2022 (2) TMI 936 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational Creditors - seeking interest part of the debt - malicious prosecution for which the Operational Creditor would be liable for punishment or not. Whether the application can be pursued for the interest part of the debt? - HELD THAT - There is a stipulation about the interest in the tax invoice and that there is no agreement pertaining to the interest otherwise and the rate of interest mentioned in the tax invoice as already observed is given a go by, by the Operational Creditor when the interest is mentioned as 18% in the E-mail dated 28.09.2020. The E-mail dated 28.09.2020 would also show that the request made by the Corporate Debtor with regard to the settlement of the interest amount would be taken to the management of the poly pipes and shall be decided after receipt of the principal outstanding. But the subsequent letter only mentions that the waiver of interest would not be considered since, the Corporate Debtor claimed waiver though it diverted the funds of the company to semi business and also other business of the Corporate Debtor which are carried on by various entities. By making such allegations, the issue of interest becomes a contentious one between the parties which cannot be adjudicated by this tribunal. The principle that the operational debt does not include interest and hence a petition for interest alone cannot either be filed or be pursued is well settled and is well within the spirit of the IBC. This application which is being pursued only for the interest part of the debt cannot be admitted. Moreover the object of IBC is to keep the companies as ongoing concerns. The facts of this case would reveal that after filing of the Application, the Respondent cleared the principal amount. The defence taken in the counter is that the amounts due to the Operational Creditor were agreed to be paid after the Corporate Debtor receives the amounts from the Government. There is no denial of the said fact in the rejoinder filed by the Operational Creditor. Even in the E-mail which is relied upon by the Operational Creditor it is mentioned that the principal amount would be repaid immediately after receipt of payment from the Government of Andhra Pradesh which is expected to be in three to four months. There was no dispute raised with regard to the said undertaking given by the Corporate Debtor. The fact that the payment to the Operational Creditor is contingent on receiving the amounts from the Government would show that the Corporate Debtor is not an insolvent. Hence, on that ground also the Application fails. Malicious prosecution or not - HELD THAT - This Tribunal is inclined to accept the argument of the Operational Creditor's Counsel that since the interest part of the debt is as huge as more than ₹ 1 Crore it cannot be said that the application is being pursued with malicious intention. He contends that in the judgments cited by the Corporate Debtors the amount of interest was meagre when compared to the amount of interest involved in this case and hence, it was held that the prosecution for interest was malicious. Hence, the application though is held as not malicious prosecution is rejected. Right of Operational Creditor to recover interest - multiplicity of proceedings - HELD THAT - The Judgment of the Supreme Court in VIJAY INDUSTRIES VERSUS NATL TECHNOLOGIES LTD. 2008 (12) TMI 404 - SUPREME COURT by relying on several judgments observed that the term debt may refer not only to principal (value of goods or amount advanced) but also interest due thereon, where there is a contract to pay interest. It was also observed that where there is a bona fide dispute in regard to interest, the Court considering a Petition under Section 433(e) should not decide the issue, merely to avoid the multiplicity of proceedings. The purpose of winding up proceedings being completely different from the purpose of proceedings for recovery of a debt, winding up proceedings are not a substitute for a civil suit and therefore, relegating parties to the suit cannot be considered as resulting in multiplicity of proceedings. In this case there is a need to admit evidence with regard to the agreement of interest between the parties, since though the liability to pay interest is not denied, there is a request for reduction of rate of interest. The Operational Creditor agreed to look into the request but later rejected on certain grounds. Evidence pertaining to those grounds needs to be taken and evaluated, until which time no finding on the eligible rate of interest can be given. In the light of the above, the Operational Creditor is given liberty to claim interest if he is entitled for the same, before the appropriate forum. Petition dismissed.

Summary

Issues Involved:
1. Whether the application can be pursued for the interest part of the debt.
2. To what result.

Detailed Analysis:

I. Whether the application can be pursued for the interest part of the debt:
The Tribunal examined whether the application could be pursued solely for the interest part of the debt, considering that the principal amount had been paid by the Corporate Debtor after the filing of the petition. The petition was initially filed for both principal and interest parts of the debt. The Operational Creditor had issued a demand notice for both amounts, to which the Corporate Debtor did not respond.

The Tribunal noted that the invoices included a specific condition that interest at 24% per annum would be charged for delayed payments. However, it was questioned whether this stipulation in tax invoices, which did not bear the Corporate Debtor's signature, constituted an agreement for payment of interest. The Corporate Debtor argued that the definition of operational debt under the Insolvency and Bankruptcy Code (IBC) does not include interest, unlike financial debt, which explicitly includes interest.

The Tribunal reviewed several judgments, including those from the Supreme Court and National Company Law Appellate Tribunal (NCLAT), which supported the notion that pursuing an application solely for interest would amount to malicious prosecution. For example, in the case of SBF Pharma Vs. Gujarat Liqui Pharmacaps Pvt. Ltd., NCLAT held that pursuing the insolvency resolution process merely for recovering interest indicated malicious intent.

The Tribunal also considered correspondence between the parties, including an email from the Operational Creditor indicating a discussion about reducing the interest rate to 18% per annum, which implied that the original interest rate of 24% per annum was not intended to be enforced. The Tribunal concluded that there was no clear agreement on the interest rate, and the issue of interest had become contentious.

II. To what result:
The Tribunal determined that the application could not be admitted as it was being pursued solely for the interest part of the debt. The primary objective of the IBC is to keep companies as ongoing concerns, and since the Corporate Debtor had cleared the principal amount and was not insolvent, the application failed. The Tribunal also noted that the defense taken by the Corporate Debtor—that the payment to the Operational Creditor was contingent on receiving amounts from the Government—was not disputed by the Operational Creditor.

Regarding the aspect of malicious prosecution, the Tribunal acknowledged the argument of the Operational Creditor's counsel that the interest amount was substantial (over ?1 Crore), which differentiated this case from others where the interest amount was meager. Therefore, the application was not considered malicious prosecution but was rejected for the aforementioned reasons.

The Tribunal granted the Operational Creditor the liberty to claim interest before the appropriate forum, as the determination of the eligible rate of interest required admitting and evaluating evidence.

Conclusion:
The application CP (IB) No. 11/9/AMR/2021 was dismissed.