Pramod Kumar Jain Ex-Director Of M/S ... vs Mr. Mangesh Vitthal Kekre Interim ...

Comp. App. (AT) (Ins) No. 617 of 2024 & I.A. No. 2231, 2232, 2233, 3223 of 2024

IN THE MATTER OF: Pramod Kumar Jain, Ex- Director of Aryan Ispat & ...Appellant Power Pvt. Ltd.

Versus

Mangesh Vitthal Kekre, IRP of Aryan Ispat & Power ...Respondents Pvt. Ltd. & Anr.

Present: For Appellant : Mr. Sunil Fernandes, Sr. Advocate, Mr. Rakesh Kumar, Ms. Preeti Kashyap, Ms. Diksha Dadu & Mr. Ankit Sharma, Advocates.

For Respondents : Mr. Sumesh Dhawan, Mr. Praveen M. Surange, Ms. Vatsala Kak, Mr. Shaurya Shyam, Advocates for R-2. Mr. Kushal Bansal & Mr. Anish Ahlawat, for R-1.

Mr. Pranav Sachdeva & Mr. Jatin Bhardwaj, for Intervenor.

JUDGMENT

Per: Justice Rakesh Kumar Jain:

This appeal is filed by an ex-director of the Corporate Debtor in order

to challenge the order dated 22.03.2024 passed by the National Company Law

Tribunal, New Delhi (in short 'Tribunal') by which an application filed the

Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code,

2016 r/w Rule 6 of the Insolvency and Bankruptcy (Application to

Adjudicating Authority) Rules, 2016 (in short 'Rules') has been admitted.

2. The aforesaid application was filed by the Operational Creditor for an

amount of Rs. 6,13,48,161.98/- out of which Rs. 4,97,22,461.16/- was

towards the principal and Rs. 1,16,25,700.82 was towards the interest.

Comp. App. (AT) (Ins) No. 617 of 2024 2

3. According to the Operational Creditor, the CD had already paid Rs.

4,97,22,461.16/- i.e. the principal amount out of Rs. 6,13,48,161.98 but the

remaining amount of Rs. 1,16,25,700.82 includes both principal as well as

the interest.

4. The Operational Creditor sent a demand notice to the CD on

05.07.2023 which was replied by the CD on 20.07.2023 and contested the

amount demanded in the demand notice.

5. During the pendency of the proceedings before the Tribunal, the CD

paid the entire amount of Rs. 4,97,22,461.16/- and sent an email to the

Respondent on 31.01.2024. The subject of the email is as under:-

"We would like to inform you that we have paid the entire outstanding of Rs. 4,97,22,462/- today.

We would further like to inform you that there are no outstanding dues as on date in our books of accounts. You are requested to kindly update the same in your books of accounts.

Please refer pendency of case no. CP (IB) No. 552 of 2023 and that it is requested to you to take necessary steps for withdrawal of the petition"

6. The factum of payment of Rs. 4,97,22,462/- by the CD to the OC

towards principal amount has been noticed by the Tribunal in order dated

21.02.2024 which is also reproduced as under:-

"Ld. Counsel appears for the Applicant. Ld Counsel appearing for the Corporate Debtor has submitted that the Principal amount i.e. Rs. 4,97,22,461.16/- has been paid to the Operational Creditor. The Ld. Counsel for the Operational Creditor is refuted the same.

It is submitted that the Corporate Debtor is liable to pay an amount of Rs. 1,16,25,700.82/- towards interest. List the matter for arguments on 22.02.2024."

Comp. App. (AT) (Ins) No. 617 of 2024 3

7. The ledger account of the CD also reflected a nil balance. The entry in

this regard is also reproduced as under:-

8. However, despite the payment of entire principal amount, the OC

claimed interest though it is alleged that there was no express agreement or

acknowledgment on the part of the CD regarding the interest. It is also alleged

that no interest had ever been paid by the CD to the OC nor the interest

component was ever recorded in the books of accounts.

9. The Tribunal admitted the application, filed under Section 9 of the

Code, on the ground that the interest is payable by the CD because of its

provision in the invoice and relied upon a decision of this Court rendered in

the case of CA (AT) (Ins) No. 690 of 2022 "Mr. Prashat Agarwal s. Vikash

Parasrampuria and Ors." The Tribunal has further relied upon two decisions

of the Hon'ble Supreme Court in the case of Asset Reconstruction Company

India Limited Vs. Tulip Star Hotels Limited & Ors., 2022 SCC OnLine SC 944

and Bharat Heavy Electricals Limited Vs. R.S. Avtar Singh & Company, (2013)

1 SCC 243 to hold that in case of part payment it is for the recipient of the

Comp. App. (AT) (Ins) No. 617 of 2024 4

money to adjust it firstly towards interest in the absence of any direction of

adjustment.

10. On these two premises, the application was admitted, moratorium was

imposed and Mr. Mangesh Vithal Kekre was appointed as the IRP of the CD.

11. Counsel for the Appellant has argued that the OC has relied upon

invoice in which there is a provision for charging of interest at the rate of 12%

in case of delay in payment. One such invoice is reproduced as under:-

Comp. App. (AT) (Ins) No. 617 of 2024 5

12. It is submitted by the Appellant that the interest clause in the footnote

of the invoice is merely a boilerplate provision and was never acknowledged

or signed by the CD.

13. It is further submitted that nothing has been brought on record by the

OC by way of any email, purchase order or any other document which may

substantiate the claim that the interest was ever agreed upon by the parties.

14. It is also argued that even the clause of the footnote do not specify the

date of payment to hold the delay for triggering the component of interest.

15. In this regard, he has relied upon two decisions in the case of Comet

Performance Chemicals Pvt. Ltd. Vs. Aarvee Denims and Exports Limited CA

(AT) (Ins) No. 1878 of 2024 decided on 13.01.2025 and Rohit Motawat Vs.

Madhu Sharma Proprietor Hind Chem Corporation & Anr., CA (AT) (Ins) No.

1152 of 2022 decided on 03.02.2023.

16. On the other hand, Counsel for the OC/Respondent No. 2 has

reiterated its stand taken before the Tribunal contending that the Respondent

No. 2 is entitled to apportion the amount received first towards interest

amount and thereafter towards principal amount and has referred to a

decision of the Hon'ble Supreme Court in the case of Asset Reconstruction

Company India Limited (Supra), BHEL (Supra) and Beetel Teletech Ltd. Vs.

Arcelia IT Services Pvt. Ltd., 2023 SCC OnLine NCLAT 642.

17. It is further submitted that the interest has been charged by the R2 on

the basis of a clause in the invoice as per which, on the delayed payment, CD

was liable to pay interest at the rate of 12 %. It is also submitted that the

claim of the interest is part of the debt for which an application under Section

9 of the Code is maintainable. In respect of its claim in regard to interest, he

has relied upon a decision of this Court in the case of Prashat Aggarwal

Comp. App. (AT) (Ins) No. 617 of 2024 6

(Supra). He has further submitted that the judgment relied upon by the

Appellant in the case of Rohit Motawat (Supra) and Comet Performance

Chemicals Pvt. Ltd. (Supra) are not applicable to the facts of this case and

has prayed that the appeal may be dismissed.

18. Notice in this appeal was issued on 01.04.2024 and the following order

was passed:-

"Learned Counsel for the Appellant submits that out of the total amount of Rs.6,13,48,161.98/-, principal amount was Rs.4,97,22,461.16/- out of which the Appellant has paid Rs.4,97,22,461.16/- which has been noticed by the Adjudicating Authority in paragraph 10. It is submitted that Adjudicating Authority admitted Section 9 Application only on the ground that amount of interest of Rs.1,16,25,700.82/- has not been paid whereas, according to Appellant in the invoices unilaterally the interest was claimed which was never accepted by the Corporate Debtor. He submits that there was no liability to pay the interest and more so, principal amount having been paid Section 9 application ought not to be admitted only for interest. Mr. Dhawan submits that amount was paid only after filing of application under Section 9 and the invoices contained liability of interest hence it was for the Corporate Debtor to pay the interest also.

Learned Counsel for the Operational Creditor submits that amount has been appropriated towards the interest. Submission needs scrutiny. Issue notice.

Let Reply be filed within two weeks. Rejoinder be filed within two weeks thereafter. List this Appeal on 06th May, 2024. In the meantime, Impugned Order dated 22.03.2024 shall remain stayed.

In event the Appeal is dismissed the Appellant undertakes to pay the interest."

Comp. App. (AT) (Ins) No. 617 of 2024 7

19. There is no dispute to the fact that out of total amount of Rs.

6,13,48,161.98/- Rs. 4,97,22,461.16 was towards the principal amount and

Rs. 1,16,25,700.82/- was the interest. It is also not in dispute that

Respondent No. 2 has claimed the interest only on the basis of invoice in

which it has been mentioned that "in case of delay payment, interest will be

charged @ 12% or as per the agreed terms" whereas no other document has

been placed on record, much less, any purchase order or the agreement

between the parties which can reflect the terms and conditions of the interest.

It is also not in dispute that the CD had already paid the principal amount of

Rs. 4,97,22,461.16/- and in this regard sent an email on 31.01.2024

informing the OC/R2 that there is no outstanding dues in their books of

accounts and had also requested that the OC should also update its books

and accounts accordingly and withdraw the company petition. There is no

reply to this email by the OC/R2 that it had adjusted the amount of Rs.

4,97,22,461.16 first towards interest and the balance amount is the principal

rather it has come in the order dated 21.02.2024 passed by the Tribunal that

the principal amount has been paid to the tune of Rs. 4,97,22,461.16 and

the CD liable to pay Rs. 1,16,25,700.82/- towards interest. The ledger

account of the CD also reflects that principal amount claimed by the OC has

been shown as nil which means that the principal amount has already been

paid and has been accepted as such by the OC as the principal amount has

been received without any murmur, therefore, the Tribunal is not correct to

hold that the amount paid by the CD to the OC of Rs. 4,97,22,461.16 was

adjusted towards interest at the first instance by making reference to the

decisions in the case of Asset Reconstruction Company India Limited (Supra)

and BHEL (Supra).

Comp. App. (AT) (Ins) No. 617 of 2024 8

20. Now the question is as to whether the amount of Rs. 1,16,25,700.82/-

can be claimed even as an interest by the OC only on the basis of the

boilerplate provision in the invoice in the absence of any agreement between

the parties towards for the payment of interest or anything which may reflect

it by way of email or purchase order etc.

21. It is also pertinent to mention that provision in the invoice says that

the CD shall be liable to pay interest on the delay payment but no period of

payment has been prescribed in the invoice, therefore, it is not known as to

from which date the interest has been charged by the OC. In this regard, the

Appellant has relied upon a decision in the case of Comet Performance

Chemicals Pvt. Ltd. (Supra) and referred to para 16 to 18 which are

reproduced as under:-

"16. First, we look into the claims and counter claims of the threshold limit under Section 4 of the IBC. The Appellant's claims aggregates Rs 1,36,30,679/- (rupees one crore, thirty- six lakhs, thirty thousand, six hundred and seventy-nine only) including interest. Section 5 (21)1 of the IBC restricts claims to those arising from goods or services, and interest is recoverable only when expressly agreed upon by the parties. In the absence of such agreement, the interest component cannot be considered part of the operational debt. Consequently, without interest the outstanding principal amount alone is Rs 60,44,800/- (rupees sixty lakhs, forty-four thousand and eight hundred only) and is well below the threshold of Rs 1 crore specified under Section 4 of the IBC.

17. The Respondent relies upon Rishabh Infra Through Hari Mohan Gupta vs Versus Sadbhav Engineering Ltd [Company Appeal (AT) (Insolvency) No. 1881 of 2024] wherein it has been held that invoices with interest clauses, which were not part of the formal agreement, are unenforceable. This judgment supports the case of the Respondent.

18. Accordingly, we agree with the submissions of the Respondent and also the findings of the Adjudicating Authority that no interest can be charged against the supply of goods and services for delayed payments until and unless there is an express agreement between the parties. We find justification in Comp. App. (AT) (Ins) No. 617 of 2024 9

the claim of the Respondent that the interest claim was unilaterally imposed and lacked any contractual basis."

22. Counsel for the Appellant has further relied upon a decision in the case

of Rohit Motawat (Supra) and has referred to para 10 which is reproduced as

under:-

"10. We have heard counsel for the parties and after perusal of record, are of the considered opinion that the impugned order is patently illegal and deserves to be set aside. The question which has been raised by the Appellant, is hereby Company Appeal (AT) (Ins) No. 1152 of 2022 answered in favour of the Appellant in view of the decision taken by this Court in case of 'S.S.Polymers' (Supra), 'Permali Wallace Pvt. Ltd.' (Supra) as well as the decision of the 'Hon'ble Karnataka High Court' in the case of 'Jyothi Limited' (Supra). Before parting, we are constrained to observe that the Adjudicating Authority has erred in not looking into the facts that the principal amount has entirely been paid and the issue was only regarding to interest for which the application under Section 9 of the Code was not maintainable as the spirit of the legislation of the Code is for 'resolution of debt' and not for 'recovery'."

23. On the other hand, Counsel for the Respondent No. 2 has relied upon

the case of Prashat Agarwal (Supra) and has referred to following observations

made therein:-

"In this context, as discussed above, all 9 invoices clearly stipulated provision of interest on delayed payment. It is also observed that payments of three invoices has been made in full and for one invoice in part against said invoices by CD and no dispute on this clause was ever raised as noted from record available before us"

24. In the case of Prashat Agarwal (Supra) the issue was regarding the

maintainability of the application because of the threshold provided under

Section 4 of the Code.

Comp. App. (AT) (Ins) No. 617 of 2024 10

25. Be that as it may, in the case of Prashat Agarwal (Supra) it was a

condition in the invoice that "interest will be charged @ 18% plus GST P.A

after due date of the bill" and the dispute was regarding the maintainability

of the application filed under Section 9 in which the amount in question was

less than Rs. 1 Cr. which is the minimum threshold prescribed under Section

4.

26. On the other hand, in the present case, condition prescribed in the

invoice is that in case of delay in payment, interest will be charged at the rate

of 12 @ as per the agreed terms. This clause in the invoice is totally vague

because it does not specify the period within which the amount was to be paid

unlike the case of Prashat Agarwal (Supra) in which it was prescribed that

interest will be charged after due date of bill. Secondly, it is mentioned in this

clause that interest will be charged as per the agreed terms whereas no agreed

terms have seen the light of the day to enable the OC to claim interest as a

part of debt. In this regard, the observation has been made, in the case of

Comet Performance (Supra) by a three members bench of this Court, relying

upon Rishabh Infra Through Hari Mohan Gupta Vs. Sadbhav Engineering

Ltd., CA (At) (Ins) No. 1881 of 2024) in which it has been held that "invoices

with interest clauses which were not part of the formal agreement are

unenforceable".

27. Thus, in the given facts and circumstances, we are inclined to follow

the decision of this Court in the case of Comet Performance Chemicals Pvt.

Ltd. (Supra) and Rohit Motawat (Supra) in which it has been held that "the

application for interest was not maintainable as the spirit of the legislation of

the Code is for resolution of debt and not for recovery".

28. No other point has been raised.

Comp. App. (AT) (Ins) No. 617 of 2024 11

29. In view of the aforesaid facts and circumstances, the present appeal is

allowed and the impugned order is set aside. No costs.

IAs, if any, are hereby closed.

[Justice Rakesh Kumar Jain] Member (Judicial)

[Mr. Naresh Salecha] Member (Technical)

[Mr. Indevar Pandey] Member (Technical)

New Delhi 19th February, 2025

Sheetal

Comp. App. (AT) (Ins) No. 617 of 2024