2022 (11) TMI 1551 - Tri - IBC

Operational Creditor's Interest Claim Dismissed Under Section 9 IBC Due to Disputed Debt and Improper Proceeding Attempt

Permali Wallace Private Limited Versus Narbada Forest Industries Private Limited

The SC/Tribunal rejected the operational creditor's Section 9 IBC application for recovering disputed interest amounts. The court found the claim ... Maintainability of application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 by the Operational Creditor against the Corporate Debtor - default in payment of interest amount - amount arising out of some settlement agreement can be termed as operational debt within the meaning of Section 5(21) of the IBC, 2016 or not - HELD THAT:- It is not in dispute that the Corporate Debtor paid the Operational Creditor the entire operational debt (principal). The Corporate Debtor has also paid a sum of Rs. 16 Lakhs towards the interest on principal sum. It is a case of the Operational Creditor that the Corporate Debtor has to pay additional sum of Rs. 1,28,00,000/- towards the interest which amount is disputed by the Corporate Debtor. Earlier an application was disposed of on the ground of settlement - now the Operational Creditor is to claim a sum of Rs. 1,28,00,000/- (Rs 1,44,82,040 - Rs. 16,00,000) towards the interest. The Operational Creditor has been using the IBC proceeding for recovery of disputed amount and which is not object of the Insolvency and Bankruptcy Code, 2016. On this ground alone, this application is not maintainable. Moreover, there appears to be a dispute about the term of settlement agreement as far as calculation of interest amount is concerned. It cannot be resolved before this Adjudicating Authority. Conclusion - This application under Section 9 of the IBC, 2016 appears to be filed for recovery of disputed interest amount and not for Resolution of any Insolvency of the Corporate Debtor and, therefore, not maintainable before this Adjudicating Authority. Petition rejected. 1. ISSUES PRESENTED and CONSIDERED- Whether the application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 ('IBC') by the Operational Creditor against the Corporate Debtor for default in payment of interest amount is maintainable.- Whether the amount claimed by the Operational Creditor arising out of a settlement agreement can be classified as an 'operational debt' under Section 5(21) of the IBC.- Whether the dispute regarding the quantum and calculation of interest claimed by the Operational Creditor is a matter to be resolved by the Adjudicating Authority under the IBC or is a disputed claim outside the scope of insolvency proceedings.- Whether the Operational Creditor is misusing the provisions of the IBC to recover a disputed amount beyond the original operational debt and agreed settlement terms.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Maintainability of the Section 9 Application for Recovery of Interest AmountRelevant Legal Framework and Precedents: Section 9 of the IBC permits an Operational Creditor to initiate Corporate Insolvency Resolution Process (CIRP) upon default in payment of an operational debt. Section 5(21) defines 'operational debt' as a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.The Court noted that the present application is filed for recovery of interest amount allegedly due under a settlement agreement, which was arrived at in an earlier proceeding under Section 9 that was withdrawn on account of the settlement.Court's Interpretation and Reasoning: The Tribunal observed that the amount claimed now arises from the settlement agreement and not from the original operational debt itself. The settlement agreement modified the terms of payment, and the amount claimed as interest is disputed. The Court held that amounts arising from settlement agreements cannot be termed as operational debt within the meaning of Section 5(21) of the IBC.Key Evidence and Findings: It was undisputed that the principal operational debt of Rs. 1,74,16,527/- was paid by the Corporate Debtor. The Corporate Debtor also paid Rs. 16 Lakhs towards interest as per settlement terms. However, the Operational Creditor claimed an additional Rs. 1,28,82,040/- towards interest, which was not agreed upon and is disputed.Application of Law to Facts: Since the principal debt was paid and the additional amount claimed is disputed and arises from settlement terms, the Tribunal found that the application under Section 9 is not maintainable as it is essentially a recovery suit for a disputed claim rather than a genuine insolvency proceeding.Treatment of Competing Arguments: The Corporate Debtor contended that the entire debt including interest as per the settlement was paid and that the application is a misuse of the IBC to recover a disputed amount. The Operational Creditor argued for enforcement of the settlement terms. The Tribunal sided with the Corporate Debtor, emphasizing the misuse of insolvency proceedings for disputed claims.Conclusions: The Section 9 application is not maintainable when the claim arises from a settlement agreement and is disputed, especially when the principal debt has been paid.Issue 2: Dispute Regarding Interest Amount and Its Resolution Under IBCRelevant Legal Framework and Precedents: The IBC and its adjudicating authorities are primarily designed to resolve insolvency and liquidation issues, not to adjudicate disputes on contractual terms or disputed debts. The Supreme Court and various tribunals have held that where a dispute is genuine and substantial, the IBC proceedings cannot be invoked.Court's Interpretation and Reasoning: The Tribunal found that there is a clear dispute regarding the calculation and quantum of the interest amount payable under the settlement agreement. The invoices produced did not uniformly specify the interest rate of 18% per annum on delayed payments. The Court held that such disputes cannot be resolved by the Adjudicating Authority under the IBC.Key Evidence and Findings: The invoices submitted by the Operational Creditor lacked consistent terms regarding interest on delayed payments. The Corporate Debtor disputed the additional interest claimed beyond the Rs. 16 Lakhs paid.Application of Law to Facts: Since the dispute pertains to contractual interpretation and calculation of interest, it falls outside the purview of the IBC's insolvency resolution mechanism and is better suited for civil adjudication.Treatment of Competing Arguments: The Operational Creditor sought to enforce the settlement terms through insolvency proceedings, while the Corporate Debtor argued for the existence of a bona fide dispute. The Tribunal favored the latter, emphasizing that the IBC is not a recovery mechanism for disputed debts.Conclusions: The dispute regarding interest amount is a genuine and substantial dispute that cannot be resolved under Section 9 of the IBC, rendering the application non-maintainable.Issue 3: Misuse of Insolvency Proceedings for Recovery of Disputed AmountsRelevant Legal Framework and Precedents: The IBC is not intended to be a tool for coercive recovery of disputed debts. Courts have consistently held that invoking insolvency proceedings in cases of bona fide disputes amounts to abuse of process.Court's Interpretation and Reasoning: The Tribunal observed that the Operational Creditor is attempting to use the IBC to recover an amount that is disputed and not due as per the Corporate Debtor. The earlier application was withdrawn on settlement, and now the Operational Creditor is seeking to enforce disputed terms through insolvency proceedings.Key Evidence and Findings: The prior withdrawal of the application on the basis of settlement and subsequent filing for a larger interest amount than agreed indicate an attempt to misuse the process.Application of Law to Facts: The Tribunal concluded that the Operational Creditor is misusing the IBC provisions, which is impermissible and grounds for rejecting the application.Treatment of Competing Arguments: The Corporate Debtor's contention of misuse was accepted over the Operational Creditor's claim for enforcement of settlement terms via insolvency proceedings.Conclusions: The application under Section 9 is rejected as an abuse of the IBC mechanism for recovery of disputed amounts.3. SIGNIFICANT HOLDINGS'The amount arising out of some settlement agreement cannot be termed as operational debt within the meaning of Section 5(21) of the IBC, 2016.''The Operational Creditor has been using the IBC proceeding for recovery of disputed amount and which is not object of the Insolvency and Bankruptcy Code, 2016.''There appears to be a dispute about the term of settlement agreement as far as calculation of interest amount is concerned. It cannot be resolved before this Adjudicating Authority.''Most of the invoices do not mention the condition that the Corporate Debtor has to pay the interest at the rate of 18% per annum on delayed payment. So there is also a dispute about this fact.''This application under Section 9 of the IBC, 2016 appears to be filed for recovery of disputed interest amount and not for Resolution of any Insolvency of the Corporate Debtor and, therefore, not maintainable before this Adjudicating Authority.'