2024 (11) TMI 1411 - AT - IBC

Court Dismisses Appeal: No 24% Interest Claim Without Agreement, Upholds Section 9 Rejection Under Insolvency Code.

The court dismissed the appeal, concluding that the Operational Creditor was not entitled to claim interest at 24% per annum due to the absence of an ... Rejection of the Section 9 application - Operational Creditor is entitled to claim interest at the rate of 24% per annum on the outstanding amount from the Corporate Debtor or not - HELD THAT:- The Clause 9 cannot be read as any obligation for payment of interest by the Corporate Debtor. It is true that the Operational Creditor did not accept the offer for settlement but entire Principal Amount being already paid, as claimed in Part IV, nothing survives to be decided in Section 9 application. The invoices which have been sent by the Operational Creditor containing the term of interest cannot be operated against the Corporate Debtor unless there is an agreement for interest or any other document showing that the Corporate Debtor has accepted the obligation for interest. There is nothing to substantiate that the Corporate Debtor has accepted the obligation to pay the interest @24% per month, as claimed by the Operational Creditor. The entire Principal Amount having been paid, the Adjudicating Authority did not commit any error in rejecting the Section 9 Application filed by the Operational Creditor. Conclusion - There was no merit in the claim for interest without an agreement, and the Principal Amount had been paid, negating the grounds for a Section 9 application. Appeal dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe legal judgment involves the following core issues:Whether the Operational Creditor is entitled to claim interest at the rate of 24% per annum on the outstanding amount from the Corporate Debtor.Whether the rejection of the Section 9 application by the Adjudicating Authority was justified when the Principal Amount had already been paid.Whether there was any agreement or obligation on the part of the Corporate Debtor to pay interest on the outstanding invoices.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Entitlement to Interest at 24% per AnnumRelevant Legal Framework and Precedents: The application was filed under Section 9 of the Insolvency and Bankruptcy Code, which allows an Operational Creditor to initiate insolvency proceedings against a Corporate Debtor for unpaid operational debts. The claim included interest calculated at 24% per annum.Court's Interpretation and Reasoning: The court noted that the invoices sent by the Operational Creditor included interest terms, but these terms could not be enforced unless there was a prior agreement or acceptance by the Corporate Debtor.Key Evidence and Findings: The Work Order dated 11.12.2018, presented by the Appellant, did not contain any clause obligating the Corporate Debtor to pay interest. Clause 9 of the Work Order only mentioned monthly billing and payment terms.Application of Law to Facts: Since there was no evidence of an agreement to pay interest, the court found that the claim for interest was not substantiated.Treatment of Competing Arguments: The Appellant argued that interest terms were included in the invoices, while the Respondent contended that there was no agreement for interest. The court sided with the Respondent, emphasizing the lack of any contractual obligation for interest.Conclusions: The court concluded that the Operational Creditor was not entitled to claim interest at 24% per annum in the absence of an agreement or acceptance by the Corporate Debtor.Issue 2: Justification for Rejection of Section 9 ApplicationRelevant Legal Framework and Precedents: Section 9 of the Insolvency and Bankruptcy Code requires a default in payment of an operational debt to initiate proceedings.Court's Interpretation and Reasoning: The court observed that the Principal Amount claimed by the Operational Creditor had already been paid by the Corporate Debtor, leaving no outstanding operational debt.Key Evidence and Findings: The Adjudicating Authority noted the payment of Rs. 1,88,51,361/- towards the Principal Amount, which was acknowledged by the Operational Creditor.Application of Law to Facts: With the Principal Amount settled, the court determined that there was no default justifying the continuation of the Section 9 application.Treatment of Competing Arguments: While the Appellant argued against the settlement claim, the court found that the payment of the Principal Amount was sufficient to reject the application.Conclusions: The court upheld the Adjudicating Authority's decision to reject the Section 9 application, as the Principal Amount had been paid.Issue 3: Agreement or Obligation to Pay InterestRelevant Legal Framework and Precedents: The claim for interest requires an express agreement or acceptance by the debtor.Court's Interpretation and Reasoning: The court found no evidence of an agreement obligating the Corporate Debtor to pay interest on the invoices.Key Evidence and Findings: The Work Order and other documents presented did not demonstrate any acceptance of interest terms by the Corporate Debtor.Application of Law to Facts: Without any contractual basis for interest, the court found the claim unsupportable.Treatment of Competing Arguments: The Appellant's reliance on invoice terms was insufficient against the Respondent's argument of no agreement.Conclusions: The court concluded that the Corporate Debtor was not obligated to pay interest, reinforcing the rejection of the Section 9 application.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'Invoices which have been sent by the Operational Creditor containing the term of interest cannot be operated against the Corporate Debtor unless there is an agreement for interest or any other document showing that the Corporate Debtor has accepted the obligation for interest.'Core Principles Established: The court emphasized the necessity of an express agreement for interest claims and the sufficiency of settled principal amounts in rejecting insolvency applications.Final Determinations on Each Issue: The appeal was dismissed as there was no merit in the claim for interest without an agreement, and the Principal Amount had been paid, negating the grounds for a Section 9 application.