Tribunal dismisses Company Petition for Insolvency over interest alone, highlighting unfairness under Insolvency Code

The Tribunal dismissed the Company Petition seeking to initiate Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor solely for the interest amount, as the Corporate Debtor had repaid the principal amount. The Tribunal emphasized that pursuing CIRP based only on interest was unjustifiable under Section 9 of the Insolvency and Bankruptcy Code, highlighting that interest clauses in invoices may not be sufficient grounds for initiating insolvency proceedings. The Tribunal criticized the Operational Creditor for prioritizing interest recovery over debt resolution, leading to the dismissal of the Petition.

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Issues:
- Initiation of Corporate Insolvency Resolution Process (CIRP) based on default in payment by the Corporate Debtor.
- Consideration of interest amount alone for pursuing CIRP.
- Validity of interest clause in invoices as a ground for initiating CIRP.

Analysis:
1. The Company Petition was filed by the Operational Creditor seeking to initiate CIRP against the Corporate Debtor for default in payment, invoking Section 9 of the Insolvency and Bankruptcy Code, 2016. The total claim amount was Rs. 29,20,908, out of which Rs. 27,54,749 remained due after partial repayment by the Corporate Debtor.

2. The Operational Creditor supplied goods to the Corporate Debtor as per a Purchase Order, following which invoices were raised with an interest clause for overdue payments. Despite reminders and a Demand Notice, the Corporate Debtor failed to repay the full amount, leading to the filing of the Petition by the Operational Creditor.

3. The Corporate Debtor made partial payments over two years, citing labor issues and adverse market conditions affecting their business. The Operational Creditor amended the claim amount to Rs. 9,54,749 as the remaining interest component after the principal amount was repaid. The Corporate Debtor contended that pursuing CIRP solely for the interest amount was not valid under the Code.

4. The Tribunal considered whether pursuing CIRP for the interest amount alone was justifiable. It noted that the Corporate Debtor had repaid the principal amount, and interest alone was insufficient to maintain a Petition under Section 9 of the Code. The Tribunal referred to a previous case to emphasize that interest clauses in invoices may not constitute a valid agreement for claiming interest.

5. Despite attempts at settlement, the Operational Creditor continued to pursue the interest amount after talks failed. The Tribunal found that such actions were against the spirit of the Code, as the intent was solely to recover the debt rather than resolve insolvency. Consequently, the Tribunal dismissed the Company Petition, directing immediate communication of the order to both parties.

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