NCLT Mumbai: Petition Under Section 9 Cannot Be Filed Only For Recovery Of Interest Component
The National Company Law Tribunal (“NCLT”), Mumbai Bench comprising of Mr. Kishore Vemulapalli (Judicial Member) and Mr. Prabhat Kumar (Technical Member), dismissed a petition filed in TCL Cables Pvt. Ltd. vs. Shapoorji Pallonji & Company Pvt. Ltd. by TCL Cables Pvt. Ltd. (Operational Creditor) for initiation of Corporate Insolvency Resolution Process (“CIRP”)...
The National Company Law Tribunal (“NCLT”), Mumbai Bench comprising of Mr. Kishore Vemulapalli (Judicial Member) and Mr. Prabhat Kumar (Technical Member), dismissed a petition filed in TCL Cables Pvt. Ltd. vs. Shapoorji Pallonji & Company Pvt. Ltd. by TCL Cables Pvt. Ltd. (Operational Creditor) for initiation of Corporate Insolvency Resolution Process (“CIRP”) against Shapoorji Pallonji & Company Pvt. Ltd. (Corporate Debtor) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“Code”) for a default amount of Rs. 13.73 Crores.
The NCLT Mumbai Bench dismissed the petition for initiation of CIRP against the Corporate Debtor and held that a petition under Section 9 of the Code cannot lie merely for the recovery of interest component.
Background Facts:
The Corporate Debtor placed an order for the supply of various cables and the Operational Creditor successfully delivered two batches of cables according to the Corporate Debtor's specifications and requirements. However, it failed to make payments for the first two batches due to which the Operational Creditor did not supply the third batch of cables. The Operational Creditor issued invoices for the cable supplies to the Corporate Debtor, and these invoices clearly stated that an interest rate of 18% per annum would be applied to any overdue payments. Consequently, interest charges were calculated for delayed payments.
Post a partial payment, the Operational Creditor sent multiple reminder emails wherein the Corporate Debtor acknowledged the debt. However, no additional payments were made. In light of these dues, the Operational Creditor issued a notice on 16.08.2022 demanding payment of the outstanding amount of Rs. 13.73 Crores including the principal amount and interest.
Instead of making the payment, the Corporate Debtor responded with a reply dated August 24, 2022, in which they raised unfounded objections without denying the principal amount owed to the Operational Creditor. The Corporate Debtor's objections mainly pertained to the interest charges, even though the Operational Creditor was entitled to these charges as specified in the invoices, which the Corporate Debtor had accepted without objections. Additionally, the Corporate Debtor did not raise any concerns about the invoice terms or the quality of the goods supplied before accepting the deliveries.
NCLT Verdict:
The NCLT Mumbai Bench dismissed the application and held that a petition under Section 9 of the Code cannot lie merely for the recovery of interest component. It highlighted that the principal amount of the default amount claimed has been paid since the filing of the CIRP petition and has been accepted by the Operational Creditor. The Operational Creditor claimed the remaining interest amount as per the conditions in the invoices issued. However, there is no such stipulation in the Purchase Order accepted and acknowledged by the Operational Creditor before the supply of goods.
Further, there is no evidence to prove that the Operational Creditor allocated the payments made by the Corporate Debtor towards the interest due on each invoice in addition to the principal amount. The manner in which the Corporate Debtor's payments have been allocated is a point of dispute in this case. Therefore, it cannot be considered that the outstanding debt, which is the interest on the principal amount, is undisputed.
The Tribunal placed reliance on the case of Krishna Enterprises vs. Gammon India Ltd. that if the principal amount has been paid, and no interest is to be paid as per the agreement, Section 9 application for claim of interest is not maintainable.
Furthermore, as per S.S. Polymers Vs. Kanadia Technoplast Ltd, it was held that pursuing an application under Section 9 for interest after the Corporate Debtor has paid the total debt is against the principles of the I&B Code and could be seen as malicious intent. Such applications for purposes other than the resolution of insolvency or liquidation of the Corporate Debtor are barred by Section 65 of the I&B Code.
The Tribunal also emphasized that the main issue should be the resolution of the debt, not just the recovery of interest as per Rohit Motawat Vs. Madhu Sharma Proprietor Hind Chem Corporation & Anr.
In conclusion, the NCLT Mumbai Bench held the Section 9 Application for initiation of CIRP against Corporate Debtor is not maintainable.
Case Title: TCL Cables Private Limited vs. Shapoorji Pallonji & Company Private Limited
Case No.: CP (IB) No.1249/MB-IV/2022
Counsel for Operational Creditor: Mr. Shyam Kapadia and Mr. Kunal Vaishnav, Advocates
Counsel for Corporate Debtor: Mr. Amir Arsiwala, Ms. Gayati Mohite & Ms. Nupur Shah, Advocates