ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE INFRATECH LIMITED v. AXIS BANK LIMITED ETC. ETC.

A “payment” is again an expression which is elastic enough to include “recompense”, and includes repayment. For this purpose, see H.P. Housing and Urban Development Authority v. Ranjit Singh Rana : (2012) 4 SCC 505 (at paragraphs 13 and 14 therein), where the Webster’s Comprehensive Dictionary (International Edn.) Vol. 2 and the Law Lexicon by P. Ramanatha Aiyar (2nd Edn., B Reprint) are quoted.

70. The definition of “financial debt” in Section 5(8) then goes on to state that a “debt” must be “disbursed” against the consideration for time value of money. “Disbursement” is defined in Black’s Law Dictionary (10th Edn.) to mean: C “1. The act of paying out money, commonly from a fund or in settlement of a debt or account payable. 2. The money so paid; an amount of money given for a particular purpose.”

71. In the present context, it is clear that the expression “disburse” D would refer to the payment of instalments by the allottee to the real estate developer for the particular purpose of funding the real estate project in which the allottee is to be allotted a flat/ apartment. The expression “disbursed” refers to money which has been paid against consideration for the “time value of money”. In short, the “disbursal” must be money and must be against E consideration for the “time value of money”, meaning thereby, the fact that such money is now no longer with the lender, but is with the borrower, who then utilises the money. Thus far, it is clear that an allottee “disburses” money in the form of advance payments made towards construction of the real estate project. F We were shown the Dictionary of Banking Terms (2nd Edn.) by Thomas P. Fitch in which “time value for money” was defined thus: “present value: today’s value of a payment or a stream of payment amount due and payable at some specified future date, G discounted by a compound interest rate of DISCOUNT RATE. Also called the time value of money. Today’s value of a stream of cash flows is worth less than the sum of the cash flows to be received or saved over time. Present value accounting is widely used in DISCOUNTED CASH FLOW analysis.” (emphasis supplied) H

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That this is against consideration for the time value of money is also clear as the money that is “disbursed” is no longer with the allottee, but, as has just been stated, is with the real estate developer who is legally obliged to give money’s equivalent back to the allottee, having used it in the construction of the project, and being at a discounted value so far as the allottee is concerned (in the sense of the allottee having to pay less by way of instalments than he would if he were to pay for the ultimate price of the flat/ apartment). *** *** ***

74. What is clear from what Shri Venugopal has read to us is that C a wide range of transactions are subsumed by para (f) and that the precise scope of para (f) is uncertain. Equally, para (f) seems to be a “catch all” provision which is really residuary in nature, and which would subsume within it transactions which do not, in fact, fall under any of the other sub-clauses of Section 5(8). D

75. And now to the precise language of Section 5(8)(f). First and foremost, the sub-clause does appear to be a residuary provision which is “catch all” in nature. This is clear from the words “any amount” and “any other transaction” which means that amounts that are “raised” under “transactions” not covered by any of the other clauses, would amount to a financial debt if they had the E commercial effect of a borrowing. The expression “transaction” is defined by Section 3(33) of the Code as follows: 3.(33) “transaction” includes an agreement or arrangement in writing for the transfer of assets, or funds, goods or services, from or to the corporate debtor; F As correctly argued by the learned Additional Solicitor General, the expression “any other transaction” would include an arrangement in writing for the transfer of funds to the corporate debtor and would thus clearly include the kind of financing arrangement by allottees to real estate developers when they pay G instalments at various stages of construction, so that they themselves then fund the project either partially or completely.

76. Sub-clause (f) Section 5(8) thus read would subsume within it amounts raised under transactions which are not necessarily loan transactions, so long as they have the commercial effect of a H

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A borrowing. We were referred to Collins English Dictionary & Thesaurus (2nd Edn., 2000) for the meaning of the expression “borrow” and the meaning of the expression “commercial”. They are set out hereinbelow: “borrow-vb 1. to obtain or receive (something, such as money) B on loan for temporary use, intending to give it, or something equivalent back to the lender. 2. to adopt (ideas, words, etc.) from another source; appropriate. 3. Not standard. to lend. 4. (intr) Golf. To putt the ball uphill of the direct path to the hole: make sure you borrow enough.” C *** *** *** “commercial. -adj. 1. of or engaged in commerce. 2. sponsored or paid for by an advertiser: commercial television. 3. having profit as the main aim: commercial music. 4. (of chemicals, etc.) unrefined and produced in bulk for use in industry. 5. a commercially sponsored advertisement on radio or television.”

77. A perusal of these definitions would show that even though the petitioners may be right in stating that a “borrowing” is a loan of money for temporary use, they are not necessarily right in stating that the transaction must culminate in money being given back to the lender. The expression “borrow” is wide enough to include an advance given by the homebuyers to a real estate developer for “temporary use” i.e. for use in the construction project so long as it is intended by the agreement to give “something equivalent” to money back to the homebuyers. The “something equivalent” in these matters is obviously the flat/apartment. Also F of importance is the expression “commercial effect”. “Commercial” would generally involve transactions having profit as their main aim. Piecing the threads together, therefore, so long as an amount is “raised” under a real estate agreement, which is done with profit as the main aim, such amount would be subsumed G within Section 5(8)(f) as the sale agreement between developer and home buyer would have the “commercial effect” of a borrowing, in that, money is paid in advance for temporary use so that a flat/apartment is given back to the lender. Both parties have “commercial” interests in the same – the real estate developer seeking to make a profit on the sale of the apartment, and the flat/ H

ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE 417 INFRATECH LTD. v. AXIS BANK LTD. [DINESH MAHESHWARI, J.]

apartment purchaser profiting by the sale of the apartment. Thus A construed, there can be no difficulty in stating that the amounts raised from allottees under real estate projects would, in fact, be subsumed within Section 5(8)(f) even without adverting to the explanation introduced by the Amendment Act. *** *** *** B

79. That this amendment is in fact clarificatory is also made clear by the Insolvency Committee Report, which expressly uses the word “clarify”, indicating that the Insolvency Law Committee also thought that since there were differing judgments and doubts raised on whether homebuyers would or would not be included within C Section 5(8)(f), it was best to set these doubts at rest by explicitly stating that they would be so covered by adding an explanation to Section 5(8)(f). Incidentally, the Insolvency Law Committee itself had no doubt that given the “financing” of the project by the allottees, they would fall within Section 5(8)(f) of the Code as originally enacted.” D

41.1.1. It is, therefore, evident that this Court, even while interpreting sub-clause (f) of Section 5(8) on the question as to whether an allottee under a real estate project could fall thereunder, analysed the gamut of the relevant expressions of ‘disbursement’, ‘borrowing’ and ‘time value of money’, being the root ingredients of ‘financial debt’ within the meaning of the Code. 41.1.2. It is significant to notice that in the case of Pioneer Urban, one line of arguments on behalf of the petitioners, who led challenge to the amendments, had been that the use of expression “means and includes” in Section 5(8) was indicative that the provision was exhaustive and in that position, alien subject-matter such as home buyers could not have been inserted therein. The decision of this Court in the case of P. Kasilingam & Ors. v. P.S.G. College of Technology & Ors : (1995) Suppl. 2 SCC 348 was relied upon by the petitioners wherein, this Court had rejected an argument that the expression “means and includes” G indicated that the definition was inclusive in nature and would also cover the categories which were not mentioned therein. In P. Kasilingam, this Court had said that the use of the word ‘means’ indicates that the definition is a hard and fast definition and no other meaning could be assigned to the expression than is put down in the definition. As regards H

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A the word ‘includes’, this Court said that it enlarges the meaning of the expression defined so as to comprehend not only such things as they signify according to their natural import but also those things which the clause declares that they shall include. Further, this Court said that the words ‘means and includes’, on the other hand, indicate ‘an exhaustive explanation’ of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions. On the other hand, another decision of this Court in Krishi Utapadan Mandi Samiti & Anr v. M/s Shankar Industries & Ors: 1993 Suppl. (3) SCC 361 was referred on behalf of the respondents wherein, the Court had considered a definition clause whereby the expression “agricultural produce” was defined to mean such items of produce of agriculture, horticulture, viticulture, apiculture, sericulture, pisciculture, animal husbandry, or forest as specified in the Schedule and then, the definition included therein admixture of two or more of such items, and further included any such item in processed form and yet further included specific items like gur, rub, shakkar, khandsari and jaggery. While examining such definition in Krishi Utapadan Mandi Samiti, the Court proceeded to say that under the rules of interpretation, when the words ‘means and includes’ are used in a definition, they are to be given a wider meaning and are not exhaustive or restricted to the items contained therein. This statement of law in Krishi Utapadan Mandi Samitiwas held by the three-Judge Bench of this Court in Pioneer Urban to be not that of good law for it ignored the earlier precedents of larger and coordinate Benches and was also out of sync with the later decisions on the same point. However, and at the same time, the arguments on behalf of the petitioners, that sub-clauses (a) to (i) of Section 5(8) of the Code must necessarily reflect the fact that the financial debt could only be a debt disbursed against the consideration for the time value of money and which permeates sub-clauses (a) to (i), was also not accepted as a matter of statutory interpretation while observing that the expression “and includes” speaks of the subject matter which may not necessarily be reflected in the main part of the definition. These observations of the G Court, after reproduction of the relevant extracts from the referred decisions, read as under: “82. This statement of the law, as can be seen from the quotation hereinabove, is without citation of any authority. In fact, in Jagir Singh. v. State of Bihar.: (1976) 2 SCC 942 at paras 11 and 19 to H

ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE 419 INFRATECH LTD. v. AXIS BANK LTD. [DINESH MAHESHWARI, J.]

21 and Mahalakshmi Oil Mills v. State of A.P.: (1989) 1 SCC A 164, at paras 8 and 11 (which has been cited in P. Kasilingam : 1995 Supp (2) SCC 348) this Court set out definition sections where the expression “means” was followed by some words, after which came the expression “and includes” followed by other words, just as in the Krishi Utpadan Mandi Samiti case : 1993 B Supp (3) SCC 361 (2). In two other recent judgments, Bharat Coop. Bank (Mumbai) Ltd. v. Employees Union: (2007) 4 SCC 685, at paras 12 and 23 and State of W.B. v. Associated Contractors : (2015) 1 SCC 32 at para 14, this Court has held that wherever the expression “means” is followed by the expression “and includes” whether with or without additional words separating C “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 D discussion, two things follow. Krishi Utpadan Mandi Samiti 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 clauses (a) to (i) of Section 5(8) of the Code E 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 “and includes” speaks of subject-matters which may not necessarily be reflected in the main part of the definition.” (emphasis supplied) 41.1.3. In the end, however, this Court rejected the contentions urged on behalf of the petitioners while accepting other line of submissions on behalf of the respondents that the legislature is not precluded by way of amendment from inserting words into what may even be an exhaustive definition and while observing that an exhaustive definition is exhaustive only for the purposes of interpretation of a statute by the Courts. This Court said,- H

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A “83. 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 B something to the statute by way of amendment. On this score also, there is no substance in the aforesaid argument.” 41.1.4. This Court ultimately found that the Explanation was added by the Amendment Act only to clarify the doubt that had arisen as to whether home buyers/allottees were subsumed within Section 5(8)(f) C of the Code. In essence, the amendment in question was interpreted to be clarificatory in nature so as to put beyond doubt that allottees are to be regarded as financial creditors within the enacting part of Section 5(8)(f) of the Code. The Amendment Act was upheld with this Court holding as under: D “96. In the present case, it is clear that the deeming fiction that is used by the Explanation is to put beyond doubt the fact that allottees are to be regarded as financial creditors within the enacting part contained in Section 5(8)(f) of the Code.

97. It was also argued that an explanation does not enlarge the scope of the original section and for this purpose S. Sundaram Pillai : (1985) 1 SCC 591 was relied upon. This very judgment recognises, in para 46, that an explanation does not ordinarily enlarge the scope of the original section. But if it does, effect must be given to the legislative intent notwithstanding the fact that the legislature has named a provision as an explanation. [See Hiralal Ratanlal v. State of U.P.: (1973) 1 SCC 216 at p. 225, followed in para 51 of Sundram Pillai]. In any case, it has been found by us that the Explanation was added by the Amendment Act only to clarify doubts that had arisen as to whether homebuyers/allottees were subsumed within Section 5(8)(f). G The Explanation added to Section 5(8)(f) of the Code by the Amendment Act does not in fact enlarge the scope of the original section as homebuyers/allottees would be subsumed within Section 5(8)(f) as it originally stood as has been held by us hereinabove. As a matter of statutory interpretation, that interpretation, which accords with the objects of the statute

ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE 421 INFRATECH LTD. v. AXIS BANK LTD. [DINESH MAHESHWARI, J.]

in question, particularly when we are dealing with a beneficial legislation, is always the better interpretation or the “creative interpretation” which is the modern trend of authority, and which is reflected in the concurring judgment of Eera v. State (NCT of Delhi) : (2017) 15 SCC 133 paras 122 and 127. This argument must, therefore, also be rejected. B

98. We, therefore, hold that allottees/homebuyers were included in the main provision, i.e. Section 5(8)(f) with effect from the inception of the Code, the explanation being added in 2018 merely to clarify doubts that had arisen.” (emphasis supplied) C 41.1.5. For taking into comprehension the ratio of Pioneer Urban (supra) and for its application to the question at hand, appropriate it would be to recount the basic principles expounded and explained by a three-Judge Bench in the case of Haryana Financial Corporation and Anr. v. Jagdamba Oil Mills and Anr.: (2002) 3 SCC 496 that D the observations of the Court in a judgment are always required to be read in the context in which they appear. This Court has said,- “19. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations E of courts are not to be read as Euclid’s theorems nor as provisions of the statute. These observations must be read in the context in which they appear. Judgments of courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for Judges to embark upon lengthy discussions but the discussion is meant to explain and not to define. F Judges interpret statutes, they do not interpret judgments. They interpret words of statutes, their words are not to be interpreted as statutes. In London Graving Dock Co. Ltd. v. Horton : 1951 AC 737 (at p. 761) Lord MacDermot observed: (All ER p. 14C- D) G “The matter cannot, of course, be settled merely by treating the ipsissima verba of Willes, J., as though they were part of an Act of Parliament and applying the rules of interpretation appropriate thereto. This is not to detract from the great weight to be given to the language actually used by that most H distinguished Judge.”

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A 20. In Home Office v. Dorset Yacht Co. : (1970) 2 All ER 294 Lord Reid said (at All ER p. 297g-h), “Lord Atkin’s speech … is not to be treated as if it were a statutory definition. It will require qualification in new circumstances”. Megarry, J. in (1971) 1 WLR 1062 observed: “One must not, of course, construe even a reserved judgment of even Russell, L.J. as if it were an Act of Parliament.” B And, in Herrington v. British Railways Board: (1972) 2 WLR 537 Lord Morris said: (All ER p. 761c) “There is always peril in treating the words of a speech or a judgment as though they were words in a legislative enactment, and it is to be remembered that judicial utterances are made in C the setting of the facts of a particular case.”

21. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper.” D 41.1.6. Read as a whole and with reference to its context, it is but clear that in Pioneer Urban this Court has not enunciated that the scope of the expression ‘financial debt’ be read as if to encompass any debt of whatsoever nature. Rather, a submission made therein, with reference to the decision in Krishi Utapadan Mandi Samiti, that ‘and includes’ E part in a definition may lead to it being extensive, was rejected by this Court while holding that the said decision was not a good law. However, the other extreme of submissions, seeking restrictive interpretation with reference to ‘means’ part of the definition, was also not accepted and, in that context, the Court observed that the expression ‘and includes’ speaks of subject-matters which may not necessarily be reflected in the main part of the definition. Obviously, there could be several subject- matters which may not, as such, be found squarely manifested in the expressions employed in the ‘means’ part of a definition and could be reasonably found in the ‘includes’ part. However, it has not been laid down as a rule of statutory interpretation that the ‘includes’ part could stand alone, disjunct from and totally alien to the ‘means’ part. The expressions “means and includes” in the definition clauses - effect

42Copy pinpoint42. Looking to the frame of the Code, where the significant expressions “financial creditor” and “financial debt” have been defined H

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with the words “means” and “includes”, we may further refer to the principles of construction of such a definition clause in a statute. Tersely put, the law remains settled that where a word is defined to ‘mean’ something, the definition is prime facie restrictive and exhaustive. On the other hand, where the word defined is declared to ‘include’ something more, the definition is prima facie extensive. However, a little difficulty arises when the definition contains both the words ‘means’ and ‘includes’52. 42.1. As noticed, in the case of Pioneer Urban, a suggestion made on behalf of the respondents with reference to the decision in Krishi Utapadan Mandi Samiti,that when the words ‘means and includes’ are used in a definition, they are to be given a wider meaning and are not exhaustive or restricted to the items contained therein, was not accepted by this Court; and the statement of law in Krishi Utapadan Mandi Samiti was held to be not that of good law for it ignored the earlier precedents of larger and coordinate Benches and was also out of sync with the later decisions on the same point. However, the other extreme of interpretation, as canvassed by the petitioners, that a financial debt could only be a debt which is disbursed against the consideration for the time value of money, and such requirement pervades all sub- clauses (a) to (i), was also not accepted as a matter of statutory interpretation by this Court while observing that the expression ‘and includes’ speaks of subject matters which may not necessarily be reflected in the main part of the definition. Thus, it is evident that this Court did not accept either of the extremities suggested by the parties in Pioneer Urban for interpretation and implication of the expressions ‘means and includes’ in a definition clause of the statute. Significantly, in Pioneer Urban, none of the extremities had any bearing on the conclusion because, eventually, the amendment in question was held to be only clarificatory in nature; and this Court held that the Explanation added to Section 5(8)(f) of the Code by the Amendment Act did not enlarge the scope of the original Section.

52Craise on Statue Law ( Seventh Ed.-Indian reprint 1999 page 213) has stated this feature as follows: There are two forms of interpretation clause. In one, where the word defined is declared to “mean” so and so, the definition is explanatory and prima facie restrictive. In the other, where the word defined is declared to “include” so and so, the definition is extensive, e.g. “sheriff” includes “under-sheriff”. Sometimes the definition contains the words “mean and include”,” which in evitably raises a doubt as to interpretation. H

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A 42.2. Various features of the process of interpretation while dealing with such definition clauses were explained by this Court in the case of Delhi Development Authority v. Bhola Nath Sharma (Dead) by LRs & Ors: (2011) 2 SCC 54 in the following: “25. The definition of the expressions “local authority” and “person interested” are inclusive and not exhaustive. The difference between exhaustive and inclusive definitions has been explained in P. Kasilingam v. P.S.G. College of Technology : 1995 Supp (2) SCC 348 in the following words: (SCC p. 356, para 19) “19. … A particular expression is often defined by the legislature by using the word ‘means’ or the word ‘includes’. Sometimes the words ‘means and includes’ are used. The use of the word ‘means’ indicates that ‘definition is a hard-and- fast definition, and no other meaning can be assigned to the expression than is put down in definition’. (See Gough v. Gough : (1891) 2 QB 665 (CA); Punjab Land Development and D Reclamation Corpn. Ltd. v. Labour Court : (1990) 3 SCC 682, SCC p. 717, para 72.) The word ‘includes’ when used, enlarges the meaning of the expression defined so as to comprehend not only such things as they signify according to their natural import but also those things which the clause E declares that they shall include. The words ‘means and includes’, on the other hand, indicate ‘an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions’. [See Dilworth v. Commr. of Stamps : 1899 AC 99 (Lord Watson); Mahalakshmi Oil Mills v. State of A.P. : (1989) 1 SCC 164, SCC p. 170, F para 11.] The use of the words ‘means and includes’ in Rule 2(b) would, therefore, suggest that the definition of ‘college’ is intended to be exhaustive and not extensive and would cover only the educational institutions falling in the categories specified in Rule 2(b) and other educational institutions are not G comprehended. Insofar as engineering colleges are concerned, their exclusion may be for the reason that the opening and running of the private engineering colleges are controlled through the Board of Technical Education and Training and the Director of Technical Education in accordance with the directions issued by the AICTE from time to time.” H

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26. In Bharat Coop. Bank (Mumbai) Ltd. v. Employees Union A : (2007) 4 SCC 685 this Court again considered the difference between the inclusive and exhaustive definitions and observed: (SCC p. 695, para 23) “23. … when in the definition clause given in any statute the word ‘means’ is used, what follows is intended to speak exhaustively. When the word ‘means’ is used in the definition … it is a ‘hard-and-fast’ definition and no meaning other than that which is put in the definition can be assigned to the same. … On the other hand, when the word ‘includes’ is used in the definition, the legislature does not intend to restrict the definition: it makes the definition enumerative but not exhaustive. That is to say, the term defined will retain its ordinary meaning but its scope would be extended to bring within it matters, which in its ordinary meaning may or may not comprise. Therefore, the use of the word ‘means’ followed by the word ‘includes’ in [the definition of ‘banking company’ in] Section 2(bb) of the D ID Act is clearly indicative of the legislative intent to make the definition exhaustive and would cover only those banking companies which fall within the purview of the definition and no other.”

27. In N.D.P. Namboodripad v. Union of India : (2007) 4 SCC E 502 the Court observed: (SCC p. 509, para 18) “18. The word ‘includes’ has different meanings in different contexts. Standard dictionaries assign more than one meaning to the word ‘include’. Webster’s Dictionary defines the word ‘include’ as synonymous with ‘comprise’ or ‘contain’. F Illustrated Oxford Dictionary defines the word ‘include’ as: (i) comprise or reckon in as a part of a whole; (ii) treat or regard as so included. Collins Dictionary of English Language defines the word ‘includes’ as: (i) to have as contents or part of the contents; be made up of or contain; (ii) to add as part of something else; put in as part of a set, group G or a category; (iii) to contain as a secondary or minor ingredient or element. It is no doubt true that generally when the word ‘include’ is used in a definition clause, it is used as a word of enlargement, that is to make the definition extensive and not restrictive. But the word ‘includes’ is also used to connote a H

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A specific meaning, that is, as ‘means and includes’ or ‘comprises’ or ‘consists of’.” (emphasis in original)

28. In Hamdard (Wakf) Laboratories v. Labour Commr. : (2007) 5 SCC 281 it was held as under: (SCC p. 294, para 33) B “33. When an interpretation clause uses the word ‘includes’, it is prima facie extensive. When it uses the word ‘means and includes’, it will afford an exhaustive explanation to the meaning which for the purposes of the Act must invariably be attached to the word or expression.” C 42.3. In the case of Black Diamond Beverages & Anr. v. Commercial Tax Office, Central Section, Assessment Wing, Calcutta & Ors.: (1998) 1 SCC 458, while examining a definition that carried both ‘means’ and ‘includes’ expressions, this Court pointed out that the natural meaning of the ‘means’ part of the definition is not narrowed down by the ‘includes’ part. This Court extracted the definition in question and said,- “5. The 1954 Act generally provides for levy of a single-point tax at the first stage on commodities notified under Section 25 of that Act. On the other hand, the 1941 Act is a general statute providing for multipoint levy of sales tax on commodities not covered by the 1954 Act. Sub-clause (d) of Section 2 of the 1954 Act reads as follows: “2. (d) ‘sale-price’ used in relation to a dealer means the amount of the money consideration for the sale of notified commodities manufactured, made or processed by him in West Bengal, or brought by him into West Bengal from any place outside West Bengal, for the purpose of sale in West Bengal, less any sum allowed as cash discount according to trade practice, but includes any sum charged for containers or other materials for the packaging of notified commodities;” G (emphasis supplied)

6. We shall first deal with the contention of the appellants’ counsel based upon the non-inclusion of “freight charges” in the definition of sale price in Section 2(d) of the 1954 Act. H

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7. It is clear that the definition of “sale price” in Section 2(d) uses A the words “means” and “includes”. The first part of the definition defines the meaning of the word “sale price” and must, in our view, be given its ordinary, popular or natural meaning. The interpretation thereof is in no way controlled or affected by the second part which “includes” certain other things in the definition. B This is a well-settled principle of construction. Craies on Statute Law (7th Edn., 1.214) says: “An interpretation clause which extends the meaning of a word does not take away its ordinary meaning…. Lord Selborne said in Robinson v. Barton-Eccles Local Board : (1883) 8 AC 798, AC at p. 801: C

‘An interpretation clause of this kind is not meant to prevent the word receiving its ordinary, popular, and natural sense whenever that would be properly applicable, but to enable the word as used in the Act … to be applied to something to which it would not ordinarily be applicable.’ “ D

(emphasis supplied) Therefore, the inclusive part of the definition cannot prevent the main provision from receiving its natural meaning.” The essentials for financial debt and financial creditor E

43Copy pinpoint43. Applying the aforementioned fundamental principles to the definition occurring in Section 5(8) of the Code, we have not an iota of doubt that for a debt to become ‘financial debt’ for the purpose of Part II of the Code, the basic elements are that it ought to be a disbursal against the consideration for time value of money. It may include any of the methods for raising money or incurring liability by the modes prescribed in sub-clauses (a) to (f) of Section 5(8); it may also include any derivative transaction or counter-indemnity obligation as per sub- clauses (g) and (h) of Section 5(8); and it may also be the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h). The requirement of existence of a debt, which is disbursed against the consideration for the time value of money, in our view, remains an essential part even in respect of any of the transactions/dealings stated in sub-clauses (a) to (i) of Section 5(8), even if it is not necessarily stated therein. In any case, the definition, by its very frame, cannot be read so expansive, rather infinitely wide, H

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A that the root requirements of ‘disbursement’ against ‘the consideration for the time value of money’ could be forsaken in the manner that any transaction could stand alone to become a financial debt. In other words, any of the transactions stated in the said sub-clauses (a) to (i) of Section 5(8) would be falling within the ambit of ‘financial debt’ only if it carries the essential elements stated in the principal clause or at least has the features which could be traced to such essential elements in the principal clause. In yet other words, the essential element of disbursal, and that too against the consideration for time value of money, needs to be found in the genesis of any debt before it may be treated as ‘financial debt’ within the meaning of Section 5(8) of the Code. This debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money.

44Copy pinpoint44. As noticed, the root requirement for a creditor to become financial creditor for the purpose of Part II of the Code, there must be a D financial debt which is owed to that person. He may be the principal creditor to whom the financial debt is owed or he may be an assignee in terms of extended meaning of this definition but, and nevertheless, the requirement of existence of a debt being owed is not forsaken.

45Copy pinpoint45. It is also evident that what is being dealt with and described in E Section 5(7) and in Section 5(8) is the transaction vis-à-vis the corporate debtor. Therefore, for a person to be designated as a financial creditor of the corporate debtor, it has to be shown that the corporate debtor owes a financial debt to such person. Understood this way, it becomes clear that a third party to whom the corporate debtor does not owe a financial debt cannot become its financial creditor for the purpose of F Part II of the Code.

46Copy pinpoint46. Expounding yet further, in our view, the peculiar elements of these expressions “financial creditor” and “ financial debt”, as occurring in Sections 5(7) and 5(8), when visualised and compared with the generic expressions “creditor” and “debt” respectively, as occurring in Sections G 3(10) and 3(11) of the Code, the scheme of things envisaged by the Code becomes clearer. The generic term “creditor” is defined to mean any person to whom the debt is owed and then, it has also been made clear that it includes a ‘financial creditor’, a ‘secured creditor’, an ‘unsecured creditor’, an ‘operational creditor’, and a ‘decree-holder’. H Similarly, a “debt” means a liability or obligation in respect of a claim

ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE 429 INFRATECH LTD. v. AXIS BANK LTD. [DINESH MAHESHWARI, J.]

which is due from any person and this expression has also been given an extended meaning to include a ‘financial debt’ and an ‘operational debt’. 46.1. The use of the expression “means and includes” in these clauses, on the very same principles of interpretation as indicated above, makes it clear that for a person to become a creditor, there has to be a debt i.e., a liability or obligation in respect of a claim which may be due from any person. A “secured creditor” in terms of Section 3(30) means a creditor in whose favour a security interest is created; and “security interest”, in terms of Section 3(31), means a right, title or interest or claim of property created in favour of or provided for a secured creditor by a transaction which secures payment for the purpose of an obligation and it includes, amongst others, a mortgage. Thus, any mortgage created in favour of a creditor leads to a security interest being created and thereby, the creditor becomes a secured creditor. However, when all the defining clauses are read together and harmoniously, it is clear that the legislature has maintained a distinction amongst the expressions ‘financial creditor’, ‘operational creditor’, ‘secured creditor’ and ‘unsecured creditor’. Every secured creditor would be a creditor; and every financial creditor would also be a creditor but every secured creditor may not be a financial creditor. As noticed, the expressions “financial debt” and “financial creditor”, having their specific and distinct connotations and roles in insolvency and liquidation process of corporate persons, have only been defined in Part II whereas the expressions “secured creditor” E and “security interest” are defined in Part I.

47Copy pinpoint47. A conjoint reading of the statutory provisions with the enunciation of this Court in Swiss Ribbons (supra), leaves nothing to doubt that in the scheme of the IBC, what is intended by the expression ‘financial creditor’ is a person who has direct engagement in the functioning of the corporate debtor; who is involved right from the beginning while assessing the viability of the corporate debtor; who would engage in restructuring of the loan as well as in reorganisation of the corporate debtor’s business when there is financial stress. In other words, the financial creditor, by its own direct involvement in a functional existence of corporate debtor, acquires unique position, who could be entrusted with the task of ensuring the sustenance and growth of the corporate debtor, akin to that of a guardian. In the context of insolvency resolution process, this class of stakeholders namely, financial creditors, is entrusted by the legislature with such a role that it would look forward H

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A to ensure that the corporate debtor is rejuvenated and gets back to its wheels with reasonable capacity of repaying its debts and to attend on its other obligations. Protection of the rights of all other stakeholders, including other creditors, would obviously be concomitant of such resurgence of the corporate debtor. B 47.1. Keeping the objectives of the Code in view, the position and role of a person having only security interest over the assets of the corporate debtor could easily be contrasted with the role of a financial creditor because the former shall have only the interest of realising the value of its security (there being no other stakes involved and least any stake in the corporate debtor’s growth or equitable liquidation) while the latter would, apart from looking at safeguards of its own interests, would also and simultaneously be interested in rejuvenation, revival and growth of the corporate debtor. Thus understood, it is clear that if the former i.e., a person having only security interest over the assets of the corporate debtor is also included as a financial creditor and thereby allowed to have its say in the processes contemplated by Part II of the Code, the growth and revival of the corporate debtor may be the casualty. Such result would defeat the very objective and purpose of the Code, particularly of the provisions aimed at corporate insolvency resolution. 47.2. Therefore, we have no hesitation in saying that a person having only security interest over the assets of corporate debtor (like the instant third party securities), even if falling within the description of ‘secured creditor’ by virtue of collateral security extended by the corporate debtor, would nevertheless stand outside the sect of ‘financial creditors’ as per the definitions contained in sub-sections (7) and (8) of Section 5 of the Code. Differently put, if a corporate debtor has given its property in mortgage to secure the debts of a third party, it may lead to a mortgage debt and, therefore, it may fall within the definition of ‘debt’ under Section 3(10) of the Code. However, it would remain a debt alone and cannot partake the character of a ‘financial debt’ within the meaning of Section 5(8) of the Code. G The respondent mortgagees are not the financial creditors of corporate debtor JIL

48Copy pinpoint48. Indisputably, the debts in question are in the form of third party security; said to have been given by the corporate debtor JIL so as to secure the loans/advances/facilities obtained by JAL from the respondent-lenders. Such a ‘debt’ is not and cannot be a ‘financial debt’

ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE 431 INFRATECH LTD. v. AXIS BANK LTD. [DINESH MAHESHWARI, J.]

within the meaning of Section 5(8) of the Code; and hence, the respondent-lenders, the mortgagees, are not the ‘financial creditors’ of the corporate debtor JIL.

49Copy pinpoint49. Though several decisions have been cited on behalf of the respondent-lenders to contend that they do fall within the definition of ‘financial creditor’ but for what has been discussed hereinabove, it does not appear necessary to dilate upon all of them. However, it would be appropriate to take note of the relevant decisions strongly relied upon by the respondents as infra.

50Copy pinpoint50. Much emphasis is laid on behalf of the respondents on the observations occurring in another three-Judge Bench decision of this C Court in the case of Essar Steel and predominantly on the observation therein, that “secured creditors as a class are subsumed in the class of financial creditors”. Again, the decisions of the Court are required to be understood with reference to the context. In the case of Essar Steel, the questions before the Court related to the roles of resolution applicant, resolution professional and Committee of Creditors constituted under the Code and the jurisdiction of Adjudicating Authority as also the Appellate Tribunal in questioning the resolution plans. The constitutional validity of the Insolvency and Bankruptcy (Amendment) Act, 2019 was also under challenge. The problem arose essentially with the decision of NCLAT holding that in a resolution plan, there could be no difference amongst the creditors in that, a financial creditor and operational creditor deserve equal treatment under a resolution plan. It was in the setup of such background that in Essar Steel, this Court made the observations relied upon by the respondents. 50.1. The referred observations in the case of Essar Steel are essentially based on the earlier observations occurring in the case of Swiss Ribbons. As noticed, the decision in Swiss Ribbons was rendered by this Court when constitutional validity of various provisions of the Code was put to challenge. In Essar Steel, this Court reiterated the enunciations in Swiss Ribbons in paragraph 55 in the following: G “55. Financial creditors are in the business of lending money. The RBI report on Trend and Progress of Banking in India, 2017-2018 reflects that the net interest margin of Indian banks for the financial year 2017-2018 is averaged at 2.5%. Likewise, the global trend for net interest margin was at 3.3% for banks in the USA and 1.6% for banks in the UK in the year 2016, as per the data published H

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A on the website of the bank. Thus, it is clear that financial creditors earn profit by earning interest on money lent with low margins, generally being between 1 to 4%. Also, financial creditors are capital providers for companies, who in turn are able to purchase assets and provide a working capital to enable such companies to run their business operation, whereas operational creditors are B beneficiaries of amounts lent by financial creditors which are then used as working capital, and often get paid for goods and services provided by them to the corporate debtor, out of such working capital. On the other hand, market research carried out by India Brand Equity Foundation, a trust established by the Ministry of C Commerce and Industry, as regards the Oil and Gas sector, has stated that the business risk of operational creditors who operate with higher profit margins and shorter cyclical repayments must needs be higher. Also, operational creditors have an immediate exit option, by stopping supply to the corporate debtor, once corporate debtors start defaulting in payment. Financial creditors may exit on their long-term loans, either upon repayment of the full amount or upon default, by recalling the entire loan facility and/or enforcing the security interest which is a time consuming and lengthy process which usually involves litigation. Financial creditors are also part of a regulated banking system which involves not merely declaring defaulters as non-performing assets but also involves restructuring such loans which often results in foregoing unpaid amounts of interest either wholly or partially. All these differences between financial and operational creditors have been reflected, albeit differently, in the judgment of Swiss Ribbons (supra)…..” F 50.2. In the relevant part, the Court found that NCLAT had fallen in grave error in reading paragraph 77 in Swiss Ribbonsdehors the earlier paragraphs. In that context this Court said,- “56. By reading paragraph 77 de hors the earlier paragraphs, the G Appellate Tribunal has fallen into grave error. Paragraph 76 clearly refers to the UNCITRAL Legislative Guide which makes it clear beyond any doubt that equitable treatment is only of similarly situated creditors. This being so, the observation in paragraph 77 cannot be read to mean that financial and operational creditors must be paid the same amounts in any resolution plan before it H

ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE 433 INFRATECH LTD. v. AXIS BANK LTD. [DINESH MAHESHWARI, J.]

can pass muster. On the contrary, paragraph 77 itself makes it clear that there is a difference in payment of the debts of financial and operational creditors, operational creditors having to receive a minimum payment, being not less than liquidation value, which does not apply to financial creditors. The amended Regulation 38 set out in paragraph 77 again does not lead to the conclusion that financial and operational creditors, or secured and unsecured creditors, must be paid the same amounts, percentage wise, under the resolution plan before it can pass muster. Fair and equitable dealing of operational creditors’ rights under the said Regulation involves the resolution plan stating as to how it has dealt with the interests of operational creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately. Also, the fact that the operational creditors are given priority in payment over all financial creditors does not lead to the conclusion that such payment must necessarily be the same recovery percentage as financial creditors. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution applicant for better or different terms which may also involve differences in distribution of amounts between different classes of creditors.

57. Indeed, by vesting the Committee of Creditors with the discretion of accepting resolution plans only with financial creditors, operational creditors having no vote, the Code itself differentiates between the two types of creditors for the reasons given above. F Further, as has been reflected in Swiss Ribbons (supra), most financial creditors are secured creditors, whose security interests must be protected in order that they do not go ahead and realise their security in legal proceedings, but instead are incentivised to act within the framework of the Code as persons who will resolve stressed assets and bring a corporate debtor back to its feet. Shri G Sibal’s argument that the expression “secured creditor” does not find mention in Chapter II of the Code, which deals with the resolution process, and is only found in Chapter III, which deals with liquidation, is for the reason that secured creditors as a class are subsumed in the class of financial creditors, as has been held H

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A in Swiss Ribbons (supra). Indeed, Regulation 13(1) of the 2016 Regulations mandates that when the resolution professional verifies claims, the security interest of secured creditors is also looked at and gets taken care of….” 50.3. While strongly relying upon one of the observations occurring B in Essar Steel, that secured creditors as a class are subsumed in the class of financial creditors, learned counsel for the respondents would assert that secured creditors do become financial creditors. The submission remains untenable for more than one reason. First, the submission itself proceeds on the same shortcoming as was existing in the NCLAT’s decision that was disapproved by this Court in Essar Steel C i.e., reading of a line in a judgment disjunct from the context. Secondly, in the decisions above-referred, this Court has never expanded the scope of ‘financial debt’ as envisaged by Section 5(8) of the Code. Thirdly, the case of an indirect secured creditor i.e., the person having in its hand only the security interest over the property of the corporate debtor but with no corresponding involvement in the finances and growth of the corporate debtor, was never under consideration in the said decisions. 50.4. We may usefully elaborate a little. On a contextual reading of the expositions in Essar Steel and Swiss Ribbons, it is but clear that the Court had examined the status of direct secured creditor of the corporate debtor and there had not been any occasion to examine the features related with an indirect secured creditor, who is neither involved in assessing the viability of the corporate debtor nor in lending finances to the corporate debtor for setting up the business. As noticed, the prime, rather only, area of interest of such indirect secured creditor is in recovery of its debt and not in reorganization of the corporate debtor’s business. F Thus understood, it is absolutely clear that the class of secured creditors indicated by this Court in Essar Steel and Swiss Ribbons, as being subsumed in financial creditors, is only that of such secured creditors who are directly engaged in advancing credit to the corporate debtor and not the indirect creditors who had extended any loan or facility to a G third party but had taken a security from the corporate debtor, whose resolution is under consideration. 50.5. Hence, we are undoubtedly of the view that the decisions in Swiss Ribbons and Essar Steel do not enure to the benefit of the respondents; rather on the principles enunciated therein, they only operate against the respondents.

ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE 435 INFRATECH LTD. v. AXIS BANK LTD. [DINESH MAHESHWARI, J.]

51Copy pinpoint51. The case of Smt. Kusum (supra) has also been repeatedly referred by the respondents in support of their contentions that because of the transactions of mortgage, the corporate debtor JIL owes them the mortgage debt as a guarantee obligation and hence, it falls within the ambit of ‘financial debt’ within the meaning of Section 5(8) of the Code. 51.1. We may have a close look at the relevant background aspects of the said case of Smt. Kusum. Therein, the appellant-bank had advanced a loan to the firm of which, husband of the respondent was the proprietor. The respondent had executed an agreement in favour of the appellant-bank to the effect that so long as her husband’s firm was indebted to the bank, she would execute, by way of collateral security, a legal mortgage of the immoveable property, being a flat belonging to her, with or without possession, in favour of the bank within 14 days of issuance of written requisition for such execution. Later on, when the bank called upon the respondent to execute the mortgage as per the agreement, she declined to do so and hence, a suit for specific performance and in the alternative for damages was filed by the appellant- D bank. The Trial Court, however, dismissed the suit while holding, inter alia, that the agreement in question was without consideration. The suit was dismissed on certain other grounds too with which we are not concerned herein. 51.2. In appeal by the bank, the High Court, while holding that E the agreement to create a mortgage was specifically enforceable, proceeded to examine the question as to whether the promise to create mortgage, if given by a third party and not by the borrower, is for consideration and is valid. The High Court held that by making the promise, the respondent had agreed to provide collateral security and thereby to discharge the liability to a third party in case of his default. F The Court observed that such guarantee was limited to the security offered and no personal liability by the promisor; and thus, the promisor became a surety and referred to Sections 126, 127 and 128 of the Contract Act. 51.3. With reference to Section 128 of the Contract Act, the Court G pointed out that the liability of a surety is ordinarily coextensive with that of the debtor but in the case at hand, such liability of the surety was as otherwise provided by the contract; and such liability of the respondent was to the extent of securing the dues by creation of mortgage. The Court said that as the principal debtor could create a mortgage of his H

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A immoveable property, a third person could also agree to create a mortgage so as to secure the dues of the principal debtor. As regards the consideration, the Court said that though no direct consideration had flowed from the appellant to the respondent but, in such tripartite agreement, anything done for the benefit of the principal debtor is sufficient consideration to the surety for giving guarantee. For their relevance, we may notice the relevant parts of paragraphs 12,13,14,17 and 21 of the said decision in Smt. Kusum as follows:- “12.The next question that arises is whether such promise to create a mortgage, if given by a third party and not by the borrower or the principle debtor, is for consideration and is valid. The learned trial Judge has held that for creating mortgage, the mortgagor must be a debtor and must have right to redeem mortgage on payment of the debt and since the present defendant was not the debtor, she could not create a mortgage in respect of that debt and that the mortgagor should be a debtor and there must be a D relationship of debtor and creditor, the mortgage being a security for the debt. The learned trial Judge has also held that there was no consideration for giving this promise of executing the mortgage. Both these aspects are interrelated. By making the promise by Ex. 20, defendant has agreed to provide collateral security of a legal mortgage to secure repayment of all the moneys due from E Nitin Pharmaceuticals. Thus, the defendant has promised to discharge the liability of a third person (the debtor) in case of his default. This guarantee is limited to the security offered by the promisor, namely, the mortgage and no further personal liability is taken by the promisor. Thus, the promisor has became a surety and this would be an agreement to offer security for due performance of that promise and to that extent. Sections 126, 127 and 128 of the Contract Act read as follows: *** *** ***

13. The liability of the surety is co-extensive with that of - the debtors. However, in the present case, the liability of the surety is as otherwise provided by the contract Ex. 20. Therefore, the liability of the defendant is as provided in the agreement and to that extent of securing dues by a creation of mortgage, no personal liability is accepted by the surety. It is, therefore, fallacious to say that the defendant is not a debtor and, therefore, the defendant

ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE 437 INFRATECH LTD. v. AXIS BANK LTD. [DINESH MAHESHWARI, J.]

could not have created a mortgage in favour of the creditor. The A defendant has rendered himself liable to the dues of Nitin Pharmaceuticals by agreeing to provide security in the form of mortgage for the dues. Just as the principal debtor can create a mortgage of his immovable properties, a third person can also agree to create a mortgage so as to secure the dues of the principal debtor. In that manner, he becomes a surety to the extent of the security or the mortgage. If that were not so, the present commercial and banking transactions would not be possible and would be hampered to a great extent. In the present day world of commerce, a person may not have sufficient security to offer for obtaining advances from financial institutions even though satisfying the requirements. In such cases, he draws upon resources of others by asking them to give guarantee and also security for the performance of that guarantee and it is a perfectly legitimated and legal way of conducting such commercial transactions. In fact, Chapter VIII of the Contract Act deals with indemnity and guarantee and provides for this kind of tripartite arrangement.

14. As regards consideration, it is true that no direct consideration has flowed from the plaintiff to the defendant who has made the promise to create a mortgage. But in such tripartite arrangement, anything done for the benefit of the principal debtor is a sufficient consideration to the survey for giving guarantee as expressly provided in Section 127 of the Contract Act. Thus, even though there is no consideration to the third party-surety for mortgages, the consideration of having done anything for the benefit of the principal debtor is a sufficient consideration. *** *** *** *** F

17. In the present case, the consideration that anything done for the benefit of the principal debtor is a sufficient consideration to the surety. Anything done in the present case is that the loans advanced to the principal debtor who is the husband of the present defendant. She has agreed to give collateral security to secure G the dues in default of payment by her husband. Apart from the close relationship of husband and wife, there is substantial consideration by having advanced the loan. *** *** *** *** H

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A 21. Thus, the plaintiff not enforcing the claim against the principal debtor or even the third person may be sufficient consideration by the debtor or third person to give security for the debt and the consideration for such promise is that by such forbearance, the creditor is delayed and the debtor or third party is benefited. It is also seen that even in absence of express promise to forbear, a B simple forbearance from enforcing the claim can be held to have been implied in the present case. This promise and agreement was given in 1975 and it is clear that thereafter for two years, the claim was not pressed which shows that there is actual forbearance against the principal debtor after this Ex. 20 was executed. Thus, C even under the English Law, this consideration is held to be good and sufficient consideration. Under Indian Law, which is significantly different from English Law of Contract, past consideration or the consideration towards third person is statutorily held to be good consideration as defined in Section 2(d) and as mentioned in Section 127 of the Contract Act. The observation of the learned trial Judge that as the husband of the defendant had to pay Rs. 5 lacs to the plaintiff, the writing Ex. 20 which is subsequently obtained is without consideration, is patently erroneous. In the present case, it is amply clear that the principal debtor was a defaulter in meeting his financial obligations to the bank and the bank had noticed the irregularities in his accounts and the, bank could have proceeded against the principal debtor to effect recovery. At that stage, at the instance of the principal debtor-husband, wife comes forward and agrees to give collateral security obviously to secure forbearance against the principal debtor. Thus, at the desire of the promisor (defendant) the bank has abstained from enforcing its claim against the principal debtor and has forborne itself from suing the husband. Such forbearance is sufficient and valid consideration for the promise made by the defendant to agree to create mortgage and give collateral security. The learned Trial Judge is in error in observing that “an act done at the desire of third party is not a consideration.” It must, therefore, be held that the suit agreement Ex. 20 is for sufficient and valid consideration and is valid and enforceable.” 51.4. The said decision in Smt. Kusum, at best, leads to the position that a promise to create a mortgage, even if given by a third party and not by the borrower would be deemed to be for consideration; that even

ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE 439 INFRATECH LTD. v. AXIS BANK LTD. [DINESH MAHESHWARI, J.]

if no direct consideration had flown from the plaintiff to the defendant who made the promise to create the mortgage, anything done for the benefit of the principal debtor would be sufficient consideration to the surety for giving guarantee as provided under Section 127 of the Contract Act. When the creditor abstained from enforcing the claim against the principal debtor because of such promise to create mortgage by the defendant, such forbearance was held to be sufficient and valid consideration. It is difficult to stretch the ratio of the said decision so as to be applied to the issue at hand concerning the definition of “financial debt” under Section 5(8) of the Code, which conspicuously omits mortgage; and which requires “disbursement” against “the consideration for the time value of money” as the lead elements. As said, the respondent- C lenders of JAL, while holding the mortgages in their hands, as said to have been executed by the corporate debtor JIL, may be carrying a security interest and may be the creditors who may claim to be falling within the terminology ‘secured creditors’, yet cannot become ‘financial creditors’ of the corporate debtor JIL who is not owing any ‘financial debt’ to them. The decision in Smt. Kusum does not make out a case in favour of the respondents, the lenders of JAL.

52Copy pinpoint52. Another decision forming the mainstay of the respondents had been that in the case of Rajkumari Kaushalya Devi (supra). The relevant background aspects of the said case had been that the appellant had executed two usufructuary mortgages with respect to the two properties situated in Feroozepore city in favour of the respondent while also taking the same property on lease on the very same date in 1946. On default in effecting payments by the appellant, the respondents filed an application under Section 13 of the Displaced Persons (Debts Adjustment) Act 70 of 195153 seeking recovery of the principal amount together with arrears of rental. While omitting other aspects which may not be relevant, noticeable it is for the present purpose that one of the points for consideration in the case had been as to whether the liability created under the said mortgage was a ‘debt’ within the meaning of Section 2(6) of the Act 70 of 1951. It was contended on behalf of the appellant that such liability under the mortgage was not a pecuniary liability and, therefore, Section 2(6) did not apply to a mortgage debt. 52.1. The argument aforesaid was rejected by this Court after taking note of the definition of ‘debt’ as occurring in the said enactment. 53 ‘Act 70 of 1951’ for short H

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A The principal part of the said definition, relevant for the present purpose read as under:- “ ‘Debt’ means any pecuniary liability, whether payable presently or in future, or under a decree or order of civil or revenue court or otherwise, or whether ascertained or to be ascertained, which— B *** *** ***” 52.2. This Court, inter alia, observed, with reference to the definition aforesaid as occurring in Act 70 of 1951 and the definition of ‘mortgage’ as occurring in the Transfer of Property Act, as under:

C “3….The main contention of the appellant in this connection is that a mortgage debt is not a pecuniary liability and therefore does not fall within the definition of debt at all. We are of opinion that there is no force in this contention. The words “pecuniary liability” will cover any liability which is of a monetary nature. Now the definition of a mortgage in Section 58 of the Transfer of D Property Act 4 of 1882, shows that though it is the transfer of an interest in specific immovable property, the purpose of the transfer is to secure the payment of money advanced or to be advanced by way of loan or to secure an existing or future debt or the performance of an engagement which may give rise to a pecuniary liability. The money advanced by way of loan, for example, which is secured by a mortgage, obviously creates a pecuniary liability. It is true that a mortgage in addition to creating the pecuniary liability also transfers interest in the specific immovable property to secure that liability; none the less the loan or debt to secure which the mortgage is created will remain a pecuniary liability of the person creating the mortgage. Therefore a mortgage debt would create a pecuniary liability upon the mortgagor and would be covered by the definition of the word “debt” in Section 2(6)….” 52.3. The proposition aforesaid, being related with the definition of ‘debt’ as occurring in the said enactment (Act 70 of 1951), cannot have a direct application in the present case. In any event, the said decision cannot be taken as an authority governing the transaction where there is no direct debt of the mortgagor himself.

53Copy pinpoint53. The other citations, on various terminologies related with mercantile law and mortgage transactions, do not advance the cause of the respondents because of distinct and rather peculiar requirements of

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Section 5(8) of the Code. Of course, the decision of NCLAT in SREI A Infrastructure Finance Limited (supra) stands disapproved for what we have held hereinabove. Equally, the other submissions about the contents of the documents in question as also the entitlement of respondent-lenders to invoke the security or to take up the proceedings under SARFAESI Act etc. do not, in any event, make the transactions in question ‘financial debts’ within the meaning of Section 5(8) of the Code. Such submissions have only been noted to be rejected. Summation on second issue

54Copy pinpoint54. For what has been discussed hereinabove, on the issue as to whether lenders of JAL could be treated as financial creditors, we hold that such lenders of JAL, on the strength of the mortgages in question, may fall in the category of secured creditors, but such mortgages being neither towards any loan, facility or advance to the corporate debtor nor towards protecting any facility or security of the corporate debtor, it cannot be said that the corporate debtor owes them any ‘financial debt’ within the meaning of Section 5(8) of the Code; and hence, such lenders of JAL do not fall in the category of the ‘financial creditors’ of the corporate debtor JIL. Conclusion

55Copy pinpoint55. Accordingly, and in view of the above, these appeals are allowed to the extent and in the manner that: 1) The impugned order dated 01.08.2019 as passed by NCLAT in the batch of appeals is reversed and is set aside. 2) The appeals preferred before NCLAT against the order dated 16.05.2018, as passed by NCLT on the application filed by IRP, are dismissed; and consequently, the order dated 16.05.2018 so passed by NCLT is upheld in regard to the findings that the transactions in question are preferential within the meaning of Section 43 of the Code. The directions by NCLT for avoidance of such transactions are also upheld accordingly. G 3) The appeals preferred before NCLAT against the orders passed by NCLT dated 09.05.2018 and 15.05.2018 on the applications filed by the lender banks are also dismissed and the respective orders passed by NCLT are restored with the findings that the applicants are not the financial creditors of the corporate debtor Jaypee Infratech Limited. H

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A Acknowledgement

56Copy pinpoint56. While closing on these appeals, we put on record our thanks and compliments to the learned counsel for the respective parties as also their associates and researchers for erudite and scholarly presentation of their respective view-points, in oral as also in written submissions and B in rendering invaluable assistance to the Court in dealing with the vast variety of questions involved in these matters.

Kalpana K. Tripathy Appeals allowed