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2017 (12) TMI 1384 - Tri - Insolvency and BankruptcyCorporate insolvency process - interest claimed over the principal - Held that - By seeing the loan transaction, one thing is clear that most of the interest rates charged are not heard of, at least we have not come across of charging 1% interest per day on defaulted amount, the Petitioner multiplied interest rates, with different nomenclature such as additional interest, minimum interest, future interest, prepayment interest. May be, the Debtor entered into an agreement agreeing for paying all these interests but for this Court, it appears as usurious, since there is a law in existence giving discretion to this Bench to discourage claiming interest at fleecing rates is usurious in nature. Therefore, since it is a Code came in to existence to deal with distress situation of the company, this Bench is not expected to permit to allow the companies like this fleecing whatever left in the company in the name of interest, if claims of this nature are allowed, the other creditors who are genuinely entitled to have their say in CoC will also get affected. It is not for the first time, this Bench applying this proposition, in the past various High courts in cases in between Sri Balasaraswathi Ltd., v. A. Parameswara Aiyar 1955 (11) TMI 15 - HIGH COURT OF MADRAS decided interest rates are usurious wherever the rates are felt excessive, therefore, since the average rate of interest over the principal has come to 92% per annum, this Bench invoked discretion given under the Usurious Loans Act to deprecate the claim made by this Petitioner. In view of the reasons aforementioned, this Bench hereby holds that the interest claimed over the principal is usurious, therefore, this Petition is hereby dismissed with liberty to the Petitioner to approach before appropriate Forum.
Issues Involved:
1. Default in repayment by the Corporate Debtor. 2. Dispute over the interest rate being usurious. 3. Application of the Usurious Loans Act, 1918. Detailed Analysis: 1. Default in Repayment by the Corporate Debtor: The Petitioner, a Non-Banking Financial Company, filed a Company Petition under Section 7 of the Insolvency and Bankruptcy Code against the Corporate Debtor for defaulting on a loan repayment amounting to ?58,55,500 as of 20.06.2017. The loan of ?30,00,000 was sanctioned on 19.03.2016 with an interest rate of 24% p.a., payable in advance, and was to be repaid in 8 monthly installments. The Corporate Debtor failed to make any repayments, leading to the issuance of a notice under Sections 433 and 434 of the Companies Act, 1956, on 11.09.2016. 2. Dispute Over the Interest Rate Being Usurious: The Corporate Debtor admitted to the debt and default but contested the interest rate as usurious. The Petitioner claimed additional interest of 1% per day on overdue amounts, which compounded the debt significantly. The total due by 20.06.2017 was ?58,58,500, which was more than double the principal amount within a short period. The Corporate Debtor argued that the interest rate forced them to pay more than double the principal amount in less than a year, which they claimed was excessive and unfair. 3. Application of the Usurious Loans Act, 1918: The Tribunal examined whether the interest claimed was usurious under the Usurious Loans Act, 1918. The Act allows the court to intervene if the interest is deemed excessive and the transaction substantially unfair. The Tribunal noted that the Petitioner had charged various types of interest, including additional interest of 1% per day, minimum interest, pre-closure charges, and future interest, leading to an effective interest rate of 92% p.a. The Tribunal found these rates to be excessive and substantially unfair. Conclusion: The Tribunal concluded that the interest rates charged by the Petitioner were indeed usurious. It invoked the provisions of the Usurious Loans Act, 1918, to deprecate the claim made by the Petitioner. The Tribunal dismissed the Petition, granting liberty to the Petitioner to approach an appropriate forum for relief. Judgment: The Petition was dismissed on the grounds that the interest claimed over the principal was usurious, with the Tribunal exercising its discretion under the Usurious Loans Act to prevent the Petitioner from claiming excessive interest rates.
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