Insolvency and Bankruptcy Code 2016 – s. 7(5)(a) – Interpretation of – Legislature has in its wisdom used the word ‘may’ in s. 7(5)(a) of the Code in respect of an application for CIRP initiated by a financial creditor against a Corporate Debtor – It confers discretionary power on the Adjudicating Authority (NCLT) to admit an application of a Financial Creditor u/s. 7 of the Code for initiation of CIRP – The existence of a financial debt and default in payment only give the financial creditor the right to apply for initiation of CIRP – NCLT is required to apply its mind to relevant factors – Electricity.

Insolvency and Bankruptcy Code, 2016: s. 7(5)(a) – Whether discretionary or mandatory – Held: Is discretionary.

Insolvency and Bankruptcy Code, 2016: Difference between s.7(5)(a) and s.9(5)(a) – Discussed – Legislature used ‘may’ in s. 7(5)(a) of the IBC but a different word ‘shall’ in the otherwise almost identical provision of s.9(5)(a) shows that ‘may’ and ‘shall’ in the two provisions are intended to convey a different meaning – Legislature intended s.9(5)(a) of the IBC to be mandatory and s.7(5)(a) of the IBC to be discretionary – An application of an Operational Creditor for initiation of CIRP u/s.9(2) of the IBC is mandatorily required to be admitted if the application is complete in all respects and in compliance of the requisites of the IBC.

Words and Phrases: May and Shall – Presumption of Fact and Presumption of Law – Discussed – Ordinarily the word “may” is directory – The expression ‘may admit’ confers discretion to admit – The use of the word “shall” postulates a mandatory requirement – The use of the word “shall” raises a presumption that a provision is imperative – The prima facie presumption about the provision being imperative may be rebutted by other considerations such as the scope of the enactment and the consequences flowing from the construction.

Interpretation of Statutes: Rules of interpretation – First and foremost principle of interpretation of a statute is the rule of literal interpretation – Purposive interpretation can only be resorted to when the plain words of a statute are ambiguous or if construed literally, the provision would nullify the object of the statute or otherwise lead to an absurd result.

Insolvency and Bankruptcy Code, 2016: Difference between Financial Creditors and Operational Creditors – Discussed.