2025 (12) TMI 374 - AT - IBC

Appeal Fails as Section 7 CIRP Revival Barred After Full Payment of Principal, Agreed and Pendente Lite Interest

Campbell Advertising Pvt. Ltd. and Dhankalash Distributors Pvt. Ltd. Versus Vipul Ltd.

NCLAT dismissed the appeal, affirming the Adjudicating Authority's refusal to restore the Section 7 application. It held that, in view of the Corporate ... Restoration of section 7 application - commencement of CIRP - entire debt claimed stood discharged - HELD THAT:- From the facts which have been brought on the record, it is clear that entire Part IV amount including interest was paid to the Financial Creditor, which fact is recorded in the order dated 18.03.2025. The Corporate Debtor also agreed to resolve their dispute regarding amount of pendente lite interest and amount towards pendente lite interest of Rs. 46,93,907/- was also paid, for which acknowledgement was issued on 03.05.2025. The said acknowledgement obviously reflect amount of Rs. 46,93,907/-. It is submitted by learned counsel for the Respondent that the Restoration Application was filed on 17 June, 2025 after more than one and a half month after receiving the amount. The Adjudicating Authority in the impugned order has noticed the payment of entire Part IV amount as well as interest of Rs. 46 Lakhs and took the view that present is not a case for reviving Section 7 application and Restoration Application was rejected. In the facts of the present case, we are of the view that under Section 7 proceeding, the Corporate Debtor having paid entire amount in Part IV, principal and interest as clearly recorded, insolvency proceeding cannot be initiated against the Corporate Debtor, as sought by the Appellant by filing Restoration Application. As per the statement recorded on 18.03.2025, the Corporate Debtor, according to its calculation has paid amount of Rs. 46,93,907/- towards pendente lite interest also. Appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether a Section 7 application under the Insolvency and Bankruptcy Code, 2016 can be restored and corporate insolvency resolution process commenced when the entire debt claimed in Part IV of the application (principal and interest) has been discharged. 1.2 Whether non-payment or disputed computation of pendente lite interest, after satisfaction of the Part IV claim, justifies restoration of a dismissed Section 7 application. 1.3 Whether the Adjudicating Authority, while dealing with a Section 7 application, can act as a forum for recovery or adjudication of disputed interest claims beyond the admitted and discharged default. 1.4 Consequences, under Section 7 proceedings, of the Corporate Debtor depositing/ paying the entire defaulted amount during the pendency of the insolvency application. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Restoration and initiation of CIRP after discharge of entire Part IV claim Interpretation and reasoning 2.1 The Court noted that, as recorded in the earlier order dated 18.03.2025, there was no subsisting default regarding the amount mentioned in Part IV of the Section 7 petition, as the principal and interest claimed therein had been paid. 2.2 It was emphasised that for admission under Section 7, the relevant default is the one existing as on the date of filing of the petition, and if the debt referred to in Part IV stands fully discharged, it cannot be said that the Corporate Debtor needs rescue or that an order is required to put it back on its feet. 2.3 Relying on the principle that proceedings under Section 7 are for resolution of insolvency and not for pursuing a debtor who has already paid the defaulted amount, the Court approved the approach that, once the entire defaulted amount is paid, 'no purpose and occasion shall survive' to proceed with insolvency resolution. Conclusions 2.4 Restoration of the Section 7 application was held impermissible where the entire Part IV amount, including interest, had been paid; consequently, corporate insolvency resolution process could not be commenced against the Corporate Debtor in such circumstances. Issue 2: Effect of dispute regarding pendente lite interest on restoration of Section 7 application Interpretation and reasoning 2.5 The earlier order recorded that, although the Corporate Debtor and Financial Creditor were at variance regarding pendente lite interest, the Corporate Debtor had agreed that interest at 8% per annum for the period of pendency of the petition was payable. 2.6 After dismissal of the Section 7 petition, the Corporate Debtor paid Rs. 46,93,907/- towards pendente lite interest, and the Financial Creditor issued an acknowledgment of receipt dated 03.05.2025. 2.7 The Restoration Application was filed more than one and a half months after receipt of this amount. The Court noted that the Adjudicating Authority had treated the acknowledgment of payment of pendente lite interest as demonstrating that there was no surviving ground to restore the Section 7 application. 2.8 The Appellant's contention that a higher amount (more than Rs. 1 crore) was due as pendente lite interest was treated as a dispute over quantum of interest, not as a subsisting 'default' justifying insolvency proceedings, once the Part IV debt and agreed pendente lite interest had been paid. Conclusions 2.9 A dispute regarding quantum of pendente lite interest, after discharge of the Part IV amount and payment of pendente lite interest as per the Corporate Debtor's calculation, does not constitute a basis to revive or restore a Section 7 application. 2.10 Any further claim to additional interest, if asserted by the creditor, must be pursued in appropriate proceedings available in law, not through revival of insolvency proceedings. Issue 3: Scope of the Adjudicating Authority under Section 7 and its inability to function as a debt recovery forum Legal framework (as discussed) 2.11 The Court referred to the spirit of the judgments of the Supreme Court in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited and The Transport Corporation of India Ltd. vs. State of Andhra Pradesh & Ors., to emphasise that the Adjudicating Authority under the Insolvency and Bankruptcy Code cannot function as a Debt Recovery Tribunal. Interpretation and reasoning 2.12 The Court endorsed the reasoning of the Adjudicating Authority that it cannot adjudicate detailed disputes over interest computation or act solely as a mechanism to recover money, and that its role is confined to assessing existence of default warranting initiation of CIRP. 2.13 Once it is found that there is no subsisting default concerning the debt in Part IV, and the Corporate Debtor has also paid pendente lite interest as per its admitted liability, the insolvency forum cannot be used to test or enforce additional recovery claims. Conclusions 2.14 The Adjudicating Authority, while dealing with a Section 7 application, is not to be used as a debt recovery forum for disputed interest; it is confined to determining whether an insolvency-triggering default exists. Issue 4: Consequences of payment of the entire defaulted amount during pendency of Section 7 proceedings Legal framework (as discussed) 2.15 The Court referred to its earlier decision in Reliance Commercial Finance Limited vs. Darode Jog Builder Pvt. Ltd., where it was held that if, in consequence of an order of the Adjudicating Authority, the Corporate Debtor deposits the entire defaulted amount of the Financial Creditor, the Adjudicating Authority is not required to necessarily admit the Section 7 application. Interpretation and reasoning 2.16 Applying the above principle, the Court held that once the Corporate Debtor has complied with payment of the entire defaulted amount claimed in Part IV, there remains no purpose or occasion to proceed with insolvency resolution. 2.17 The Court found no error in the Adjudicating Authority's approach of ascertaining whether the Corporate Debtor could and did deposit the entire defaulted amount and, upon such payment, declining to initiate or revive CIRP. Conclusions 2.18 Payment of the entire defaulted amount (principal and interest) during pendency of Section 7 proceedings extinguishes the basis for initiating or continuing insolvency resolution against the Corporate Debtor. 2.19 The appeal challenging rejection of the Restoration Application was dismissed, with liberty to the creditor to pursue any claim for additional interest in other appropriate legal proceedings.