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The GNLU Law Review - Volume 8 │ December 283

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to weed out vexatious and mala de applications dressed up in non-
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Indus Biotech, WKH� 6&� VHHPV� WR� KDYH� ORVW� LWV� ZD\ � OHDYLQJ� WKH� DUELWUDWLRQ�
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FUHDWHG� D� JDSLQJ� ORRSKROH� E\� PLVLQWHUSUHWLQJ� WKH� WHUP� ³default´� DV�
de ned in the Code. The Hon’ble Supreme Court while considering
WKH� LVVXHV� KHOG� WKDW� QRQ SD\PHQW� RI� GXHV� LQ� WKH� SUHVHQW� FDVH� FDQQRW�
be classi ed as default till the dispute between the parties concerning
44
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This view adopted is contrary to the statutory provisions which de ne


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WKH� ODZ 45 Further, the Code de nes “debt”DV� D� OLDELOLW\� RU� REOLJDWLRQ� LQ�
UHVSHFW� RI� D� FODLP� ZKLFK� LV� GXH 46� $� ³claim” is de ned in Section 3(6)
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to judgment, xed, disputed, undisputed, legal, equitable, secured, or
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of default in the Code, for which CIRP can be initiated by a nancial
creditor. This intention was also identi ed in Innoventive Industries Ltd.
Y �,&,&,�%DQN 48 the rst judgment which dealt with the Code.

43
Rakesh Malhotra v. Rajinder Kumar Malhotra, 2014 SCC OnLine Bom 1146 :� � �
&RPS�/-�
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48
Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407, ¶ 30 (hereinafter
‘Innoventive Industries¶
284 INDUS BIOTECH V. KOTAK INDIA VENTURE

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IDOOV�IRXO�RI�VWDWXWRU\�SURYLVLRQV�EXW�DOVR�WKH�OHJDO�LQWHQW�WR�UHGXFH�GHOD\V�
LQ� WKH� SURFHVV� DQG� LQFUHDVLQJ� XQFHUWDLQW\� LQ� WKH� SURFHVV � ,W� LV� WR� EH�
QRWHG� WKDW� DQ� XQZDUUDQWHG� LPSOLFDWLRQ� RI� WKLV� MXGJPHQW� ZRXOG� EH� WKDW�
HYHQ� WKH� SDUWLHV� ZKLFK� GR� QRW� KDYH� DUELWUDWLRQ� DJUHHPHQWV� ZLOO� KDYH� DQ�
RSWLRQ� RI� UDLVLQJ� WKH� GHIHQVH� RI� GLVSXWH� WR� GHUDLO� WKH� LQLWLDWLRQ� RI� &,53 �
Thus, the judgment erred for rstly not trying to reconcile the objectives
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)LQDQFLDO�&UHGLWRUV

In misinterpreting the terms “ nancial debt” and “claim” as it appears


LQ�WKH�FRGH �WKH�FRXUW�FRQWUDYHQHV�WKH�YHU\�FOHDU�OHJLVODWLYH�LQWHQW�EHKLQG�
distinguishing the rights of operational creditors and nancial creditors.
The nancial creditors can initiate CIRP based on the existence of a
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WKH� RSHUDWLRQDO� FUHGLWRUV� FDQ� LQLWLDWH� &,53� RQO\� LQ� WKH� DEVHQFH� RI� DQ\�
GLVSXWH� UDLVHG� E\� WKH� FRUSRUDWH� GHEWRU The reason for such di�erence
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observed that nancial creditors are engaged in assessing the viability of
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DFWLRQV� IRU� WKH� FRPSDQ\ � 0RUHRYHU � XQOLNH� RSHUDWLRQDO� FUHGLWRUV� WKH\�
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WKH\�FRPH�DFURVV�D�SUREOHP�LQ�WKH�DFWV�RI�WKH�SURPRWHU�JURXS

However, by imposing the condition on the nancial creditor to prove


an undisputed debt before initiating the CIRP, it has placed nancial

49
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The GNLU Law Review - Volume 8 │ December 285

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Thus, the judgment smudges the di�erence between the two classes of
FUHGLWRUV� WR� D� YDQLVKLQJ� SRLQW� DQG� HQGV� WKLV� REMHFWLYLW\�LQ� WKH� SURFHVV� RI�
initiating CIRP for the nancial creditors and replaces it with a rather
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Preference Shares (OCRPS) assuming it to be nancial debt. However,
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3 � /WG � Y � 0DJLNZDQG� 0HGLD� 3 � /WG 54� RQ� WKH� SRLQW� WKDW� 3UHIHUHQFH�
6KDUHKROGHUV� DUH� QRW� FUHGLWRUV� RI� WKH� FRPSDQ\ � DV� WKH\� FDQ� RQO\� EH� SDLG�
out of the company’s pro t � XQOLNH� FUHGLWRUV� ZKR� KDYH� D� ULJKW� WR� EH�
paid despite the pro tability of the company. � +HQFH� WKH� FRXUW� VKRXOG�
KDYH� UHMHFWHG� WKH� FODLPV� RI� WKH� UHVSRQGHQW� LQ� WKH� FDSDFLW\� RI� ³ nancial
creditors´� RQ� WKLV� YHU\� JURXQG � QRQHWKHOHVV � LW� JORVVHG� RYHU� D� FDWHQD�
of contrary judgments to this e�ect � DQG� ZHQW� LQWR� WKH� TXHVWLRQV� RI�
con ict between arbitration and Insolvency. However, this mistake
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VXFK�DV�8.�DQG�6LQJDSRUH

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Various jurisdictions across the globe have dealt with the con ict of
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