Supreme Court of India · 2022
Vidarbha Industries Power Ltd v. Axis Bank Ltd
(2022) 8 SCC 352 · Civil Appeal No. 4633 of 2021
Court
Supreme Court of India
Bench
2-Judge Bench (Indira Banerjee & J.K. Maheshwari JJ.)
Date
12 July 2022
Subject
IBC S.7 — NCLT Admission Discretion
Background & Facts
Vidarbha Industries Power Ltd (VIPL) is an electricity generating company that set up a 600 MW coal-fired thermal power plant at Butibori in Nagpur District, Maharashtra. In a tariff dispute, the Appellate Tribunal for Electricity (APTEL), by order dated 3 November 2016, directed the Maharashtra Electricity Regulatory Commission (MERC) to allow VIPL its actual cost of coal for Unit 1; VIPL claimed that ₹1,730 crore was due to it under that order. MERC's appeal against the APTEL order (Civil Appeal No. 372 of 2017) was pending in the Supreme Court, so VIPL could not realise the amount, and it claimed that implementing the APTEL order would enable it to clear all its outstanding liabilities.
On 15 January 2020 Axis Bank Ltd filed a Section 7 application before the NCLT, Mumbai, for a debt of about ₹553 crore. VIPL applied (M.A. No. 570 of 2020) for a stay of the Section 7 proceedings while MERC's appeal was pending. The NCLT dismissed the stay application on 29 January 2021, holding that it had only to see whether there was a debt and a default, and the NCLAT dismissed VIPL's appeal on 2 March 2021. On VIPL's further appeal, the only question, as the Supreme Court put it, was whether Section 7(5)(a) — under which the NCLT "may" admit the application — is a mandatory or a discretionary provision (para 57).
Key Issues Before the Court
Holdings of the Court
Paragraph numbers refer to the judgment as pronounced by the Supreme Court; numbering in law reports may differ.
Holding 1 — "May Admit" Confers Discretion; NCLT is Not Bound to Admit
The Supreme Court held that "may" in Section 7(5)(a) of the IBC, as it then read, confers a discretion: "The expression ‘may admit’ confers discretion to admit" (para 64). Construed literally, the provision confers a discretion on the NCLT (para 65); and the contrast with "shall" in the otherwise almost identical Section 9(5) shows that Parliament intended Section 9(5)(a) to be mandatory and Section 7(5)(a) to be discretionary (paras 75–76). The existence of a financial debt and default only gave the financial creditor the right to apply for initiation of CIRP (para 61); it is not the object of the IBC "to penalize solvent companies, temporarily defaulting in repayment of its financial debts" (para 81).
Holding 2 — A Realisable Award in the Debtor's Favour Could Not Be Disregarded
The Court held that the APTEL award in VIPL's favour — under which ₹1,730 crore, an amount far exceeding the financial creditor's claim, was said to be realisable — could not be completely disregarded by the NCLT as extraneous (para 60). The NCLT was required to apply its mind to relevant factors, including the feasibility of initiating CIRP against an electricity generating company operated under statutory control, the impact of MERC's pending appeal, the APTEL order, and the overall financial health and viability of the corporate debtor under its existing management (para 61). The NCLT and NCLAT erred in holding that, once debt and default were found, there was no option but to admit (para 90); their orders were set aside and the NCLT was directed to reconsider VIPL's stay application on merits (para 91).
Holding 3 — Discretion Must Be Exercised Judiciously and on Relevant Grounds
The Court held that the discretion "cannot be exercised arbitrarily or capriciously" (para 86). Ordinarily the NCLT would have to exercise its discretion to admit an application on satisfaction of the existence of a financial debt and default, "unless there are good reasons not to admit the petition" (para 87). Its example: where admission is opposed on the basis of an award or decree in the corporate debtor's favour for an amount exceeding the debt, the NCLT would have to keep admission in abeyance unless there is good reason not to — for instance, if the award or decretal amount is incapable of realisation (para 88). If facts and circumstances so warrant, the NCLT can keep admission in abeyance or even reject the application, and a financial creditor whose application is rejected may apply afresh if its dues remain unpaid (para 79).
Holding 4 — Subsequent Developments: The Review Order, M. Suresh Kumar Reddy, and the 2026 Amendment
Axis Bank sought review, relying on E.S. Krishnamurthy v. Bharath Hi-Tech Builders. By order dated 22 September 2022 (Review Petition (C) No. 1043 of 2022) the same Bench found no ground for review, but stated that "the elucidation in paragraph 90 and other paragraphs were made in the context of the case at hand". In M. Suresh Kumar Reddy v. Canara Bank (11 May 2023, Abhay S. Oka and Rajesh Bindal JJ.), the Supreme Court read that order as clarifying that Vidarbha was decided in the setting of its own facts, so that it cannot be read as taking a view contrary to Innoventive Industries and E.S. Krishnamurthy, and held that "the view taken in the case of Innoventive Industries still holds good". Since 26 May 2026, Section 7(5), as substituted by the IBC (Amendment) Act, 2026, provides that the Adjudicating Authority shall admit the application if it is satisfied that a default has occurred, the application is complete and no disciplinary proceeding is pending against the proposed resolution professional; Explanation I adds that where those requirements are met, no other ground shall be considered to reject the application.
Practical Implications
Vidarbha Industries was relied on by corporate debtors — particularly in regulated sectors — to seek deferment of CIRP admission, for example by pointing to a realisable award or decree in their favour that exceeds the debt. Its weight must now be read with the review order of 22 September 2022 and with M. Suresh Kumar Reddy, which treat it as confined to the setting of its facts.
For banks and financial institutions, the position since 26 May 2026 is set by the substituted Section 7(5): once the NCLT is satisfied that a default has occurred, the application is complete and no disciplinary proceeding is pending against the proposed resolution professional, the application is to be admitted, and Explanation I bars any other ground of rejection. Applications pending or decided before that date should be assessed with specific advice.
Relevant Statutory Provisions
Practical Application for Creditors & Borrowers
Corporate debtors in regulated sectors facing Section 7 petitions, or financial creditors whose petitions are being contested on Vidarbha grounds, require specialist IBC counsel to assess the merits of the discretion argument. Unified Chambers advises on CIRP admission strategy, regulatory interface, and pre-admission settlement negotiations.