2019 (11) TMI 1428 - AT - Insolvency and Bankruptcy

Appeal dismissed: Interest beyond insolvency resolution prohibited under I&B Code

The appeal under Section 9 of the Insolvency and Bankruptcy Code was rejected by the Adjudicating Authority due to the absence of debt payable and ... Requirement of debt and default for invocation of Section 9 of the I&B Code - payment of the claimed debt prior to admission precludes maintainability of Section 9 application - admissibility of invoices as unilateral evidence for claiming interest - malicious intent and barred initiation under Section 65 of the I&B Code - use of Part IV of Form 5 records in support of a Section 9 applicationRequirement of debt and default for invocation of Section 9 of the I&B Code - payment of the claimed debt prior to admission precludes maintainability of Section 9 application - malicious intent and barred initiation under Section 65 of the I&B Code - Maintainability of a Section 9 application where the corporate debtor paid the principal debt before admission and the applicant pursued only interest after receipt of the total debt. - HELD THAT: - The Adjudicating Authority recorded that the corporate debtor had paid the principal sum before the admission of the Section 9 application and that the applicant continued the proceeding seeking only interest. The Tribunal held that where the total debt had been discharged prior to admission, continuation of the insolvency petition solely to recover interest falls outside the legitimate purposes of the I&B Code and manifests conduct amounting to malicious prosecution. Such prosecution for a purpose other than resolution or liquidation is barred by Section 65 of the I&B Code. Consequentially the Section 9 application was not maintainable on that basis. [Paras 3, 5]Application under Section 9 was not maintainable because the debt had been paid before admission and pursuing only interest constituted malicious initiation barred by Section 65; appeal dismissed on this ground.Admissibility of invoices as unilateral evidence for claiming interest - use of Part IV of Form 5 records in support of a Section 9 application - Whether one sided invoices raised by the applicant suffice to establish entitlement to interest in a Section 9 petition in the absence of an agreement or debtor's consent. - HELD THAT: - The applicant relied on invoices asserting a claim for interest. The Tribunal declined to accept one sided invoices raised without the corporate debtor's consent as sufficient to establish an entitlement to interest. The absence of an agreement and the unilateral nature of the invoices meant they could not sustain a claim for interest in the Section 9 proceeding. [Paras 4]One sided invoices without the corporate debtor's consent do not suffice to establish entitlement to interest; the claim for interest was not accepted.Final Conclusion: The appeal is dismissed: the petition under Section 9 could not be maintained because the principal debt was paid before admission and continuation to recover only interest was treated as malicious and barred by Section 65; one sided invoices did not establish entitlement to interest. Issues:1. Rejection of application under Section 9 of the Insolvency and Bankruptcy Code, 2016.2. Interpretation of debt payable and default under Section 9.3. Claim for interest amount after total debt payment by the Corporate Debtor.4. Validity of Invoices raised without consent for interest payment.5. Malicious intent in pursuing application for interest amount post-debt payment.6. Application of Section 65 of the Insolvency and Bankruptcy Code.Issue 1: Rejection of application under Section 9 of the Insolvency and Bankruptcy Code, 2016:The Appellant, S.S. Polymers, filed an application under Section 9 of the I&B Code against M/s Kanodia Technoplast Limited for initiation of Corporate Insolvency Resolution Process. The Adjudicating Authority rejected the application citing the absence of debt payable and default.Issue 2: Interpretation of debt payable and default under Section 9:The Appellant argued that the rejection was based on the wrong presumption of no agreement between the parties. It was contended that for an application under Section 9, the presence of an agreement is not necessary; rather, the focus should be on the existence of debt payable and default, supported by any relevant record as per Form 5 of the Insolvency and Bankruptcy Board of India.Issue 3: Claim for interest amount after total debt payment by the Corporate Debtor:Despite the Corporate Debtor clearing the total debt before the admission of the application, the Appellant pursued the case for an additional interest amount of Rs. 2,16,155. The Adjudicating Authority viewed this pursuit as against the I&B Code's principles, considering it a malicious intent to realize interest beyond the resolution of insolvency or liquidation, which is prohibited under Section 65 of the I&B Code.Issue 4: Validity of Invoices raised without consent for interest payment:The Counsel for the Appellant relied on invoices to support the claim for interest payment. However, the Tribunal dismissed this argument, stating that the invoices were unilaterally raised without the Corporate Debtor's consent, thus not carrying legal weight in the absence of a mutual agreement.Issue 5: Malicious intent in pursuing application for interest amount post-debt payment:The Tribunal found no merit in the appeal, concluding that the pursuit of the interest amount after the total debt payment was indicative of a malicious intent contrary to the objectives of the I&B Code. Such actions were deemed inappropriate for the resolution of insolvency or liquidation proceedings.Issue 6: Application of Section 65 of the Insolvency and Bankruptcy Code:In light of the pursuit of interest post-debt payment being considered malicious, the Tribunal dismissed the appeal, emphasizing the application of Section 65 of the I&B Code to prevent actions aimed solely at realizing interest amounts beyond the scope of insolvency resolution or liquidation proceedings.This detailed analysis of the judgment highlights the key issues addressed by the National Company Law Appellate Tribunal concerning the rejection of the application under Section 9 of the Insolvency and Bankruptcy Code, 2016, and the subsequent considerations regarding debt, default, interest claims, and malicious intent in pursuing legal actions.