2024 (10) TMI 572 - AT - IBC

Appeal dismissed for changing investment claim to loan claim without disclosure, costs imposed

Premjayanti Enterprises Pvt. Ltd. Versus Shivam Water Treaters Pvt. Ltd.

NCLAT dismissed the appeal challenging rejection of Section 7 application. Appellant sought interest recovery after principal amount of Rs. 58,30,077 was ... Dismissal of Section 7 application - appellant has argued that the Adjudicating Authority has committed an error in dismissing the application because the amount of interest can also be claimed by filing an application under Section 7 of IBC - HELD THAT:- The Appellant did not make any effort to bring to the notice of the Adjudicating Authority in the application filed under Section 9 about the bonafide mistake which has been pleaded in the rejoinder filed in the present appeal in order to avoid the pleadings already set up in the application filed under Section 9 of the Code in which it was averred that the amount in question has been invested which is now sought to be changed as a loan. It is pertinent to mention that Respondent has already paid the principal amount of Rs. 58,30,077/- to the Appellant but the Appellant is pursuing the present appeal for the resolution of the amount of interest, however, in our considered opinion, the petition filed before the Adjudicating Authority under Section 7 is an abuse of process of law because the Appellant cannot change the stand taken in the application filed under Section 9 of the Code by it on its convenience and drag the Respondent before the Adjudicating Authority and this Court in an unnecessary litigation. The conduct of the Appellant is depreciable and deplorable because this kind of practice is not acceptable before this Court, therefore, this is one such case in which the Appellant deserves to be saddled with costs for initiating a frivolous litigation. Hence, while dismissing the present appeal, a cost of Rs. 1 Lac. imposed upon the Appellant which shall be paid by it to the Respondent by way of a demand draft within a period of 30 days from the date of passing of this order. Appeal dismissed. Issues:Dismissal of application under Section 7 of the Insolvency & Bankruptcy Code, 2016 by the Adjudicating Authority.Analysis:The appeal was against the dismissal of an application under Section 7 of the Insolvency & Bankruptcy Code, 2016 by the Adjudicating Authority. The Appellant initially filed an application under Section 9 as an Operational Creditor, claiming an amount as an investment. However, this application was withdrawn due to the admission of another application under Section 7 by a different financial creditor against the same Corporate Debtor. The Appellant then filed the present application as a financial creditor under Section 7, seeking a sum including interest. The Adjudicating Authority dismissed the application regarding the interest only, as it was not considered a financial debt. The Appellant argued that interest could be claimed under Section 7, citing a relevant court decision. The Respondent contended that the Appellant did not approach the court with clean hands, changing its stance from investment to loan, and engaging in unnecessary litigation. The Court found the Appellant's conduct deplorable, imposing a cost of Rs. 1 Lac for initiating frivolous litigation.The Court highlighted that proceedings under the Code are summary and based on pleadings and evidence. The Appellant's change in stance from operational creditor to financial creditor was deemed an abuse of process of law. The Respondent had already paid the principal amount, but the Appellant pursued the appeal for interest. The Court criticized the Appellant's conduct, imposing a significant cost and warning of contempt proceedings if the cost was not paid within 30 days. The Court emphasized that changing positions for convenience and initiating unnecessary litigation was unacceptable.In conclusion, the Appellant's appeal against the dismissal of the application under Section 7 was rejected, and a cost of Rs. 1 Lac was imposed on the Appellant for frivolous litigation. The Court warned of contempt proceedings if the cost was not paid within the specified time frame.