Assignment on……

Recent Judgments Pronounced by the Supreme court On Golden Rule

of Interpretation

Submitted To Submitted By

Dr. Rakesh Meena Name – Nitin

Roll no- 210608

Sub- Interpretation Of statutes

 INTRODUCTION

Interpretation

Interpretation can be either grammatical or logical. Interpretation of statutes falls under the
scope of logical interpretation, though sometimes grammatical interpretation is also required,
where different circumstances are inferred from the given rules. Often, words, by themselves,
do not project any meaning. rule of interpretation is useful in the construction of a statute,
which refers to the ordinary meaning of the words and appropriate grammatical construction,
unless the intention of the legislature differs from what is obvious. In that case, the language
can be modified so as to avoid any inconvenience in ascertaining the correct meaning of the
statute

Golden Rule of Interpretation

It is the modification of the literal rule of interpretation. The literal rule emphasises on the
literal meaning of legal words or words used in the legal context which may often lead to
ambiguity and absurdity. The golden rule tries to avoid anomalous and absurd consequences
from arising from literal interpretation. In view of the same, the grammatical meaning of such
words is usually modified. The court is usually interested in delivering justice and in order to
foresee the consequences of their decisions the golden rule is usually applied. This rule of
interpretation aims at giving effect to the spirit of the law as the mere mechanical and
grammatical meaning may not be sufficient.

CASES…

1. Hiral P. Harsora and Ors. vs. Kusum Narottamdas Harsora and

Ors.
Introduction:
Women have constantly been subject of abuse throughout centuries. In recent times, there has
been news regarding a spur in domestic violence during the lockdown period. This too is only
confined to the no. of incidents reported while many incidents go unreported due to many
reasons.[1] In this regard, it is important that the laws and the Courts in the country protect
the rights of women. Section 498A and 304B of the Indian Penal Code, 1860 were adopted in
1983 which penalised cruelty against wives.[2] A separate dedicated legislation was adopted
only in the year 2005 and it came in the form of Protection of Women from Domestic
Violence Act, 2005 (hereinafter referred to as “the Act”).
This Act defined different aspects as to the meaning of domestic violence, the aggrieved, the
respondent etc. Section 2(q) of the Protection of Women from Domestic Violence Act,
2005[3] defined the term “respondent” as any “adult male person who is, or has been, in a
domestic relationship with the aggrieved person and against whom the aggrieved person has
sought any relief under this Act.” The provision of “adult male person” was challenged in the
case of Hiral P. Harsora and Ors. vs. Kusum Narottamdas Harsora and Ors.[4]
Relevant Sections involved in the Case: 
The judgement involves various Sections of the Act. It is important to know those before
reading the judgement. Section 2(q) has already been articulated above. Other relevant
sections and provisions include-
Section 2(a) - “Aggrieved person” means any woman who is, or has been, in a domestic
relationship with the respondent and who alleges to have been subjected to any act of
domestic violence by the respondent.[5]
Section 2(f)- “domestic relationship” means a relationship between two persons who live or
have, at any point of time, lived together in a shared household, when they are related by
consanguinity, marriage, or through a relationship in the nature of marriage, adoption or are
family members living together as a joint family.[6]
Section 2(s)- “shared household” means a household where the person aggrieved lives or at
any stage has lived in a domestic relationship either singly or along with the respondent and
includes such a house hold whether owned or tenanted either jointly by the aggrieved person
and the respondent, or owned or tenanted by either of them in respect of which either the
aggrieved person or the respondent or both jointly or singly have any right, title, interest or
equity and includes such a household which may belong to the joint family of which the
respondent is a member ,irrespective of whether the respondent or the aggrieved person has
any right, title or interest in the shared household. Preamble of the Act-
An Act to provide for more effective protection of the rights of women guaranteed under the
Constitution who are victims of violence of any kind occurring within the family and
formatters connected therewith or incidental thereto.
Another important doctrine, even though it isn’t in the Act, to be understood for the purpose
of understanding the case is the doctrine of severability. Doctrine of severability ensures that
the unconstitutional part of the section makes sure is severed from the constitutional part of
the statute.
Facts of the case: 
The plaintiffs were a mother daughter duo named Pushpa Narottam Harsora and Kusum
Narottam Harsora respectively. They filed a case against Pradeep (son/brother), his wife and
2 sisters/daughters claiming that they were subjected to domestic violence by the four of
them. However, they withdrew before once again filing independent complaints against the
respondents. The respondents sought from the Metropolitan Magistrate the discharge of the
wife of Pradeep and the two sisters/daughters as under Section 2(q), a complaint can be made
only against an “adult male”. This application by the respondents was rejected. An appeal in
form of a writ petition was filed by the respondents in the Bombay High Court. The Bombay
High Court accepted the contention of the respondents and discharged the female
respondents. The Bombay High Court had laid down that Section 2(q) of the above-
mentioned Act should be interpreted while considering the definitions provided under
Sections 2(a), 2(f) and 2(s) of Protection of Women from Domestic Violence Act. Basically,
this ensured that a complaint can be filed against female members of the family along with
the “adult male member”. However, a complaint cannot be filed solely against the female
members of the family alleging domestic violence. An adult male person has to be a co
respondent. Thus, the part of “adult male person” was not read down by the Court.
The mother daughter duo filed a writ petition in the Supreme Court of India claiming that the
Section 2(q) of the abovementioned Act is violative of Article 14 of the Constitution of India.
[8]
Issues before the Court: 
The issues in this case had far reaching consequences. The inclusion of “Adult male” in
section 2(q) severely restricts the aggrieved person from seeking protection. The Court was
invoked to examine if; 
a. Section 2(q) of the Act is violative of Article 14 of the Constitution of India?
b. If the provision of “adult male” is struck down, would the rest of the provision also be
invalid?
Reasoning:
The Apex Court relied on the Statement of Objects and Preamble to conclude that the
redressal available in the Act is important. The Supreme Court reasoned that the
differentiation made was not based on intelligible differentia and hence violated Article 14 of
the Constitution of India. This differentia also stands a chance in harming the protection
being extended to the aggrieved.
In the issue of whether striking down of the provision of “Adult male” would render the
entire provision invalid, the Court applied the doctrine of severability to read down the
provision of “Adult male” and the rest of the Section was held valid and constitutional.
Judgement-
· The two judges Bench of the Apex Court consisting of Justice R. Nariman and Justice
Kurian Joesph held that the words “Adult male person” shall be struck down in Section 2(q)
of the Act. 
· The arguments of Senior Counsel Arora regarding the application of doctrine of severability
were accepted and the doctrine of Severability was applied to read down the provision of
“Adult male” and the rest of the Section was held valid and constitutional.
· The judges placed reliance on the Statement of Objects of the Act and the Preamble of the
Act and thereby did not restrict themselves by applying the literal interpretation principle as
argued by Advocate Raval. 
· Further, the Court made very important observations regarding the safety of women which
includes the fact that a non- adult can participate or abet an act of domestic violence against
the aggrieved and hence the word “adult” is struck down.[9] 
· The Court also recognised that violence can be perpetrated against a woman by other
women and this includes sexual violence. Thus, with the rest of the provision intact,
respondents can include anyone without any difference being made on the basis of gender or
age. 
Impact of the verdict-
This verdict opened the doors for the protection of women and their rights. The fact that a
respondent can be anyone irrespective of gender or age makes sure that women can proceed
against any act of violence as provided under Section 3 of the Act[10] against them. This
ensures that the object of the Act as a social welfare legislation is catered to. The constructive
reading of the Act also paves the way as a precedent for further reading of social welfare
legislations in a constructive way irrespective of the fact that they are penal statutes.
Way forward- 
Despite this verdict, it can be seen that acts of domestic violence haven’t decreased. They
have increased in an unprecedented rate throughout the lockdown period. Causes include
social causes like economic hardship, drug addiction, upbringing etc., and even biological,
psychological factors.[11]However, the legal system also has an important role to play. Most
of the cases go unreported due to the insensitive attitude of the society. Further there is a lack
of awareness regarding the legal provisions and there is need for awareness and sensitisation
programmes to be carried out by the State in this regard. Women have a right to life and
liberty and the State has a duty to ensure that these rights of women aren’t breached. Women
should be encouraged to report such incidents instead of stigmatising them socially whenever
they speak up. Only then will women be able to enjoy their life and liberty to the complete
extent.

2. Subramanian Swamy v. Union of India

The court in this case discusses that reasonableness and proportionality of a restriction is
determined from the view point of the interest of the general public at large, and not from the
point of view of the person upon whom the restrictions are imposed.

Facts of the Case

 The petition was filed under Article 32 of the Indian Constitution by Subramanian
Swamy along with other petitioners challenging the Constitutional validity of
Criminal defamation under Section 499 (defamation) and Section 500 (punishment for
defamation) of Indian Penal Code, 1860 and Sections 199(1) to 199(4) of Indian Code
of Criminal Procedure, 1973.
 The petition was filed because the petitioners argued that it curtailed their
Fundamental Right of ‘Right to freedom of speech and expression’ under Article
19(1)(a).
 In the year 2014, a corruption allegation was made by Dr. Subramanian Swamy
against Ms. Jayalathitha in response to this the Tamil Nadu state government filed a
defamation case against him.
 After this Dr. Swamy along with other prominent politicians challenged the
constitutionality of criminal defamation laws in India[1]

Issues

 Whether Section 499 and Section 500 of IPC are Constitutionally valid?
 Whether ‘Right to life’ includes ‘Right to Reputation’?
 Whether Defamation under Section 499 contravenes Article 19(1)(a) of the Indian
Constitution?
Arguments Raised By Prosecution

The constitutionality of the aforesaid provisions has been challenged on many a score and
from many an angle by the different counsel appearing for the writ petitioners who belong to
different walks of life. The arguments put forth by the learned counsel can be noted down as
follows;

 Firstly, Article19(1)(a) is only to preserve the interests of the state and the public in
general. In addition to this if there is any case of defamation among any private
individuals it must be dealt with the “Law of Torts” as it is a civil wrong or a tort.
  Article 19(2) cannot be regarded as the source of authority for Section 499 of IPC
which makes defamation of any person an offense.
 It has to be kept in mind that fundamental rights are conferred in the public interest
and defamation of any person by another person is unconnected with the fundamental
right conferred in the public interest by Article 19(1)(a) and, therefore, Section 499 is
outside the scope of Article 19(2) of the Constitution.
 An arbitrary restriction on the fundamental right that goes beyond public interest,
cannot be considered as a reasonable restriction.
 On analyzing Sections 499 and 500 IPC and Section 199 CrPC, it is manifest that
there is the presumption of facts as a matter of law and that itself makes the provision
arbitrary and once the foundation is unreasonable and arbitrary, the provisions are
meant to be called “ultra vires” Articles 14, 19 and 21 of the Constitution.

Proponements in Oppugnation

Submissions in defence were given by Mr. Mukul Rohatgi, learned Attorney General of India
and Mr. P.S. Narasimha, learned Additional Solicitor General along with various prominent
lawyers of the country. The following arguments were put forward by the learned counsels
against the claims of the petitioners;

 Article19(1)(a) dealing with freedom of speech, the most robust right. Article19(2)

must be read in reference to freedom of speech and not in isolation. Article 19(2) must
be considered as an integral part of the right to free speech and expression as Article
19(1)(a) is not a standalone right and, therefore, it cannot be said that there is an
unbridled right to free, much less defamatory speech.
  When the grounds of the exception under Article 19(2) are analyzed, each of them
upheld public interest and so does defamation, for its principal object is to preserve
reputation as a shared value of the collective.
 The stand that Sec 499 puts private wrong at the level of public wrong is totally
incorrect, as defamation or damage to reputation is an act that is meant to subserve
basic harmony in the polity.[2]
 Section 499 and 500 continues to cover the objective of protection of public interests
by defining civil wrong so as to protect the same by providing reasonable restrictions
u/s 19(2) of the Constitution.
 Thus viewed, the right enshrined under Article 19(1)(a) cannot be allowed to brush
away the right engrafted under Article 21, but there has to be a balancing of rights.

Judgment

The judgment was passed by Justice Dipak Misra and was agreed upon by Justice P.C. Pant.
The court upheld the constitutional validity of Section 499 and 500 of the Indian Penal Code
(IPC), 1860, and Section 199 of the Code of Criminal Procedure. The judgment was given by
a two-member bench after analyzing different definitions of ‘Defamation’ and ‘Reputation’.
The bench while deciding the Writ Petition (Criminal) No. 184 of 2014 was of the opinion
that ‘Right to life’ under Article 21 of the Indian Constitution also includes ‘Right to
Reputation’, which is an inseparable part of a person’s personality. The Court emphasized
that the law on criminal defamation is clear and unambiguous and thus distinguished other
cases in which it had struck down legislation that infringed freedom of speech, such as
Shreya Singhal v. Union of India[3]. Hence, the petitions were dismissed by the Court by
upholding the constitutional validity of the Criminal Defamation under Section 499 and 500
of IPC. Also, the Court during the pendency of the Writ Petitions directed the stay of further
proceedings before the trial court makes it open for the petitioners to challenge the issue as
the provision has been declared Constitutional.

Comments

Defamation can be criminal or civil in nature. The offenses committed as civil defamation are
dealt with penalties limited to damages only whereas the punishment for committing criminal
defamation is imprisonment which may extend to 2 years, or fine, or both and is governed by
IPC whereas the former falls under the law of torts.
Replacing criminal penalties with civil penalties cannot fulfill the criteria to balance the right
of freedom of expression with the right to reputation. The main idea for maintaining balance
should be an exercise of an individual’s ‘freedom of speech and expression’ without
compromising with the person’s ‘reputation’ in the eyes of the public.

The reasonableness and proportionality of a restriction are determined from the viewpoint of
the interest of the general public at large, and not from the point of view of the person upon
whom the restrictions are imposed. The judgment rightly upholds the constitutionality of the
offense of criminal defamation, stating that it constitutes a ‘reasonable restriction’ on the
right to freedom of expression under Article 19(1)(a) of the Indian Constitution.

3. State of Punjab vs. Brijeshwar Singh Chalal & Anr.

INTRODUCTION

The question precisely in this case is whether the appointment of law officers by the State
Governments can be questioned or the process by which such appointments are made can be
assailed on the ground that the same is arbitrary, hence, violative of the provisions of Article
14 of the Constitution of India. The ‘directions’ of the court are applicable only to Punjab and
Haryana, though it suggested the implementation of similar rules across all states.

JUDGES: S. Thakur and Kurian Joseph.

FACTS OF THE CASE

The factual summary of the case is as follows:

In January 2012, out of 179 Law Officers on the roll on an average, 140 Law Officers had not
been allotted any work and 87 Law Officers were without work for the whole of the month.
However, later on, the Department discontinued the services of 26 Law Officers in June
2012. This shows that Law Officers were engaged without assessing the requirement on the
basis of work or work norms or workload prevailing in the Department. No such exercise was
found to be done while engaging such Law Officers.

The matter was discussed in detail with the Additional Chief Secretary to Government of
Haryana, Administration of Justice Department in an exit conference held on 23 October
2012. During the meeting, it was stated that some guidelines should be in place to assess the
vacancies on the basis of workload and selection of Law Officers should be made in a
transparent manner. The Department was doubtful about the high percentage of Law officers
without assigning any work and stated (November 2012) that though the work was generally
assigned to a team comprising more than one Law Officer in the daily duty roster name of
only one Law Officer was mentioned. It was further added that these Law Officers perform
multifarious duties/functions such as research of law for particular pending cases, for general
updating of latest case law, preparing factual and legal notes, preparing compendium or
judgments, etc. However, no requirement or need was felt to keep the record of such
assignments as the concerned Law Officers were responsible to deal with the cases entrusted
to them.

The contention of the Department that the names of all team members were not mentioned in
daily duty roster was not acceptable as during re-verification of daily duty rosters, after the
exit conference, it was found that wherever a team was deputed for a specific work, names of
all the team members were mentioned therein.

Thus, the engagement of excess Law Officers without assessing the quantum of work and
without resorting to fair and transparent selection method resulted in allowing more than 50
percent Law Officers without work and payment of the idle salary of 2.22 crore.[2]

ISSUE OF THE CASE

Whether the appointment of law officers by the State Governments can be questioned or the
process by which such appointments are made, can be assailed on the ground that the same is
arbitrary, hence, violative of the provisions of Article 14 of the Constitution of India.

Judgment

Ratio and Obiter Dicta

Leave granted.

The States shall constitute a Selection Committee with such number of officers as the State
Government may determine to select suitable candidates for appointment as State counsel.
The Secretary, Department of Law in each State shall be the Member- Secretary of the
Selection Committee.
The Committee shall on the basis of norms and criteria which the Government concerned
may formulate and in the absence of any such norms, on the basis of norms and criteria which
the Committee may themselves formulate conduct selection of law officers for the State and
submit a panel of names to the Chief Justice of Punjab and Haryana who may set up a
Committee of Judges to review the panel and make recommendations to the Chief Justice.
The Chief Justice may be based on any such recommendations record his views regarding the
suitability of the candidates included in the panel. The Government shall then be free to
appoint the candidates having regard to the views expressed by the Chief Justice regarding
their merit and suitability. The procedure for assessment of the merit of the candidates and
consideration by the High Court will apply in all cases where the candidates are already
working as State counsel but are being given an extension in the term of their appointment.

Nothing said in the foregoing paragraphs of this judgment shall affect the right of the State
Governments to appoint any person eligible for such appointment as the Advocate General of
the State in terms of Article 165 of the Constitution of India.

Reform in the selection and appointment of state counsel

The Supreme Court proffered guidelines for the selection and appointment of law officers in
states, accepting submissions that existing processes needed to be made more transparent and
fairer. The petition before the court had sought recourse against the arbitrary appointment of
state counsel, however, taking cognizance of the matter, the court also delved into findings of
excessive numbers of legal counsel and vested interest overtaking work and merit. Whether
the court’s observations can be interpreted as ‘guidelines’ remains to be seen, with even the
justices terming them “propositions…legally unexceptionable”. They expounded a
meritocracy above a “governmental fiefdom”.

4. Dashrath Rupsingh Rathod v. State of Maharashtra and Anr.

Introduction
The judgment by the honourable Apex court in the case, resolved the long-drawn confusion
with respect to territorial jurisdiction of courts arising out of the complaints made under
Section 138 of the Negotiable Instruments Act, 1881. The legislation in question had been the
cause of mayhem among litigants as to its operation in terms of the jurisdiction in cases of
cheque dishonour. The judgment is a detailed analysis and judicial interpretation of
appropriate provisions of the impugned legislation.
 Facts of the case
The present judgment has arose out of 8 Special Leave Petitions filed before the Supreme
Court of India, with respect to dishonour of cheques in an area falling under jurisdictions of
certain courts, however issued to the drawee/complainant at some other place. The facts of
these appeals remain substantially the same as to the issue of jurisdiction.

In a certain appeal, the court reiterated the findings of the High court of Bombay, Nagpur
Bench that the complaint must not be rejected since it was filed at a place other than where
the cheque was presented to the complainant, it merely be presented to the appropriate court
for filing. The appeal was rightly dismissed. In Crl. Appeal No. 1593 of 2014, the appeal was
allowed calling for further action by the complainant for action according to law, where the
respondent-accused who had purchased certain electronic items from the appellant company,
issued cheques which were later dishonoured at a different place. The other appeals were
accordingly dismissed by the court.
The case however, involved a substantial question of law, which could pose difficulty for
future litigants. It was referred to the then, Chief Justice of India, after a proposed draft order.
The draft order had analysed the precedents leading to the case by referring to several
judgments and the comparison of their positions, whether advantageous or perverse.

The case of K. Bhaskaran v. Sankaran Vaidhyan Balan[2], (hereinafter, Bhaskaran case)

formed the crux of the precedents that operated in this regard, it was asserted that the
judgment held Section 138 to be a judicial mix of certain events that could lead up to the
offence as suggested by the provision. Section 138, as per the judgment of the said precedent
consisted of several components which together led to the commission of the offence, these
were:
 Drawing of the cheque in name of the drawee,
 Presentation of the cheque to the bank by the drawee,
 Return of the unpaid cheque by the bank to the drawee,
 Presentation of notice in writing to the drawer of the cheque to pay the amount of the cheque,
 Failure of the drawer to pay the amount demanded, within 15 days of such notice.
It is stated that the offence under Section 138 is completed upon satisfaction of the above
string of events. The judgment in Bhaskaran allowed for complaints to be filed at any place
other than where the drawee’s bank is located.

Issues in the case

The courts had the question of jurisdiction of courts for an offence falling under the purview
of Section 138 of the NI Act, codifying the requirements of the offence constituting
dishonour of cheques. The court had to investigate the components of Section 138, which
were the essentials of the offence. The court analysed the concatenation of the ingredients of
the section. The issue before the courts was to create a settlement between the various
precedents based on similar circumstances and dilemmas. The analysis of precedents on the
issue of jurisdiction led to the discovery of glaring lacunae among them.

The components of Section 138 were elucidated at length in the Bhaskaran case which
furthered the need for distinction between the serving of notice, and receipt of the same by
the drawer. The issue as to the circumstances of the notice were further a main issue in the
case of Harman Electronics Pvt. Ltd. v. National Panasonic India Pvt. Ltd.
[3], (hereinafter, Harman case). Here, the court laid emphasis on the receipt of the notice and
pronounced that  a cause of action did not lie on a mere omission on part of the accused, since
the question before the court was whether a cause of action arose when the notice was issued
from a place distinct from the place where the cheque was issued. This led the court to ponder
upon the proviso to Section 138 of the NI Act. The decision clearly distinguished between the
jurisprudential aspect of cognizance of an offence and its actual commission, which points to
the discrepancy in the present case, that is jurisdiction to try the offence.
The present bench was faced with the question of interpretation of the proviso to section 138,
its jurisprudential value while consolidation of the requirements offered by the body of the
section. It was also faced with an issue of giving a paraphrased and novel interpretation to the
precedents in the area. This was because, the court took into realisation the ratio in Bhaskaran
case, which was unexpectedly set in favour of the complainant and afforded major
complication and unjustified hardship to the accused, as in the complaint.

Since a co-ordinate is required to uphold previous decisions, it was urgent that new
precedential views be added in the present circumstance. The co-ordinate bench found it
compelling to refer it to the larger bench comprising of the Chief Justice, in the best interests
of justice.

Section 20 of the Code of Civil Procedure was also judicially interpreted to take a diverging
view from its ordinary meaning. The Explanation appended to the section was of great
relevance here. The section states that the suit must be instituted at a place, where the
Defendant ordinarily resides. The Explanation however, considers the operations of a
corporation or a company to be going on in its principal offices, and all suits shall be
instituted accordingly. Therefore, the plaintiff is precluded from instituting a suit at any other
place, where the cause of action may have arisen.

The court also took into view, the extrapolation of the concepts of criminal law onto civil
law, where the concept of cause of action and its arousal has been applied to commission of
crimes.

The order was referred to the larger bench, for an opinion by the Chief Justice.

Judgment
In his judgment, Hon’ble Thakur J. as he was then, upheld the observations of the co-ordinate
bench. He stated that the conditions set forth by Section 138 and elucidated in Bhaskaran case
were not be construed to have occurred at the same place. Those conditions have the inherent
capacity to have occurred at different places, at different times. However, the relationship of
the essentials of Section 138 were essential to establish the offence irrespective of other
factors. In this regard, the Section 178(d) of the Code of Civil Procedure was also referred.
Perusal of the section made it crystal clear that each of the acts, constituting a single offence
could be committed in many places, and each could be decided by the courts exercising
jurisdiction in that locality.

The judgment further stated the loopholes in the Bhaskaran case, which were enlarged as
gaping holes in the fabric of the judgment by the Shri Ishar Alloy Steels Ltd. v.Jayaswals
Neco Ltd.[4],. On a combined reading of Sections 3, 72 and 138 of the NI Act. If the drawer
has to be held criminally liable, the presentation of cheque should necessarily be within 6
months.
The proviso appended to the section posed some difficulty to which principles of statutory
interpretation were applied. The dishonour of a cheque and the  sending a notice to the
drawer for dishonour are 2 different fact altogether, hence for proving the offence the
ingredients of the main section are to fulfilled, the proviso provides for a mere set of other
conditions necessary for the application of the offence. There is not a speck of doubt that
once the notice is received by the accused, he at his own risk, refrains from the payment of
the amount due. He is deserving for any action taken in that behalf.

The court held that the scope of Bhaskaran case was considerably diluted in light of
circumstances where the cheque was presented in some other locality. The view taken by the
court in the Bhaskaran state could not be proper in the present case. The court also cleared the
confusion with respect to the limitation period of 6 months to the accused, to pay the amount
of the cheque after issuance of notice. This is done to afford a chance to the accused. In case
the limitation period expires without payment, the cause of action arises accordingly. Hence,
the order was held to be right in all respects, and a complaint could be instituted only in court
exercising jurisdiction in the locality of the drawee’s bank as per the ratio in the case.

5. M/s Orator Marketing Pvt. Ltd vs. M/s Samtex Desinz Pvt. Ltd. – By Purbasha
Panda

 Brief Background of the Facts

On 26th July, 2021, a Division Bench of the Hon’ble Supreme Court consisting of Indira
Banerjee J. and V. Ramasubramanian J. delivered a landmark judgement upholding
that interest free loans would fall under the definition of ‘Financial Debt’ as defined under
Section 5(8) of the Insolvency and Bankruptcy Code, 2016 (‘IBC’).

This civil appeal before the Hon’ble Supreme Court arises out of an Order dated 08.03.2021
of the Hon’ble National Company Law Appellate Tribunal (‘NCLAT’), reported at (2021)
ibclaw.in 116 NCLAT, whereby the Hon’ble Appellate Authority had dismissed the Appeal
filed by the Appellant and had upheld the Order dated 23.10.2020 delivered by the Hon’ble
NCLT, New Delhi wherein the Hon’ble NCLT had refused to admit a Section 7 Application
filed by the Appellant, on the ground that the Loan disbursed by the Financial Creditor to the
Corporate Debtor is in the nature of an interest free-loan which is excluded from the
definition of ‘Financial Debt’ under Section 5(8)(f) of the Code.

 Factual details regarding Disbursement of Loan by the Financial Creditor to the Corporate
Debtor
M/S Sameer Sales Private Limited, is the ‘Original Lender’ in the aforementioned case. It
advanced a term loan of Rs. 1.60 Crores to M/s Samtex Desinz Private
Limited (‘Corporate Debtor’) without any interest for a period of two years from the date
of execution of the Loan agreement entered between M/S Sameer Sales Private Limited and
M/S Samtex Desinz Private Limited (‘parties’). The Loan Agreement was entered between
the parties on 20.01.2018 and the Loan was due and payable after 20.01.2021. It is pertinent
to mention here that the parties herein are sister concerns and that M/S Samtex Desinz Private
Limited had taken a loan of Rs. 14,00,00,000 (Rupees Fourteen Crore Only) from M/S Tata
Capital Financial Services Limited (‘Institutional Lender’) and thus it mortgaged all the
assets in favour of the Institutional lender. However, this loan facility was not sufficient to
meet the working capital requirements of the Corporate Debtor. Therefore, the M/S Samtex
Desinz Private Limited (‘Corporate Debtor’) decided to avail an interest free loan of Rs.
1.60 Crore from its sister concern, which is the Original Lender.

It is crucial to mention here that this loan disbursed by the Original Lender was later assigned
by it to M/s. Orator Marketing Private Limited (‘Financial Creditor’).

 Background of the Proceedings at Hon’ble NCLT and NCLAT

The Financial Creditor filed a Section 7 Application under the Code before the Hon’ble
NCLT, New Delhi. The Hon’ble NCLT rejected the Application vide its Order dated
01.02.2020.  The primary question before the Hon’ble Adjudicating Authority was ‘Whether
the interest free loan of Rs. 1.60 Crores disbursed by the Original Lender to the Corporate
Debtor is in nature of Financial Debt as defined under Section 5(8) of the Code?’

The Hon’ble Adjudicating Authority relied on a decision of the Hon’ble NCLT i.e Dr. B.V.S
Lakshmi Vs. Geometrix Laser Solutions Private Limited and a decision of the Hon’ble
NCLAT i.e Shreyans Realtors Private Limited & Anr Vs. Saroj Realtors & Developers
Private Limited, Company Appeal (AT) (Insolvency) No. 311 of 2018 and held the view when
the Corporate Debtor never accepts the component of interest in relation to a debt, then that
particular debt cannot be termed as a ‘Financial Debt’ within the meaning of Section 5(8) of
the Code.

Being aggrieved by the Order of the Hon’ble NCLT, the Appellant filed an Appeal before the
Hon’ble NCLAT.

The Hon’ble NCLAT perused the statutory definition of ‘Financial Debt’ enumerated in the
Code and interpreted the same with respect to the relevant Clauses in the Loan Agreement. A
bare perusal of the provisions of the Loan Agreement provides that- (a) Under the Loan
Agreement, the Lender has extended to the borrower a term loan of Rs. 1,60,00,000.00
(Rupees One Crore Sixty Lakh) (‘Term Loan’) for a period of two years commencing from
the date of signing of the Agreement.  (b) That the Term Loan is an unsecured loan. (c) That
the Loan shall bear no interest. The Hon’ble NCLAT took the view that money borrowed
against the payment of interest comes within the definition of ‘Financial Debt’
The judgement and Order of the Hon’ble NCLT was affirmed by the Hon’ble NCLAT.

 View of the Hon’ble Apex Court

The Hon’ble Apex Court viewed that Hon’ble NCLAT and NCLT have misconstrued the
definition of ‘Financial Debt’ and have read it in isolation, in a very pedantic manner. The
Hon’ble Apex Court meticulously analysed the definition of ‘Financial Debt’. It quoted the
definition of ‘Financial Debt’ under Section 5(8)(f). Section 5(8)(f) defines ‘Financial Debt’
to mean “a debt along with interest if any which is disbursed against the consideration for
time value of money”. It caught hold of the word ‘if any’. The Hon’ble Apex expressed the
view that ‘Financial Debt’ means outstanding principal due in respect of a loan and would
also include an interest thereon, if any interest were payable and if there is no interest payable
on the loan, then only the outstanding will qualify as a ‘Financial Debt’.

 It analysed Section 5(8)(f) and observed that the scope of the definition of ‘Financial Debt’
enumerated under Section 5(8)(f) is inclusive and not exhaustive. Section 5(8)(a) which
provides for money borrowed against payment of interest, inclusively comes under the
purview of the definition of ‘Financial Debt’. The Hon’ble Apex Court observed that, sub
clauses (a) to (i) of sub-section 8 of Section 5 of the Code are apparently illustrative and not
exhaustive.

The Hon’ble Apex Court relied on a couple of judgements to interpret the word ‘include’.  It
relied on a Privy Council judgement that is Dilworth Vs. Commissioner of Stamps, 5(1899)
AC 99. In this judgement, the Privy Council had expressed the view that, “The word ‘include’
is  generally used in interpretation clause in order to enlarge the meaning and when it is so
used these words and phrases must be construed as comprehending, not only such things as
they signify from their natural import, but also those as things which the interpretation clause
declares that they shall include. But the word ‘include’ is suspectible of another construction,
which may become imperative, if the context of the act is sufficient to show that it was not
merely employed for the purpose of adding to the natural significance of the words or the
expressions defined. It may be equivalent to mean and include’, and in the case it may afford
an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably
be attached to words and expressions.”

The Hon’ble Apex Court was, however careful and cautioned that the scope of the term
‘means and includes’ cannot be so expansive so as to defeat the purpose of a statute. On this
point, it relied on Anuj Jain Interim Resolution Professional for Jaypee Infratech Ltd. Vs.
Axis Bank Ltd, 8(2020) 8 SCC 401. In this case, the Hon’ble Apex Court speaking through
Maheswari J. referred to various precedents on restrictive and expansive interpretation of
words and phrases used in a statute, particularly the words ‘means’ and ‘includes’ and held
that- “The requirement of existence of a debt, which is disbursed against the consideration
for the time value of money, is an essential ingredient for existence of debt, which is
disbursed against consideration for time value of money. In any case, the definition, by its
frame cannot be read so expansive, rather infinitely wide, that the root requirements of
disbursements against the consideration for time value of money could be forsaken in a
manner that any financial transaction could stand alone to become a financial debt”.

The Hon’ble Apex Court interpreted Section 5(8) and held that “money borrowed against
payment of interest” is one of a kind of financial debt, under the various kinds of financial
debt are enumerated under Section 5(8)(a) to Section 5(8)(i). The Hon’ble Apex Court finally
held that the definition of ‘Financial Debt’ in Section 5(8) of the Code does not expressly
exclude an interest free loan. The Hon’ble Apex Court held that ‘Financial Debt’ would
have to be construed to include interest free loans advanced to finance the business
operations of a corporate body.

Analysis
However, the question that arises here is in the present set of facts is ‘What was actually the
consideration for time value of money in the present transaction? The term ‘time value of
money’ essentially means that the money that one might have now,  would have more worth
than its present value in future.

In this case, there is a entity which has taken a loan from an institutional lender and has
mortgaged all his assets, however the loan taken is not sufficient to meet his working capital
requirements. So now to fix the same, he has taken an unsecured term loan from one of its
sister concerns without any interest (This term loan was though later assigned to the
Appellant). So the question arises, what exactly is the consideration for time value of money
in this case?  The Judgement does not answer this question very elaborately rather it doesn’t
undertake an extensive analysis of the nature of the financial transaction between the parties.
It can be presumed that the entity would meet his working capital requirements through the
term loan advanced by his sister concern and generate some profit. The question that arises is
“Would the profit generated by the entity with the help of monies received through the term
loan advanced by its sister concern is the consideration in nature of time value of
money?” The judgement does not sufficiently elaborate on this aspect.