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

NCLAT dismissed the appeal challenging rejection of Section 7 application. Appellant sought interest recovery after principal amount of Rs. 58,30,077 was already paid by respondent. Tribunal found appellant changed its position from investment claim in Section 9 application to loan claim in Section 7 application without informing Adjudicating Authority of alleged bonafide mistake. NCLAT held this constituted abuse of process and frivolous litigation. Appeal dismissed with costs of Rs. 1 lakh imposed on appellant, payable to respondent within 30 days.

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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 However, this application was withdrawn due to the admission of another application under Section 7 by a different financial creditor against the same Corporate Debtor.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.

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