2018 (7) TMI 393 - AT - Insolvency and Bankruptcy

Corporate Insolvency Resolution Process - claim to the extent of principal amount barred by limitation - Held that - As per Annexure II (I) and (Annexure-II)(5), the respondent admits its liability limiting to the principal amount. Thus, it appears to us that the claim to the extent of principal amount is not barred by limitation as alleged by the respondent. The contention of the respondent that the claim of the applicant is barred by limitation is therefore found not sustainable under law. Whether the claim of compound interest with monthly rest at three times of the bank rate notified by the Reserve Bank as per section 16 read with section 15 of the MSMED Act,2006 is liable to pay by the respondent? - Held that - The total amount here in this case demanded by the applicant is ₹ 4,50,75,953.08 (Rupees Four Crores Fifty Lakh Seventy Five Thousand Nine Hundred Fifty Three and Eight Paise only). The liability to pay the amount as claimed by the applicant is in dispute by the respondents. So also application of SSI Act and MSMED Act in respect of calculation of the interest claimed by the applicant is also seriously in dispute in the case in hand. The principal amount due is only ₹ 22,74,897.65. The amount of interest claimed comes to ₹ 4,28,01,055.43 (Four Crore twenty-eight lakh one thousand fifty-five and paise forty-three only) as per the calculation of the operational creditor and he calculated the interest at the prevailing rate charged by the State Bank of India which includes compound interest and penal interest. Admittedly, there is no contractual liability to pay interest by the corporate debtor. If it is allowed it amounts to allowing interest more than 18 multiple of the principal amount which according to us is substantially unfair. No hesitation in coming to a conclusion that the dispute raised by the Corporate Debtor/Respondent is bona fide and it requires further investigation. Moreover, it appears to us that the claim for interest which is exceeding more than 18 times of the principal amount cannot be claimed by the applicant as a legitimate claim as against a corporate debtor in a proceedings of this nature, especially, from a Central Government undertaking who is willing to settle the applicant s claims without interest. It is significant to note here that all the financial creditors claim was settled by the respondent upon wavier of claim of interest but the applicant, despite notice, not submitted its claim before the respondent but filed the application before this Tribunal. In the light of above-said discussion, this application is liable to be rejected.

Summary

Issues Involved:
1. Maintainability of the application under Section 9 of the Insolvency and Bankruptcy Code, 2016.
2. Bar of limitation on the claim.
3. Authorization of the signatory to file the application.
4. Existence of debt and default.
5. Dispute regarding the claim of interest.
6. Applicability of the SSI Act, 1993 and MSMED Act, 2006 for the interest claim.
7. Bona fide defense of the Corporate Debtor.

Detailed Analysis:

1. Maintainability of the Application:
The Operational Creditor filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016, for initiating Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The Corporate Debtor contended that the application was not maintainable due to pre-existing disputes and improper form. However, the Tribunal focused on the substantive issues rather than procedural technicalities.

2. Bar of Limitation on the Claim:
The Corporate Debtor argued that the claim was barred by limitation since the goods were supplied between April 2001 and October 2002. The Operational Creditor countered that the Corporate Debtor had acknowledged the debt through letters dated 05.06.2012, 23.12.2015, and 19.05.2017, which should reset the limitation period. The Tribunal agreed with the Operational Creditor, citing Section 25(3) of the Indian Contracts Act, which allows for a fresh contract based on acknowledgment of debt even after the limitation period.

3. Authorization of the Signatory:
The Corporate Debtor questioned the authority of the signatory who filed the application. The Tribunal found that the Operational Creditor had provided sufficient authorization to its representative, making this contention irrelevant.

4. Existence of Debt and Default:
The Corporate Debtor admitted an outstanding principal amount of ?22,74,897.65 but disputed the interest claim. The Tribunal noted that the principal amount was not in dispute, and thus, the debt existed. However, the default in payment of interest was contested.

5. Dispute Regarding the Claim of Interest:
The Corporate Debtor disputed the claim of compound interest calculated under the SSI Act, 1993, and the MSMED Act, 2006. The Tribunal noted that the interest claim was not based on any contractual agreement but on statutory provisions, which were contested by the Corporate Debtor. This dispute fell under Section 5(6) of the I&B Code, warranting a more extensive hearing and evidence.

6. Applicability of the SSI Act, 1993 and MSMED Act, 2006 for the Interest Claim:
The Tribunal examined Sections 15 and 16 of the MSMED Act, which mandate compound interest on delayed payments. However, it noted that disputes regarding such interest should be referred to the MSMED Facilitation Council as per Section 18 of the MSMED Act. The Tribunal ruled that the summary proceedings under the I&B Code were not suitable for resolving such disputes.

7. Bona Fide Defense of the Corporate Debtor:
The Corporate Debtor presented a bona fide defense, citing its status as a sick unit registered with BIFR and the closure approved by the Union Cabinet. The Tribunal found that the Corporate Debtor’s willingness to settle the principal amount without interest and its efforts to settle dues with other creditors demonstrated a genuine defense.

Conclusion:
The Tribunal concluded that the dispute regarding the interest claim required further investigation and could not be resolved in the summary proceedings of the I&B Code. The application for initiating CIRP was rejected, but no costs were imposed. The Tribunal emphasized the fairness and reasonableness in dealing with claims against a government undertaking facing financial difficulties.