M/S Amsons Communication Pvt Ltd vs M/S Ats Estates Pvt Ltd

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No. 540 of 2020 (Arising out of Order dated 15.01.2020 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi Bench-II in CP (IB) No.111/ND/2019)

IN THE MATTER OF: M/s Amsons Communication Pvt. Ltd. Through its Managing Director Aman Sharma SCO-7, 2nd Floor, Sector-30-D, Chandigarh-160055. .... Appellant

Vs

M/s ATS Estates Pvt. Ltd. 711/92, Deepali Nehru Place New Delhi - 110019. ... Respondent

Present: For Appellant: Mr. Riju Raj Singh Jamwal, Advocate

For Respondent: Mr. Manoranjan Sharma, Advocate

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal under Section 61 of the Insolvency and Bankruptcy

Code, 2016 (hereinafter referred to as 'Code') has been filed against the

order dated 15.01.2020 of the National Company Law Tribunal, New Delhi

Bench - II, by which an Application under Section 9 filed by the Appellant

claiming 'operational debt' was rejected. The Appellant aggrieved by the

rejection of his Application under Section 9 has come up in this Appeal.

2. Brief facts of the case and sequence of events needs to be noted for

deciding this Appeal are:

Company Appeal (AT) (Insolvency) No. 540 of 2020 1

(i) The Appellant, advertising Company was engaged by the

Respondent Company - Corporate Debtor for the

advertisement related work. The payments were made from

time to time regarding the work undertaken by the Appellant.

(ii) The Appellant on 27th July, 2018 sent a Demand Notice under

Section 8 of the Code demanding payment in respect of unpaid

operational debt due from the Respondent demanding an

amount of Rs.89,28,494/- including interest. The Respondent

Company replied vide its email dated 27th August 2018

refuting the claim of the Appellant and stated that no amount

is due and payable by the Respondent Company.

(iii) On 13.12.2018, the Appellant filed an Application under

Section 9 of the Code where Rs.18,09,586/- was claimed as

principal amount and Rs.71,18,908/- was claimed as interest

@ 3% monthly, totaling Rs.89,28,494/-.

(iv) The Respondent on 15.12.2018 made payment of

Rs.18,07,373 through NEFT to the Appellant.

(v) The Adjudicating Authority vide order dated 16.01.2019

issued notice to the Respondent Company in Section 9

Application.

(vi) The Respondent Company filed reply dated 15th February,

2019 to Section 9 Application disputing any liability to pay. In

the reply, it was specifically pleaded that there has never been

any agreement to pay interest and the principal amount as

Company Appeal (AT) (Insolvency) No. 540 of 2020 2 claimed by the Appellant has already been paid. It was further

pleaded that amount of interest claimed is fraudulent and

imaginary. It was further pleaded that audited balance sheet

of the Appellant itself does not show any amount has been due

from trade creditors for a period beyond six months during the

financial years 2016-17 and 2017-18. In the reply it has been

specifically stated that there is no operational debt due and

payable and Section 9 Application deserves to be rejected.

(vii) The Adjudicating Authority by the impugned order dated

15.01.2020 held that claim for interest is unconscionable,

irrational, unjustified and does not qualify as an operational

claim. It was further held that claim for interest on the delayed

payment is a disputed fact and as such can only be

adjudicated by the court of competent jurisdiction.

3. Shri Riju Raj Singh Jamwal, learned Counsel for the Appellant in

support of the Appeal contends that Adjudicating Authority committed

error in holding that the claim of interest cannot be included in the

'operational debt'. It is submitted that in the invoices which were issued

by the Appellant, there were clear stipulation that if payment is not paid

within five days from the bill date, interest @ 5% per month will be charged.

The interest on delayed payment is to be constituted as a 'debt' defined

under Section 3(11) read with Section 5(8) and 5(21) of the Code. The

learned Counsel for the Appellant has relied on judgment of the Hon'ble

Supreme Court reported in (2009) 3 SCC 527 - Vijay Industries vs.

Company Appeal (AT) (Insolvency) No. 540 of 2020 3 National Technologies Ltd. in support of his submission. It is stated that

it was only after initiation of Corporate Resolution Process that Corporate

Debtor deposited amount of Rs.18,07,373/- as principal amount. It is for

the first time in the reply filed by Respondent to the Company Petition that

the claim of interest is disputed. The impugned order failed to consider the

facts and law, which deserves to be set aside.

4. The learned Counsel for the Respondent refuting the submissions of

the Counsel for the Appellant contends that the claim of interest by the

Appellant was disputed by the Respondent from the very beginning. The

principal debt having already been paid, there was no debt due on which

insolvency proceedings could have been proceeded any further and no error

has been committed by the Adjudicating Authority in rejecting the

Application. It is submitted that there was no agreement for payment of

any interest and different rate of interest is being claimed by the Appellant,

which is apparent from materials filed by the Appellant itself.

5. We have considered the submissions of the learned Counsel for the

parties and have perused the record.

6. There is no dispute that before issuance of notice in the Company

Petition filed by the Appellant, the principal amount as claimed by the

Appellant of Rs.18,07,373/- was paid on 15th December, 2018. The claim

of interest was refuted in the reply filed before the Adjudicating Authority

by the Respondent. It was specifically a case of the Respondent that there

was no agreement between the parties to make any payment of interest and

the claim of interest by the Appellant is mala-fide and without any basis.

Company Appeal (AT) (Insolvency) No. 540 of 2020 4

7. It will be useful to refer to the pleadings of Respondent in reply filed

to Section 9 Application to find out the nature of dispute raised by the

Respondent in its reply. Paragraph 5 of the reply is as follows:

"5. That the afore-captioned application has been filed by the Applicant claiming two categories of amounts - principal and interest. It is submitted that entire principal amount has already been paid by the Respondent to the Applicant and there is no amount which is due and payable from the Respondent to the Applicant by way of interest as there has never been any agreement between the parties as to payment of interest. Rather, an analysis of the details submitted by the Applicant in the petition evidence that it has been in receipt of far more amounts from the Respondent than the outstanding figure agitated by it in the instant petition."

8. With regard to claim of interest by the Appellant, it was further

pleaded that the audited balance sheet of the Applicant itself does not show

any amount as being due from trade creditors for a period beyond six

months during the financial years 2016-17 and 2017-18. Paragraph 34 of

the reply in this context is as below:

"34 That it is further submitted that the audited balance sheet of the applicant itself does not show any amount as being due from trade creditors for a period beyond 6 months during the financial years 2016-17 and 2017-18. A copy of the audited balance sheet of the Applicant as available at the

Company Appeal (AT) (Insolvency) No. 540 of 2020 5 website of the Ministry of Corporate Affairs containing the audited figures as at 31.03.2017 and 31.03.2018 is enclosed as Annexure AR-5. It is submitted that there is no question of such a heavy amount being not accounted for, shown and recorded in the audited financial statements of the Applicant Company. The only conclusion that can be drawn from this is that the Applicant itself has nowhere shown the debt on account of interest as being due and that the entire petition is a sham with no legs to stand on. Admittedly, no amounts in the nature of trade payables which were outstanding for a period of six months or more have been shown and recorded in the audited financial statements of the Applicant and by no stretch of imagination, the alleged outstanding principal amount of approximately Rs.18 lacs can attract interest of more than Rs.70 lacs for a period less than six months."

9. The Respondent in its reply to the notice issued under Section 9 has

refuted the claim of the Appellant and also denied any liability towards any

interest. Thus, the claim regarding interest was clearly disputed.

10. We may refer to judgment of the Hon'ble Supreme Court in (2018) 1

SCC 353 - Mobilox Innovations Private Limited vs. Kirusa Software

Private Limited where in paragraph 51 of the judgment it was held that

Adjudicating Authority has to see as to whether there is a plausible

contention which requires further investigation and that the "dispute" is

Company Appeal (AT) (Insolvency) No. 540 of 2020 6 not a patently feeble legal argument or an assertion of fact unsupported by

evidence. In paragraph 51 following was laid down:

"51. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the "existence" of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the "dispute" is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application."

The above judgment of the Hon'ble Supreme Court has been followed

subsequently and same principles have been reiterated time and again.

11. We may refer to another judgment of the Hon'ble Supreme Court in

(2019) 12 SCC 697 - Transmission Corporation of Andhra Pradesh

Company Appeal (AT) (Insolvency) No. 540 of 2020 7 Limited vs. Equipment Conductors and Cables Limited where Apex

Court again referring to judgment in Mobilox Innovations (supra) made

following observation in paragraph 19:

"19. In a recent judgment of this Court in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. [Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd., (2018) 1 SCC 353 : (2018) 1 SCC (Civ) 311] , this Court has categorically laid down that IBC is not intended to be substitute to a recovery forum. It is also laid down that whenever there is existence of real dispute, the IBC provisions cannot be invoked...."

12. We may also refer to judgment of Hon'ble Supreme Court in (2019)

4 SCC 17 - Swiss Ribbons Private Limited and Anr. vs. Union of India

and Ors. where Apex Court has held that primary focus of the insolvency

legislation is to ensure revival and continuation of the Corporate Debtor

and the Code is not a mere recovery legislation for creditors. In paragraph

28, following has been laid down:

"28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors."

13. The learned Counsel for the Appellant has relied on judgment of the

Hon'ble Supreme Court in Vijay Industires vs. NATL Technologies Ltd.

Company Appeal (AT) (Insolvency) No. 540 of 2020 8 (2009) 3 SCC 527 wherein it was held that interest is also part of

'operational debt'. He submits that Hon'ble Supreme Court while

interpreting Section 433 (e) and (f) and Section 434(1) (a) and Section 439

of the Companies Act, 1956 has laid down that failure to pay the agreed/

statutory interest is covered under the word "debt". There can be no

dispute to the proposition of law as laid down by the Apex Court in the

above case. When an amount of interest is agreed or statutory, the same

shall be clearly part of the debt. However, the judgment of Vijay Industries

(supra) is clearly distinguishable from the facts of the present case, since

in the above case the claim of interest was not disputed, which facts is

reflected in paragraphs 30 and 31 of the judgment, which are to the

following effect:

"30. The fact that despite receipt of a legal notice dated 23-12-2003, no payment has been made to liquidate the debt on the part of the Company is not in dispute. Admittedly, the appellant had been supplying castor oil to the respondent. The fact that the respondent did not pay the price of the said supplies, on presentation of the invoices, is also not in dispute. It also stands admitted that the parties negotiated as regards the manner in which the payments could be made. In a meeting held on 25-11-2003, promises were made to square up the old outstanding dues and bring it into the system for the purpose of rotation. The agreement spoke of payment of compensation to the appellant for the delay in payment on account of earlier supplies after clearing the entire old dues. There cannot be any doubt whatsoever that when, in principle, the respondent had agreed to compensate

Company Appeal (AT) (Insolvency) No. 540 of 2020 9 the appellant for the delay in payment, the same must be by way of interest payable on the principal amount or otherwise.

31. The respondent never denied the demand of interest as such, but in its reply dated 30-12-2003 merely stated that a sum of Rs 16,80,468 (sic Rs 15,80,460) was due."

14. In the present case, when the Corporate Debtor in its reply to Section

9 Application has clearly and categorically denied it liability to pay any

interest, there was no case of payment of any agreed interest.

15. We may also refer to a judgment of this Tribunal where this Tribunal

has refused to proceed with the insolvency proceedings after noticing that

Application was being pursued only for realization of interest amount. In

S.S. Ploymers vs. Kanodia Technoplast Limited, Company Appeal (AT)

(Insolvency) No. 1227 of 2019 in paragraph 5 following was laid down:

"5. Admittedly, before the admission of an application

under Section 9 of the I&B Code, the 'Corporate Debtor'

paid the total debt. The application was pursued for

realisation of the interest amount, which, according to us

is against the principle of the I&B Code, as it should be

treated to be an application pursued by the Applicant

with malicious intent (to realise only Interest) for any

purpose other than for the Resolution of Insolvency, or

Liquidation of the 'Corporate Debtor' and which is barred

in view of Section 65 of the I&B Code."

Company Appeal (AT) (Insolvency) No. 540 of 2020 10

16. We may also notice one more fact, which has been highlighted by

Respondent in its reply filed in this Appeal. In Section 9 Application, which

was filed by the Appellant in Part-IV of the Application stating that rate of

interest claimed by the Appellant is @ 3% monthly, whereas in Invoices,

which have been filed and has also been brought on record where one of

the contention is as follows:

"If payment is not paid within 5 days from bill date,

interest @ 5% interest per month will be charged."

17. In certain calculation sheets filed before the Adjudicating Authority,

the Appellant has calculated interest for some period @2.5% per month.

There is no clarity even on the part of the Appellant as to what rate of

interest is liable to be paid by the Respondent. The Appellant was only

advertising agency and as per Invoices, the claim of interest @ 5% monthly

comes to interest @ 60% per annum and @ 3% it comes to 36% per annum.

The Adjudicating Authority after taking into consideration of all facts and

circumstances has rightly in paragraph 9 has turned the claim of interest

as unconscionable, irrational and unjustified. In paragraph 9 of the

judgment of the Adjudicating Authority following has been observed:

"9. In view of the above facts, this Bench is satisfied

that as the principal amount has already been paid by

the Corporate Debtor, the claim of the petitioner for

Rs.71,18,908.04 as interest is unconscionable,

Company Appeal (AT) (Insolvency) No. 540 of 2020 11 irrational, unjustified and in the opinion of this Bench

does not qualify as a operational claim, default of which

would entitle the petitioner to seek resolution of the

Corporate Debtor. The claim for interest on delayed

payment is a disputed fact by the Corporate Debtor and

as such can only be adjudicated by a court of competent

jurisdiction. Initiation of Corporate Insolvency Resolution

Process is certainly not an answer in this facts and

circumstances of the case. Recovery of interest alone can

be initiated before a civil court for its due adjudication."

18. The Adjudicating Authority has also recorded finding that claim for

interest on the delayed payment is a disputed fact by the Corporate Debtor

and it can only be adjudicated by a court of competent jurisdiction. The

claim of interest being disputed, no error has been committed by the

Adjudicating Authority in rejecting the Application under Section 9 of the

Code. The provisions of Code cannot be allowed as a recovery mechanism

or to recover the claim of interest by Operational Creditor. The Application

under Section 9 cannot be converted into proceedings for recovery of

interest by Operational Creditor on delayed payment, that is not the object

of IBC. The object of the IBC is to resolve the insolvency of the Corporate

Debtor and to bring back the Corporate Debtor on its feet. The present is

not a case where there is any insolvency resolution of Corporate Debtor.

We are thus of the view that Adjudicating Authority has rightly rejected the

Company Appeal (AT) (Insolvency) No. 540 of 2020 12 Application of the Appellant filed under Section 9 of the Code, which

warrants no interference in this Appeal. There is no merit in the Appeal,

the Appeal is dismissed. No order as to costs.

[Justice Ashok Bhushan] Chairperson

[Justice Jarat Kumar Jain) Member (Judicial)

[Dr. Alok Srivastava] Member (Technical)

NEW DELHI

17th January, 2022

Ash/NN

Company Appeal (AT) (Insolvency) No. 540 of 2020 13