2022 (1) TMI 715 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - rejection of Operational Debt - existence of debt and dispute or not - HELD THAT - There is no dispute that before issuance of notice in the Company Petition filed by the Appellant, the principal amount as claimed by the Appellant of ₹ 18,07,373/- was paid on 15th December, 2018. The claim of interest was refuted in the reply filed before the Adjudicating Authority by the Respondent. It was specifically a case of the Respondent that there was no agreement between the parties to make any payment of interest and the claim of interest by the Appellant is mala-fide and without any basis. In the present case, when the Corporate Debtor in its reply to Section 9 Application has clearly and categorically denied it liability to pay any interest, there was no case of payment of any agreed interest. The Adjudicating Authority has also recorded finding that claim for interest on the delayed payment is a disputed fact by the Corporate Debtor and it can only be adjudicated by a court of competent jurisdiction. The claim of interest being disputed, no error has been committed by the Adjudicating Authority in rejecting the Application under Section 9 of the Code. The provisions of Code cannot be allowed as a recovery mechanism or to recover the claim of interest by Operational Creditor. The Application under Section 9 cannot be converted into proceedings for recovery of interest by Operational Creditor on delayed payment, that is not the object of IBC. The object of the IBC is to resolve the insolvency of the Corporate Debtor and to bring back the Corporate Debtor on its feet. The present is not a case where there is any insolvency resolution of Corporate Debtor. The Adjudicating Authority has rightly rejected the Application of the Appellant filed under Section 9 of the Code, which warrants no interference in this Appeal - appeal dismissed.

Summary

Issues Involved:
1. Whether the claim for interest on delayed payment qualifies as an 'operational debt' under the Insolvency and Bankruptcy Code, 2016.
2. Whether the Application under Section 9 of the Insolvency and Bankruptcy Code, 2016, was maintainable given the dispute regarding interest.

Detailed Analysis:

Issue 1: Whether the claim for interest on delayed payment qualifies as an 'operational debt' under the Insolvency and Bankruptcy Code, 2016.

The Appellant, an advertising company, engaged by the Respondent Company for advertisement-related work, sent a Demand Notice under Section 8 of the Code on 27th July 2018, demanding payment of unpaid operational debt amounting to ?89,28,494/- including interest. The Respondent refuted the claim stating no amount was due and payable. The Appellant filed an Application under Section 9 of the Code claiming ?18,09,586/- as the principal amount and ?71,18,908/- as interest at 3% monthly, totaling ?89,28,494/-. The Respondent paid ?18,07,373/- as the principal amount but disputed the interest claim, stating there was no agreement for interest payment, and termed the interest claim as fraudulent and imaginary.

The Adjudicating Authority held that the claim for interest was unconscionable, irrational, and unjustified, and did not qualify as an operational claim. The Authority further stated that the claim for interest on delayed payment was a disputed fact and could only be adjudicated by a court of competent jurisdiction.

The Appellant contended that the Adjudicating Authority erred in holding that the claim of interest could not be included in the 'operational debt'. The Appellant argued that the invoices clearly stipulated that if payment was not made within five days from the bill date, interest at 5% per month would be charged. The Appellant relied on the judgment of the Hon’ble Supreme Court in Vijay Industries vs. National Technologies Ltd., which held that interest is part of the 'operational debt'.

However, the Tribunal distinguished this case from Vijay Industries, noting that in the present case, the Corporate Debtor had categorically denied any liability to pay interest. The Tribunal also noted discrepancies in the interest rates claimed by the Appellant in different documents, which lacked clarity and consistency.

Issue 2: Whether the Application under Section 9 of the Insolvency and Bankruptcy Code, 2016, was maintainable given the dispute regarding interest.

The Tribunal referred to the judgment of the Hon’ble Supreme Court in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited, which held that the Adjudicating Authority must reject the application under Section 9 if there is a plausible contention requiring further investigation and that the 'dispute' is not a patently feeble legal argument or an assertion of fact unsupported by evidence. The Tribunal also referred to the judgment in Transmission Corporation of Andhra Pradesh Limited vs. Equipment Conductors and Cables Limited, which reiterated that the IBC is not intended to be a substitute for a recovery forum and cannot be invoked where there is a real dispute.

The Tribunal further referred to the judgment in Swiss Ribbons Private Limited and Anr. vs. Union of India and Ors., which emphasized that the primary focus of the insolvency legislation is to ensure the revival and continuation of the Corporate Debtor, not merely to serve as a recovery mechanism for creditors.

The Tribunal noted that the Respondent had paid the principal amount before the issuance of notice in the Company Petition and had consistently disputed the interest claim. The Tribunal concluded that the Application under Section 9 was pursued only for the realization of the interest amount, which is against the principle of the IBC. The Tribunal cited its previous decision in S.S. Polymers vs. Kanodia Technoplast Limited, where it held that pursuing an application under Section 9 solely for the recovery of interest is barred under Section 65 of the IBC, as it indicates malicious intent.

The Tribunal also highlighted the lack of clarity in the Appellant's claim regarding the rate of interest, noting discrepancies in the interest rates mentioned in different documents. The Adjudicating Authority's finding that the claim for interest was unconscionable, irrational, and unjustified was upheld.

In conclusion, the Tribunal held that the provisions of the IBC cannot be used as a recovery mechanism for interest claims by Operational Creditors. The Application under Section 9 was rightly rejected by the Adjudicating Authority, as there was no insolvency resolution of the Corporate Debtor involved. The Appeal was dismissed with no order as to costs.