2024 (7) TMI 193 - AT - Insolvency and Bankruptcy

Operational creditor's Section 9 application rejected as disputed interest cannot meet Rs 1 crore threshold requirement

Bajrang Steel Trading Company (India) Pvt. Ltd. Versus Ramkrishna Engineering Pvt. Ltd.

Bajrang Steel Trading Company (India) Pvt. Ltd. Versus Ramkrishna Engineering Pvt. Ltd. - TMI Issues Involved:1. Maintainability of Section 9 application under IBC.2. Inclusion of interest amount to meet the threshold limit.3. Existence of a contractual obligation for interest payment.4. Dispute regarding the interest component.5. Applicability of previous judgments and legal principles.Detailed Analysis:1. Maintainability of Section 9 application under IBC:The appeal was filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC) against the order dated 03.05.2023 by the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench-II) dismissing the Section 9 application on grounds of non-fulfillment of the prescribed threshold limit of Rs.1 crore. The appellant, an Operational Creditor, sought to initiate Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, but the application was dismissed due to the principal amount being below the threshold.2. Inclusion of interest amount to meet the threshold limit:The appellant contended that the interest for delayed payment was stipulated in the invoices and should be included with the principal amount to meet the threshold limit of Rs.1 crore under Section 4 of IBC. The appellant argued that the interest clause in the invoices constituted a written contract, thus forming a part of the debt under Section 3(11) of IBC. The appellant relied on the judgment in Prasat Agarwal Vs Parasrampuria and Ors., which held that interest stipulated in the invoice entitles the Operational Creditor to payment under Section 3(6) of IBC.3. Existence of a contractual obligation for interest payment:The respondent (Corporate Debtor) disputed the maintainability of the Section 9 application, arguing that there was no contractual agreement for the payment of interest. The Corporate Debtor contended that the principal amount in default was Rs.47.49 lakhs, and the remaining Rs.97.84 lakhs was delayed payment interest, which was unilaterally imposed by the Operational Creditor. The Corporate Debtor denied any agreement or correspondence indicating an obligation to pay interest and claimed that the balance confirmation statement relied upon by the appellant was forged.4. Dispute regarding the interest component:The Corporate Debtor's reply to the Demand Notice and the Section 9 application clearly disputed the claim of interest. The Adjudicating Authority noted that the Operational Creditor failed to provide any agreement between the parties stipulating interest for delayed payment. The Corporate Debtor's denial of the interest component and the assertion of a pre-existing dispute regarding the operational debt led the Adjudicating Authority to conclude that the threshold limit under Section 4 of IBC was not met without the interest amount.5. Applicability of previous judgments and legal principles:The Adjudicating Authority relied on judgments in Steel India v. Theme Developers Pvt. Ltd. and Pavan Enterprises v. Gammon India, which emphasized that interest must be an actionable claim enforceable under law and agreed upon between the parties. The Tribunal distinguished the present case from Prasat Agarwal, noting that in the latter, the Corporate Debtor had not disputed the interest, unlike in the present case where the interest was both disputed and denied.Conclusion:The Tribunal concluded that the claim for interest being a disputed fact could only be adjudicated by a competent court and not through CIRP initiation. The objective of IBC is insolvency resolution, not recovery of interest. The Adjudicating Authority rightly rejected the Section 9 application due to the disputed interest component, and the appeal was dismissed with no order as to costs.