NCLAT Delhi Sets Aside Unreasoned Order Passed By AA For Not Satisfying "Requirements Of An Order"

Background Facts

Gandhar Oil Refinery (India) Ltd. ("Appellant/Operational Creditor") is a public limited company engaged in processing petroleum products. City Oil Pvt. Ltd. ("Respondent/Corporate Debtor") is a private company engaged in manufacturing and trading lubricants and grease.

The Respondent periodically placed order with the Appellant for supply of Divyol 75 and Divyol 480 (SN 500) through purchase orders. As payments were not made, the Appellant issued a demand notice under Section 8 of IBC on 05.03.2020, claiming Rs. 73,48,542.35/- towards Principal amount and Rs. 29,22,819/- towards interest calculated @ 24% per annum.

On receipt of demand notice, the Respondent paid Rs. 9,50,000/- in total; the last payment of Rs. 2,00,000/- was made on 29.01.2021. As such an amount of Rs. 1,04,39,547/- was due which included the interest component. The Respondent neither paid the outstanding amount nor disputed the debt within 10 days from receipt of demand notice. In 2021, the Appellant filed a petition under Section 9 of IBC, seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against Respondent.

On 09.05.2021, the Adjudicating Authority dismissed the petition without considering the terms of invoice for payment of interest @ 24% on delayed payment, which formed part of operational debt. It was observed that interest amount cannot be clubbed with the Principal amount of debt to arrive at the minimum threshold of Rs. 1 Crore under Section 4 of IBC.

The Appellant filed an appeal before the NCLAT against the order dated 09.05.2021. It was contended that the condition to pay interest @ 24% on the amount due, on account of delayed payment was not considered and interest would form part of the debt.

Contention Of Respondent

The Respondent contended that no opportunity was afforded to it before passing the order to file a reply to the petition. Further, interest was a part of invoice but the same was not accepted by signing under it. Therefore, the Respondent was not obligated to pay interest @ 24% on the delayed payment and no date was fixed for paying the invoice amount. In the absence of acceptance to such term for payment of interest @ 24%, interest would not form part of debt to satisfy the threshold requirement under IBC.

Decision Of NCLAT

The Bench observed that though no specific form is prescribed under IBC for contents of order or Judgment, but general rules relating to contents shall be followed by Adjudicating Authority.

It was further observed that the Tribunal can't decide question of liability to pay interest either in presence or in absence of contract, without affording a reasonable opportunity to file reply to the petition. As the same would be a violation of principles of natural justice.

It is settled law that the Court or Tribunal shall record reasons for its conclusion on the basis of merits. The need for recording of reasons is greater in a case where the order is passed at the original stage.

"When judgment is pronounced without reasoning, it is not a judgment in the eye of law for the reason that the requirement of reasoning either by Original Court or Appellate Authority is to convey the mind of the judge while deciding such an issue before the Tribunal. The object of the Rule in making it incumbent upon the Tribunals to record reasons is only to afford an opportunity in understanding the ground upon which the decision is founded with a view to enabling them to know the basis of the judgment or order and if so considered appropriate and so advised, to avail the remedy of appeal."

The Bench set aside the order of Adjudicating Authority for not satisfying the requirements of an order. Further, the petition was remanded to Adjudicating Authority with a direction to restore the same; afford an opportunity to the Respondent to file reply to petition and rejoinder, if any; and to decide the petition in accordance with law as expeditiously as possible.

Case Title: Gandhar Oil Refinery (India) Ltd. v City Oil Pvt. Ltd.

Case No.: Company Appeal (AT) (Insolvency) No. 915 of 2022

Counsel For Appellant: Mr. Ajay Gaggar, Mr. Robin Singh Sirohi and Ms. Pavni Poddar, Advocates.

Counsel For Respondent: Mr. Kumar Anuragh Singh and Mr. Zain.A.Khan, Beena Sharma, Advocates

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