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2020 (10) TMI 276 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Financial Debt - Operational Debt - existence of debt and dispute or not - HELD THAT - It is admitted fact that the Corporate Debtor has not filed the reply to the application filed by the Operational Creditor but Corporate Debtor sent the reply to the demand notice, which Operational Creditor has enclosed at page 74 of the paper book and we have gone through the reply to the demand notice and we find that it is specifically mentioned in para 6 of the reply to the demand notice that quality control department has detected that the supplied paper quality is less than 130 to 140 GSM and rejected on the ground that the said materials does not qualify the standard of paper quality of 180 GSM. It is found that nowhere, the petitioner has explained or revert to the submissions made in para 6 of the reply to the demand notice rather petitioner is silent on this point and we find that this matter has discussed with the Operational Creditor by the Company Director of Corporate Debtor in the month of June. 2018 and it was decided that demurrage of 30% of the total invoice amount i.e. ₹ 2,48.952/- from the principal amount but Operational Creditor no-where in the main application mentioned about this fact that when the dispute regarding the quality of goods raised by the Corporate Debtor then it was agreed to deduct 30 per cent of the total invoice amount i.e. ₹ 2,48,952/-, therefore, we are of the considered view that although no reply has been filed by the Corporate Debtor but in reply to the demand notice. Corporate Debtor has raised the issue of quality of goods. There is difference between the Financial Debt and Operational Debt. Operational Debt means a claim in respect of the provisions of goods or services including employment or a debt in respect of the dues arising under any law for the time being in force comes under the definition of operational debt whereas the Financial debt means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes and the other conditions mentioned at Section 5(8)(a to i) - Now it is the settled principle of law that National Company Law Tribunal is not recovery court rather when a default occurred financial creditor or operational creditor may file an application for initiating corporate insolvency resolution process and word default is defined U/S 3(12) of the IBC. In view of Section 3(12)IBC so far operational debt as defined in Section 5(21) IBC is concerned default means a debt which is defined in Section 3(11) IBC and not the interest like financial debt. There is no drafting error in section 5(21). while defining the Operational debt rather the legislature clearly omit the word interest in the definition of operational debt for the purpose of default in order to trigger Section 9 IBC. If it had been the intention of legislature to add interest in the debt, then like definition of financial debt, it must be described in the definition of operational debt but it is omitted, therefore, it had never been the intention of legislature to include interest in the definition of operational debt. Hence, in view of aforesaid discussions, we are of the considered view that we can always presume that the legislature inserted every part thereof for a purpose and the legislative intention is that every part of the statute should have effect - like definition of financial debt given in Section 5(8) of the IBC, word interest is not included in Section 5(21) of IBC i.e. in the definition of operational debt therefore, while calculating the default for the non-payment of debt in case of operational debt only the principal amount can be treated as a defaulted amount and not the interest amount. Since Corporate Debtor has already deposited the principal amount of ₹ 8,04,540/- before Registrar, NCLT, therefore, in view of Section 3(12) of the IBC. there is no default of debt and if there is no default of operational debt then Section 9 of the IBC cannot be triggered - Application dismissed.
Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of Insolvency and Bankruptcy Code, 2016. 2. Dispute regarding the quality of goods supplied. 3. Inclusion of interest in the definition of operational debt under IBC. Issue-wise Detailed Analysis: 1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of Insolvency and Bankruptcy Code, 2016: The petition was filed by the Operational Creditor for the initiation of CIRP against the Corporate Debtor due to non-payment of dues. The Operational Creditor supplied various paper materials to the Corporate Debtor from June 2017 to June 2018, with invoices allowing a credit period of 30 to 60 days. Despite multiple reminders and part payments, a principal amount of ?8,04,540/- remained outstanding. The Corporate Debtor acknowledged the outstanding amount but did not file a reply to the application. However, they deposited a demand draft of ?8,04,540/- before the Registrar, NCLT, which was considered in the judgment. 2. Dispute regarding the quality of goods supplied: The Corporate Debtor raised a dispute regarding the quality of the goods supplied, claiming that the paper quality was less than the agreed 180 GSM. This issue was mentioned in their reply to the demand notice, stating that the materials were rejected by their quality control department. The Corporate Debtor agreed to utilize the materials for certain clients with a standard demurrage of 30% of the total invoice amount. The tribunal noted that the Operational Creditor did not address this quality dispute in their application, indicating that the dispute was validly raised by the Corporate Debtor. 3. Inclusion of interest in the definition of operational debt under IBC: The Operational Creditor claimed interest on the outstanding amount, arguing that the invoices stipulated an interest rate of 2% per month on delayed payments. The tribunal examined the definitions of "financial debt" and "operational debt" under Sections 5(8) and 5(21) of IBC, respectively. It concluded that while financial debt includes interest, operational debt does not. The tribunal referred to the Supreme Court's decision in Natha Devi Vs. Radha Rani Gupta, emphasizing that every part of the statute should have effect, and the omission of the word "interest" in the definition of operational debt was intentional by the legislature. Therefore, the tribunal held that interest cannot be included in the defaulted amount for operational debt. Conclusion: The tribunal found that the Corporate Debtor had already deposited the principal amount of ?8,04,540/- with the Registrar, NCLT, and there was no default of operational debt as per Section 3(12) of IBC. Consequently, the tribunal dismissed the application for initiating CIRP against the Corporate Debtor. The Operational Creditor was advised to pursue the recovery of interest through appropriate legal channels. The main application was dismissed, and the Operational Creditor was allowed to collect the deposited demand draft from the Registrar, NCLT.
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