2023 (7) TMI 1026 - AT - Insolvency and Bankruptcy

Initiation of CIRP - Recovery of Interest - invoice not signed by the Appellant - unilateral document or not - interest claimed by the Respondent on the basis of the invoices in which it is mentioned that if the amount is not paid within the due date then 21% interest shall be charged - HELD THAT - The impugned order is patently illegal and deserves to be set aside. The question which has been raised by the Appellant, is hereby answered in favour of the Appellant in view of the decision taken by this Court in case of S.S. POLYMERS VERSUS KANODIA TECHNOPLAST LIMITED 2019 (11) TMI 1428 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI , as well as the decision of the Hon ble Karnataka High Court in the case of JYOTI LTD. VERSUS BOVING FOURESS LTD. 2000 (12) TMI 817 - HIGH COURT OF KARNATAKA , where it was held that The application was pursued for realisation of the interest amount, which, according to us is against the principle of the I B Code, as it should be treated to be an application pursued by the Applicant with malicious intent (to realise only Interest) for any purpose other than for the Resolution of Insolvency, or Liquidation of the Corporate Debtor and which is barred in view of Section 65 of the I B Code. Before parting, it is constrained to observe that the Adjudicating Authority has erred in not looking into the facts that the principal amount has entirely been paid and the issue was only regarding to interest for which the application under Section 9 of the Code was not maintainable as the spirit of the legislation of the Code is for resolution of debt and not for recovery . The impugned order set aside - appeal allowed.

Summary

Issues:
Admission of Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code, 2016 based on an application by an Operational Creditor. Dispute over the payment of principal amount during the proceedings. Claim for interest, litigation charges, and other fees by the Respondent after receiving the principal amount. Legal issue regarding the validity of claiming interest on unpaid invoices. Interpretation of relevant case laws and judgments on similar matters.

Issue 1: Admission of Corporate Insolvency Resolution Process
The appeal challenged the order admitting the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor based on an application filed by the Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016. The application detailed the operational debt, default amount, and relevant transactions, leading to the initiation of the CIRP against the Corporate Debtor.

Issue 2: Dispute over Payment of Principal Amount
During the proceedings, the Appellant paid the principal amount of the debt, which was acknowledged by the Respondent. However, the Respondent continued to pursue the application for recovery of interest, litigation charges, and other fees, despite the principal amount being settled. The Respondent's affidavit highlighted the payment of the principal amount in 2021 to avoid insolvency proceedings.

Issue 3: Claim for Interest on Unpaid Invoices
The Respondent claimed interest, litigation charges, and other fees based on invoices issued for the supply of goods, mentioning interest charges for delayed payments. The Appellant contested the validity of claiming interest on invoices not signed by them, arguing that unilateral documents cannot be enforced for interest recovery. The Appellant cited relevant case laws, including the decision in the case of S.S.Polymers Vs. Kanodia Technoplast Limited, to support their argument against the interest claim.

Issue 4: Interpretation of Case Laws and Judgments
The Counsel for the Appellant referenced various judgments, including the case of Permali Wallace Pvt. Ltd. Vs. Narbada Forest Industries Pvt. Ltd., and the decision of the Hon'ble Karnataka High Court in Jyothi Limited Vs. Boving Fouress Limited, to support their contention that interest cannot be claimed on unilateral documents like invoices without mutual agreement. The Tribunal agreed with the Appellant's argument, emphasizing that the purpose of the Code is debt resolution, not mere recovery, and set aside the impugned order based on the legal principles established in the cited cases.

In conclusion, the Appellate Tribunal allowed the appeal, setting aside the impugned order due to the erroneous pursuit of interest recovery after the principal amount was paid, emphasizing the legislative intent of the Insolvency and Bankruptcy Code for debt resolution rather than mere recovery. The decision was based on a detailed analysis of the legal issues surrounding the admission of the Corporate Insolvency Resolution Process and the validity of claiming interest on unpaid invoices, supported by relevant case laws and judgments.