may be passed under the Code of 2016. As noted above, when, a financial
creditor approaches the National Company Law Tribunal under the provisions of the
Code of 2016, it does so, in exercise of statutory rights. Contractual obligations
between the financial creditor and the surety are not obliterated or modified or
suspended by the eventual outcome of such proceeding.
36. The Supreme Court in V.R. amakrishnan (supra) has considered the issue as to
whether Section 14 of the Code of 2016 would apply to a personal guarantor of a
corporate debtor. It has held that, Section 14 of the Code of 2016 does not apply to a
personal guarantor. It has noted that, the object of the Code of 2016 is not to allow
personal guarantors to escape from an independent and coextensive liability. It has
held as follows:—
“…………….
20. It is for this reason that sub-section (2) of Section 60 speaks of an
application relating to the “bankruptcy” of a personal guarantor of a corporate

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TEAM CODE: 001

9TH NLIU CORPORATE LAW MOOT COURT COMPETITION

HON’BLE SUPREME COURT OF INDIA

COMPENDIUM FOR THE RESPONDENTS

State of Karnataka & Ors. ...Respondent(s)

Article 226/227 of the Constitution, with an Order

is questioned on the ground of availability of alternative

remedy, was recognized even in Anisminic, when Lord Reid

referred to the decision in Smith vs. East Elloe Rural

District Council16 as posing some difficulty. As a result, the

Court of Appeal held in R vs. Secretary of State for the

Environment, Ex p. Ostler17 that the availability of a

statutory right to challenge within a specified time limit,

among other points, provided a sufficient basis for

Supreme Court in Regina (Privacy International). Therefore

authority/tribunal or a court of law went to jurisdiction or

rule stated by Willes, J., in Wolverhampton New

been quoted with approval. For instance, Union Bank of

2002 should deter the High Courts from exercising the

jurisdiction under Article 226. Similarly, the availability of

1988 as against an award of the Accidents Claims Tribunal

sufficient for the High Court to refuse to exercise its

Nivedita Sharma vs. Cellular Operators Association of

18 [1859] 6 CB (NS) 336

24. Therefore in so far as the question of exercise of the

power conferred by Article 226, despite the availability of a

case of the State of Karnataka fell under the category of (1)

Statutory Rules issued thereunder or (2) mere wrongful

21 (2011) 14 SCC 337

IN THE SUPREME COURT OF INDIA

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IN THE MATTER OF:

Mr. Anthony Raphael Kallarakkal …Appellant

Rajendra K. Bhuta & Ors. …Respondents

For Respondents : Mr. Rajeev K. Panday, Mr. Rajeev M. Roy, Mr. P.

hopelessly barred by limitation and cannot be entertained in view of sub-section

was initiated against the ‘corporate debtor’ pursuant to an application under

Directors if obstructing the commencement of liquidation, they will be liable to

penal consequences as prescribed for punishment under Chapter-VII of the

application under Section 7 filed by ‘Abhyudaya Co-operative Bank Limited’

admitted on 18th August, 2017.

Adjudicating Authority was challenged before the Adjudicating Authority by filing

passed in violation of rules of natural justice. However, taking into consideration

recalled in absence of any provision. The Miscellaneous Application was rejected

In absence of any explanation, we are not deciding the merit.

being barred by limitation is dismissed. No cost.

[Justice S.J. Mukhopadhaya]

[ Justice Bansi Lal Bhat ]

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOs. 8337-8338 OF 2017

M/S. INNOVENTIVE INDUSTRIES LTD. …APPELLANT

ICICI BANK & ANR. ...RESPONDENTS