2022 (11) TMI 930 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP for realisation of interest due - Corporate Debtor failed to make repayment of its dues of interest - Operational Creditors - existence of debt and dispute or not - whether CIRP can be pursued for realization of the interest amount alone? - HELD THAT - The Corporate Debtor has time and again acknowledged the existence of the operational debt and sought time to repay the same. Undisputedly, the payment was delayed by the Corporate Debtor but it is the Operational Creditor s own submission that an amount of Rs. 19,66,159/- was repaid by the Corporate Debtor over a period of two years thus paying back the entire principal amount out of the total outstanding debt. Pursuant to the Order of this Bench dated 13th February 2020, the Operational Creditor revised the Petition and amended the claim amount to Rs. 9,54,749/- which solely includes the interest component that remains unpaid till date. In this regard, we note that it is now settled law that interest, in itself, is not sufficient to maintain a Petition under Section 9 of the Code. The interest clause in the invoices cannot be treated as an agreement between the parties for claiming interest and moreover, such interest amount cannot be the sole reason for continuing proceedings against the Corporate Debtor under this Code after the principal amount has been repaid - The Operational Creditor now continues to proceed against the Corporate Debtor for the interest amount which was considered to be barred by the NCLAT in S.S. Polymers vs. Kanodia Technoplast Limited 2019 (11) TMI 1428 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI . Thus, by continuing to proceed against the Corporate Debtor for the interest amount alone, all the Operational Creditor intends is to recover and realise their debt which is against the letter and spirit of the Code. Petition dismissed.

Summary

Issues:
- Initiation of Corporate Insolvency Resolution Process (CIRP) based on default in payment by the Corporate Debtor.
- Consideration of interest amount alone for pursuing CIRP.
- Validity of interest clause in invoices as a ground for initiating CIRP.

Analysis:
1. The Company Petition was filed by the Operational Creditor seeking to initiate CIRP against the Corporate Debtor for default in payment, invoking Section 9 of the Insolvency and Bankruptcy Code, 2016. The total claim amount was Rs. 29,20,908, out of which Rs. 27,54,749 remained due after partial repayment by the Corporate Debtor.

2. The Operational Creditor supplied goods to the Corporate Debtor as per a Purchase Order, following which invoices were raised with an interest clause for overdue payments. Despite reminders and a Demand Notice, the Corporate Debtor failed to repay the full amount, leading to the filing of the Petition by the Operational Creditor.

3. The Corporate Debtor made partial payments over two years, citing labor issues and adverse market conditions affecting their business. The Operational Creditor amended the claim amount to Rs. 9,54,749 as the remaining interest component after the principal amount was repaid. The Corporate Debtor contended that pursuing CIRP solely for the interest amount was not valid under the Code.

4. The Tribunal considered whether pursuing CIRP for the interest amount alone was justifiable. It noted that the Corporate Debtor had repaid the principal amount, and interest alone was insufficient to maintain a Petition under Section 9 of the Code. The Tribunal referred to a previous case to emphasize that interest clauses in invoices may not constitute a valid agreement for claiming interest.

5. Despite attempts at settlement, the Operational Creditor continued to pursue the interest amount after talks failed. The Tribunal found that such actions were against the spirit of the Code, as the intent was solely to recover the debt rather than resolve insolvency. Consequently, the Tribunal dismissed the Company Petition, directing immediate communication of the order to both parties.