The IBC’s Circle of Interpretation: Univalue Projects Pvt. Ltd. v. The Union of India

[Animesh Bordoloi is an Assistant Lecturer at the Jindal Global Law School and Hitoishi Sarkar is a III year student at the Gujarat National Law University. The authors would like to thank Mr. Rahul Sibal for his comments on the post]

On August 18, 2020, a Single Judge of the Calcutta High Court in Univalue Projects Pvt. Ltd. v. The Union of India struck down an order passed by the Registrar of the National Company Law Tribunal, New Delhi (‘NCLT’) which retrospectively imposed a mandatory prescription on all financial creditors to submit certain financial information as a record of default before the Information Utility (‘IU’) while filing an application under section 7 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’). The Court rationalized that the NCLT being a delegatee under the IBC cannot exceed its jurisdiction and the impugned order was passed in violation of section 7(3)(a) of the IBC.

This post seeks to analyze the ramifications of the High Court’s order when contrasted with another recent decision of the National Company Law Appellate Tribunal (‘NCLAT’) in Neeraj Jain v. Cloudwalker Streaming Technologies Pvt. Ltd.

Factual Background 

A petition under Article 226 of the Constitution of India was filed against an order of the New Delhi Bench of the National Company Law Tribunal (‘NCLT’) which had retrospectively imposed a mandatory prescription on all financial creditors defined under the IBC to submit certain financial information as a record of default before the Information Utility as a condition precedent while filing any new application under section 7 of the IBC.

The petitioner being affected retrospectively by the order approached the Calcutta High Court seeking relief on the grounds that the order had adversely altered the substantive rights of Creditors under the IBC. They stressed that under section 7 the usage of the word ‘or’ indicates that a record of default recorded with the information utility of the IBC is one of the designated methods for furnishing proof before NCLT as evidence to the show the existence of financial debt accrued to a financial creditor.

They further contended that in granting the order NCLT acted beyond its scope under the Companies Act, 2013 as well as the IBC, 2016 and that it was in contravention of prevailing regulations issued by the Insolvency and Bankruptcy Board of India (‘IBBI’).

The Ruling of the Court

The Court ruled that financial creditors under the IBC can rely on either of the modes of evidence under section 7(3) to showcase a financial debt, that is, either a record of default from the IU ‘or’ any other document as specified which showcases the existence of financial debt. Further, it opined that “any delegatee under the IBC, 2016, and the Companies Act, 2013, that is, the Central Government, the IBBI and the NCLT cannot make regulations that have a retrospective effect.”

An Implicit Overruling of the NCLAT Ruling in Neeraj Jain?

On February 24, 2020, the NCLAT while adjudicating upon a similar matter in Neeraj Jain ruled that if the operational debt is of nature where the invoice is generated as part of the transaction, then such invoice becomes an essential document to prove the existence of the debt. The tribunal in this matter was called upon to adjudicate on whether “a section 9 application for operational debt can be declared defective by virtue of the fact that the operational creditor had not produced any invoice.”

The operational creditor’s argument in Neeraj Jain was that it is the discretion of the creditor to either furnish an invoice demanding payment or provide the corporate debtor with a demand notice. This is for the reason that section 9(3)(a) of the IBC provides that the operational creditor shall, along with the application provide a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor. Thus, the thrust of the operational creditors in Neeraj Jain was quite similar to the holding of the Calcutta High Court in Univalue.

However, the decision of the Calcutta High Court in Univalue seems to run contrary to the NCLAT’s decision in Neeraj Jain for the High Court rationalized that “financial creditors can rely on either of the modes of evidences at hand to showcase a financial debt, that is, either a record of default from the IU OR any other document as specified which showcases the existence of a financial debt.” Thus, if we are to superimpose the High Court’s decision on the NCLAT’s ruling in Neeraj Jain it seems that Operation Creditors under section 9 of the IBC should also be permitted to produce either of the modes provided under section 9(3)(a) of the IBC.


The Calcutta High Court’s verdict in Univalue has undoubtedly created a dichotomy that needs further judicial clarity. While it may be tempting to argue that the High Court’s decision has overruled the NCLAT’s ruling in Neeraj Jain, but the same would be untenable. The Supreme Court has settled the law on this point in Commissioner of Customs (Port), Chennai v Toyota Kirloskar Motor where it affirmed that a decision is an authority for what it decides and not what can logically be deduced therefrom. Likewise, following the ruling in Patil Vijay Kumar v CIT it is no longer res integra that the decision of a High Court is not binding on non-jurisdictional tribunals. The NCLAT has also addressed this squarely in Committee of Creditors of Bhushan Power and Steel Limited v Mr. Mahendra Kumar Khandelwal wherein it opined that NCLT should not be influenced by any decision except those of the NCLAT and the Supreme Court. Thus, while the approach taken in Univalue is inconsistent to that taken by the NCLAT in Neeraj Jain, it must be noted that the decision does not overrule the NCLAT’s judgement.

The Supreme Court has in Satheedevi v Prasannathat opined that the intention of the legislature must be found in the words used by the legislature itself in their plain grammatical meaning. It seems likely that the NCLAT in Neeraj Jain used the intentionalist method of statutory interpretation, thereby failing to appreciate the disjunctive nature of section 9(3)(a) of the IBC. If the legislative intent was to provide creditors with a wide array of options to prove the debtor’s default, it seems unreasonable for an insolvency court to insist on a certain method of proving the default. Manifesting its position while dealing with interpretations, the Supreme Court in Ku. Sonia Bhatia v. State of U.P, had held that a legislature does not waste words, without any intention and every word that is used by the legislature must be given its due import and significance. Thus, it seems erroneous for the courts to assume that the legislature while using the phrase “or” did not intend a disjunctive interpretation of the provision.

The Supreme Court had in Mobilox Innovations Private Limited v. Kirusa Software Private Limited (Mobilox), cautioned against the use of the IBC as a debt recovery statute. However, it cannot be ignored that bankruptcy law is but a part of a larger promise enforcement system and one of the allied concerns of any bankruptcy statute is to provide creditors with adequate remedies in the event that the debtor’s assets are insufficient to satisfy all creditors’ claims. This view has also been resonated in several academic circles most notably by Prof. Elizabeth Warren in her paper titled ‘Bankruptcy Policy in an Imperfect World’. Thus, it is a logical assumption that creditors will calculate their risk premium on the certainty of exercise of these remedies. However, the inconsistent interpretations demonstrated in both Univalue and Neeraj Jain creates a dichotomy which cast a cloud of uncertainty over the remedies available to creditors. If remedies are made unpredictable by judicial interpretations, the creditors are likely to charge a higher risk premium on the loans they provide, to account for the risks associated with such an unpredictable system. The authors believe that insolvency courts in India could use their discretionary powers in a purposive manner in cases where a genuine creditor has furnished evidence which might not have been foreseen by the legislature as a probable source of evidence under the IBC. Simplification of the insolvency law will consequentially lead to lower risk premiums being charged by the creditors.

Animesh Bordoloi & Hitoishi Sarkar

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