Saturday, 22 June 2024

State of Orissa & Ors. Vs. Chandra Nandi - This Court has consistently laid down that every judicial or/and quasi judicial order passed by the Court/Tribunal/Authority concerned, which decides the lis between the parties, must be supported with the reasons in support of its conclusion.

SCI (2019.04.01) in State of Orissa & Ors. Vs. Chandra Nandi [Civil Appeal No. 10690 Of 2017] held that; 

  • This Court has consistently laid down that every judicial or/and quasi judicial order passed by the Court/Tribunal/Authority concerned, which decides the lis between the parties, must be supported with the reasons in support of its conclusion.


Excerpts of the order;

# 1. This appeal is directed against the final judgment and order dated 24.01.2014 passed by the High Court of Orissa at Cuttack in Writ Petition (Civil) No.19550 of 2011 whereby the High Court allowed the writ petition in part and directed the State to treat the respondent(employee) as a regular employee and grant him pensionary benefits which he had claimed in his OA.


# 2. A few facts need mention hereinbelow for the disposal of this appeal, which involves a short point. 


# 3. By impugned order, the High Court while partly allowing the writ petition filed by the respondent(employee) herein modified the order dated 11.06.2009 passed by Orissa State Administrative Tribunal (for short “the Tribunal”) in OA No.1513(C) of 2004 and directed the State to grant the respondent(employee) all pensionary benefits which he had claimed in his OA. The State of Orissa has felt aggrieved and filed the present appeal by way of special leave in this Court.


# 4. So, the short question, which arises for consideration in this appeal, is whether the High Court was justified in allowing the respondent's writ petition in part and was, therefore, justified in issuing the direction now impugned in this appeal by the State.


# 5. The respondent (a retired employee) filed OA No.1513 (C) 2004 in the Tribunal against the appellant (State) and sought certain reliefs in relation to his post retiral benefits, such as gratuity, pension etc.


# 6. By order dated 11.06.2009, the Tribunal granted some benefits to the respondent but declined the remaining benefits which gave rise to filing of the writ petition by the respondent (employee) against that part of the order of the Tribunal which declined to grant him the remaining benefits which he had claimed in his OA.


# 7. By impugned order, the High Court allowed the respondent's writ petition in part and also granted those benefits, which were declined by the Tribunal giving rise to filing of this appeal by the State by way of special leave in this Court.


# 8. Having heard the learned counsel for the parties and on perusal of the record of the case, we are constrained to allow this appeal, set aside the impugned order and remand the case to the High Court for deciding the respondent's writ petition afresh on merits in accordance with law.


# 9. The need to remand the case to the High Court has occasioned because from the perusal of the impugned order, we find that it is an unreasoned order. In other words, the High Court neither discussed the issues arising in the case, nor dealt with any of the submissions urged by the parties and nor assigned any reason as to why it has allowed the writ petition and granted the reliefs to the writ petitioner which were declined by the Tribunal. 


# 10. This Court has consistently laid down that every judicial or/and quasi judicial order passed by the Court/Tribunal/Authority concerned, which decides the lis between the parties, must be supported with the reasons in support of its conclusion. The parties to the lis and so also the appellate/revisionary Court while examining the correctness of the order are entitled to know as to on which basis, a particular conclusion is arrived at in the order. In the absence of any discussion, the reasons and the findings on the submissions urged, it is not possible to know as to what led the Court/Tribunal/Authority for reaching to such conclusion. (See State of Maharashtra vs. Vithal Rao Pritirao Chawan, (1981) 4 SCC 129, Jawahar Lal Singh vs. Naresh Singh & Ors., (1987) 2 SCC 222, State of U.P. vs. Battan & Ors., (2001) 10 SCC 607, Raj Kishore Jha vs. State of Bihar & Ors., (2003) 11 SCC 519 and State of Orissa vs. Dhaniram Luhar, (2004) 5 SCC 568).


# 11. The order impugned in this appeal suffers from aforesaid error, because the High Court while passing the impugned order had only issued the writ of mandamus by giving direction to the State to give some reliefs to the writ petitioner (respondent) without recording any reason.


# 12. We are, therefore, of the view that such order is not legally sustainable and hence deserves to be set aside.


# 13. In view of the foregoing discussion, the appeal succeeds and is accordingly allowed. The impugned order is set aside. The case is remanded to the High Court for deciding the writ petition afresh, out of which this appeal arises, for its disposal in accordance with law keeping in view the observations made above.


# 14. Since we have formed an opinion to remand the case to the High Court for its fresh disposal on merits, we have not expressed any opinion on the merits of the case while deciding this appeal. The High Court will, therefore, decide the appeal uninfluenced by any observations made by this Court in this order.


# 15. Since the matter is old, we request the High Court to decide the writ petition expeditiously preferably within six months.


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Imp. Rulings; Section 65, Fraudulent or malicious initiation of proceedings.

 Imp. Rulings;  Section 65, Fraudulent or malicious initiation of proceedings.

Index;

  1. NCLAT (2024.02.02) in Ashmeet Singh Bhatia Vs. Pragati Impex India Pvt. Ltd. and Anr.. [Company Appeal (AT) (Insolvency) No. 1413 of 2023]

  2. NCLAT (2023.10.03) in Amour Infrastructure LLP Vs. Digital Integrated Technologies Pvt. Ltd.[Company Appeal (AT) (Ins.) No. 884 of 2022 & I.A. No. 2458 of 2022] 

  3. NCLT New Delhi-II (2023.03.16) In Mr. Pawan Kumar Goyal, IRP Vs. Alchemist XXXVII. [IA. No. 3818/ND/2021 in Company Petition No. (IB)-684(ND)/2020]

  4. NCLT New Delhi (2022.12.16) in Mr. Sanjeev Mahajan  Vs.  Indian Bank (Erstwhile Allahabad Bank) & Ors. [IA. NO. 2611/ND/2022 IN CP No. (IB)-1913(ND)/2019 ] 

  5. NCLAT (2022.07.22) in Zoom Communications Pvt. Ltd. Vs. M/s. Par Excellence Real Estate Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 619 of 2022]

  6. NCLAT (2022.02.28) in Telha Sareshwala Vs. Parsoli Motors Works Pvt. Ltd. [(2022) ibclaw.in 198 NCLAT, Company Appeal (AT) (Ins) No. 1115 of 2020]

  7. NCLT Hyderabad (2022.02.14) in Laxmi Kantha Rao Thota  Vs. IRIS Electro Optics Pvt Ltd  [IA 785, 857&858/2019 & IA 72,193&629/2020 CP(IB) No.181/7/HDB/2019 ] 

  8. NCLT New Delhi-II (2021.07.29) in Om Logistics Limited & Anr. vs. M/s Ryder India Pvt. Ltd. [IA. 2038 /ND/2020 in Company Petition No. (IB)-1742(ND)/2019 ]

  9. NCLAT (2021.07.13) in Shree Ambica Rice Mill Vs. M/s KaneriAgro Industries Limited [Company Appeal (AT)(Ins.) No. 143 of 2021]

  10. SCI (2020.02.18) in Beacon Trusteeship Limited v. Earthcon Infracon (P) Ltd. [(2020) ibclaw.in 52 SC, Civil Appeal No. .7641/2019] 

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1. NCLAT (2024.02.02) in Ashmeet Singh Bhatia Vs. Pragati Impex India Pvt. Ltd. and Anr.. [Company Appeal (AT) (Insolvency) No. 1413 of 2023] held that;

  • The power under Section 65 of the Code can be exercised by the Adjudicating Authority only after satisfying that grounds as mentioned exist, 

  • if the Adjudicating   Authority come to the conclusion that insolvency proceedings have been initiated fraudulently or with malicious intent for any other purpose other than for the resolution of insolvency of the Corporate Debtor, it can impose penalty as provided in the provision.

  • While exercising jurisdiction under Section 65, the Adjudicating Authority is also fully entitled to close CIRP process and pass all consequential order. The mere fact that Section 7 Application has been admitted does not denude the jurisdiction of the Adjudicating Authority to examine the application under Section 65 of the Code.

  • The observations of the Adjudicating Authority are that the Appellant is opposing the admission of the proceeding which admission has been affirmed by the Appellate Tribunal. The above does not denude the jurisdiction of the Adjudicating Authority to examine the allegations made in the Section 65 Application even after admission of the proceedings under Section 7.

  • Application have been filed belatedly at the stage when Resolution Plan of the Corporate Debtor is under consideration. The mere fact that Application has been filed at the time when plan is under consideration does not take away the jurisdiction of the Adjudicating Authority to consider the allegations and find out the truth, if any.

  • That the Adjudicating Authority committed error in rejecting the Application without considering the Application on its merit. In result, the Order dated 01.09.2023 is set aside,

[ Link Synopsis ]

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2. NCLAT (2023.10.03) in Amour Infrastructure LLP Vs. Digital Integrated Technologies Pvt. Ltd.[Company Appeal (AT) (Ins.) No. 884 of 2022 & I.A. No. 2458 of 2022] held that; 

  • We are of the view that for proving the ingredient of Section 65 there has to be adequate pleadings and findings. Observations made in paragraph 26 does not fulfill the requirement of Section 65 so as to reject the Section 7 application.

[ Link Synopsis ]

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3. NCLT New Delhi-II (16.03.2023) In Mr. Pawan Kumar Goyal, IRP Vs. Alchemist XXXVII. [IA. No. 3818/ND/2021 in Company Petition No. (IB)-684(ND)/2020] held that;

  • Without publishing Form-G, CoC could not have been in a position to formulate an opinion that there were no prospective buyers available for the CD. The scheme of IBC gives every Corporate Debtor a fair chance to stand on their own feet and to come out of financial distress. That is why every Corporate Debtormust go through the IBC-mandated CIR process before facing the liquidationproceedings.

  • Judicial review of the decision of the CoC in a particular case is not precluded. In Sreedhar Tripathy, it has been clearly held that judicial review of the decision of the CoC is not precluded and it depends on facts of each case.”

  • We are of the prima facie opinion that the present IA for the Liquidation of CD has been filed with malicious intent, and it is a fit case for issuance of show cause notice (U/s. 65) to the Assenting CoC members jointly, who voted in favour of the Liquidation of the CD without even exploring the possibility of resolution of the Corporate Debtor,

[ Link Synopsis ]

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4. NCLT New Delhi (2022.12.16) in Mr. Sanjeev Mahajan  Vs.  Indian Bank (Erstwhile Allahabad Bank) & Ors. [IA. NO. 2611/ND/2022 IN CP No. (IB)-1913(ND)/2019 ]  held that;

  • Since the debt and default was admitted by the Corporate Debtor  itself during the hearing on admission of CIRP of the Corporate Debtor,  therefore, in our considered view, at this stage, the Applicant cannot  claim that the said IB Petition was filed by  by the Financial  Creditor/Indian Bank with malicious and fraudulent intent. 

  • We thus are of the view that the Order dated 04.07.2022 clearly entitled that the CoC to weigh the Resolution Plans as well as Settlement Proposal together. 

[ Link Synopsis ]

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5. NCLAT (2022.07.22) in Zoom Communications Pvt. Ltd. Vs. M/s. Par Excellence Real Estate Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 619 of 2022] held that

  • Here is a case, where Director of the Corporate Debtor (in the capacity of Director of the Applicant Company) has procured a loan for his own company and is charging procurement fee therefor.

  • Hence, in our considered view, the related party is having no control in the CIR Process. Therefore, the intention of a related party of initiating the CIR Process shall always raise eyebrows.

  • Application for initiating the CIR Process has been filed by concealing a material fact that the Applicant and the Corporate Debtor were related Parties at the time of transaction basing on which operational debt has been claimed.

  • Hence, before taking any action under Section 65(1) IBC 2016, we think it proper to issue a show cause notice, under Rule 59 of the National Company Law Tribunal Rules 2016,

[ Link Synopsis ]

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6. NCLAT (2022.02.28) in Telha Sareshwala Vs. Parsoli Motors Works Pvt. Ltd. [(2022) ibclaw.in 198 NCLAT, Company Appeal (AT) (Ins) No. 1115 of 2020] held that; 

  • Considering the provision of Section 65 of the IBC, it is necessary for the Adjudicating Authority in case such an allegation is raised to go into the same. In case, such an objection is raised or application is filed before the Adjudicating Authority, obviously, it has to be dealt with in accordance with law. 

  • The plea of collusion could not have been raised for the first time in the appeal before the NCLAT or before this Court in this appeal. Thus, we relegate the appellant to the remedy before the Adjudicating Authority.

  • In case, a proper application is filed, aspect whether the proceedings have been initiated in collusive manner will be looked into, in accordance with law and the appropriate orders have to be passed, considering the facts and circumstances of the case.

  • Even fraudulent tradings carried on by the Corporate Debtor during the insolvency resolution, can be inquired into by the Adjudicating Authority under Section 66. Section 69 makes an officer of the corporate debtor and the corporate debtor liable for punishment, for carrying on transactions with a view to defraud creditors.

  • Therefore, NCLT is vested with the power to inquire into (i) fraudulent initiation of proceedings as well as (ii) fraudulent transactions. It is significant to note that Section 65(1) deals with a situation where CIRP is initiated fraudulently “for any purpose other than for the resolution of insolvency or liquidation”.

  • “It is not in dispute that there is no ‘debt’ and ‘default which is the basic requirement of the Section 7 of the Code. However, the ‘Adjudicating Authority’ has the inherent power to restrict the perpetuation of applications motivated by fraud or malice under section 65 of the code. . . .”

[ Link Synopsis ]

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7. NCLT Hyderabad (14.02.2022) in Laxmi Kantha Rao Thota  Vs. IRIS Electro Optics Pvt Ltd  [IA 785, 857&858/2019 & IA 72,193&629/2020 CP(IB) No.181/7/HDB/2019 ] held that;

  • Therefore, in the wake of authentic public record stated above which emphatically discloses that Mrs. Archana Thota as the director of the 1st respondent Company till date, we refrain ourselves from giving any credence to the photo copy of the so called resignation letter of Mrs.Archana Thota dated 30.11.2018. 

  • No penalty can be saddled either under Section 65(1) or (2) of the Code without recording an opinion that a prima facie case is established to suggest that a person ‘fraudulently or with malicious intent for the purpose other than the resolution of Insolvency or Liquidation or with an intent to defraud any person has filed the Application.

[ Link Synopsis ]

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8. NCLT New Delhi-II (29.07.2021) in Om Logistics Limited & Anr. vs. M/s Ryder India Pvt. Ltd. [IA. 2038 /ND/2020 in Company Petition No. (IB)-1742(ND)/2019 ] held that;  

  • As per the Code, if any person [as defined under Section 3(23) of IBC] initiates the Insolvency Resolution Process fraudulently or with malicious intent for any purpose other than for the resolution of the insolvency, or liquidation, such an act is punishable under Section 65 (1) of IBC 2016.

  • when the Applicant (IRP) is unable to carry forward the CIR process for want of cooperation/participation from the sole member of CoC, we feel it appropriate to terminate the CIR process of the Corporate Debtor. In view of the above, by exercising our jurisdiction under Section 60(5) of IBC 2016 along with inherent power under Rule 11 of the NCLT Rules, 2016, we hereby terminate the CIR process of the Corporate Debtor with immediate effect and release the Corporate Debtor from the rigors of the CIRP and moratorium.

[ Link Synopsis ]

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9. NCLAT (2021.07.13) in Shree Ambica Rice Mill Vs. M/s KaneriAgro Industries Limited [Company Appeal (AT)(Ins.) No. 143 of 2021] held that; 

  • What is also of relevance is that in order to protect the corporate debtor from being dragged into the corporate insolvency resolution process mala fide, the Code prescribes penalties.

  • With the aforesaid discussion we are unable to convince with the argument of Ld. Counsel for the Appellant that Ld. Adjudicating Authority when entered into investigating the nature of the transaction then exceeded in its jurisdiction under Section 7 (5) of the IBC.

  • That for acts or documents to be a “sham,” with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.

  • We are in agreement with the Ld. Adjudicating Authority as there is inevitable conclusion that the Financial Creditor colluded with the Corporate Debtor and filed the Application with other than the Resolution or for ulterior motive to prevent the Bank of Baroda to recover the debt from the Corporate Debtor.

[ Link Synopsis ]

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10. SCI (2020.02.18) in Beacon Trusteeship Limited v. Earthcon Infracon (P) Ltd. [(2020) ibclaw.in 52 SC, Civil Appeal No. .7641/2019] held that; 

  • Considering the provision of Section 65 of the IBC, it is necessary for the Adjudicating Authority in case such an allegation is raised to go into the same. In case, such an objection is raised or application is filed before the Adjudicating Authority, obviously, it has to be dealt with in accordance with law. 

  • The plea of collusion could not have been raised for the first time in the appeal before the NCLAT or before this Court in this appeal. Thus, we relegate the appellant to the remedy before the Adjudicating Authority.

  • In case, a proper application is filed, aspect whether the proceedings have been initiated in collusive manner will be looked into, in accordance with law and the appropriate orders have to be passed, considering the facts and circumstances of the case.

[ Link Synopsis ]

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Preamble & Objectives of IBC

The Preamble to the IBC expressly recognizes the shift in the law, with respect to ordering priority of claims, especially with respect to government dues:


The Preamble of the I&B Code, 2016 reads as follows:

  •  "An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto. BE it enacted by Parliament in the Sixty-seventh Year of the Republic of India."

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The Objectives of the I&B Code, 2016 


1). NCLAT (2025.04.16) in Shitanshu Bipin Vora vs Shree Hari Yarns Pvt. Ltd. and Anr. [(2025) ibclaw.in 271 NCLAT, Company Appeal (AT) (Insolvency) No. 2204 of 2024] held that;

  • # 49. It is also contended that the Respondent is attempting to misuse the provisions of the code to initiate CIRP against the Appellant, which is a healthy and insolvent company and is regularly meeting all its obligation. In its support the Appellant has relied on various judgments wherein it has been held that the primary objective of the code is resolution and not recovery. Some of these are extracted as below:

  • 49.1 Binani Industries Limited vs Bank of Baroda (supra) wherein it was held that the first order objective of the Code is resolution. The second order objective is maximisation of value of assets of the firm and the third order objective is to promote entrepreneurship, availability of credit and to balance the interests of the stakeholders. The relevant extracts of the judgment are reproduced below:

  • “2. The objective of the ‘I & B Code’ is Resolution. The Purpose of Resolution is for maximisation of value of assets of the ‘Corporate Debtor’ and thereby for all creditors. It is not maximisation of value for a ‘stakeholder’ or ‘a set of stakeholders’ such as Creditors and to promote entrepreneurship, availability of credit and balance the interests. The first order objective is “resolution.” The second order objective is “maximisation of value of assets of the ‘Corporate Debtor’ and the third order objective is ‘promoting entrepreneurship, availability of credit and balancing the interests.’ This order of objective is sacrosanct.” [emphasis supplied]

  • 49.2 Swiss Ribbons Pvt Ltd vs Union of India (supra): The focus on maximising the value of the Debtor’s assets was further reiterated wherein the Supreme Court recorded the following observations.

  • “..As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganization and insolvency resolution of corporate debtors. Unless such reorganization is affected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximization of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme – workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximize their investment.” [emphasis supplied] 

  • 49.3 M/s SS Engineers vs Hindustan Petroleum Corporation Ltd and Ors (supra) wherein it was held that;

  • “31. The NCLT, exercising powers under Section 7 or Section 9 of IBC, is not a debt collection forum. The IBC tackles and/or deals with insolvency and bankruptcy. It is not the object of the IBC that CIRP should be initiated to penalize solvent companies for non-payment of disputed dues claimed by an operational creditor.” [emphasis supplied]

  • 49.4 Transmission Corporation of Andhra Pradesh Limited vs Equipment Conductors and Cables Limited, and Mobilox Innovations (supra): Hon’ble Supreme Court has held that the Code is not intended to be a substitute to a recovery forum and the object of the Code is efficient resolution of corporate debtor and to bring the company out of distress.

  • # 50. Further we are also inclined to agree with the submission of the Appellant that IBC aims at resolution and not recovery and cannot be used to push a healthy and solvent company into CIRP. The appeal of the Respondent No 1 clearly runs contrary to the object and purpose of the Code, which mandates reorganisation of the Corporate Debtor and maximisation of its assets. We are inclined to agree with the submissions of the Appellant in the light of the fact that the Appellant is a solvent company and discharging its debt obligation and also willing to pay the principal amount to the Respondent No.1.

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2). Hon’ble Supreme Court (2021.09.15) in the matter of K. N. Rajkumar Vs V. Nagarajan & Ors. [CIVIL APPEAL NO. 1792 OF 2021] has held that :-

  • “16. It could thus be seen that one of the principal objects of the IBC is providing for revival of the Corporate Debtor and to make it a going concern. Every attempt has to be first made to revive the concern and make it a going concern, liquidation being the last resort.”

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3). Hon’ble Supreme Court (2019.01.25) in Swiss Ribbon Pvt Ltd v. union of India [(2019) 4 SCC 17, Writ Petition (Civil) No. 99 of 2018] has held that:

  • Para 9…….The objective of the Insolvency and Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development.

  • Para 10 The Preamble of the Code states as follows: ―An Act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.

  • Para 12. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters / those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor‘s assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends.

  • “Para 28. Most importantly, financial creditors are, from the very beginning, involved with assessing the viability of the corporate debtor. They can, and therefore do, engage in restructuring of the loan as well as reorganization of the corporate debtor’s business when there is financial stress, which are things operational creditors do not and cannot do. Thus, preserving the corporate debtor as a going concern, while ensuring maximum recovery for all creditors being the objective of the Code, financial creditors are clearly different from operational creditors and therefore, there is obviously an intelligible differentia between the two which has a direct relation to the objects sought to be achieved by the Code.” (Emphasis Added)

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