Vedic Projects Pvt Ltd vs Shri Sutanu Sinha Resolution ...

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI Company Appeal (AT) (Insolvency) No.1927 of 2024 (Arising out of Order dated 06.08.2024 passed by the Adjudicating Authority (National Company Law Tribunal), Division Bench, Court No.II, Kolkata in I.A.(IB) No.1033/KB/2023 in CP (IB) No.56/KB/2019)

IN THE MATTER OF: M/s Vedic Projects Pvt. Ltd. having registered office At: 95 Taimoor Nagar, New Delhi-1100651 Through Director/AR Sh. Gaurav Chaudhary ...Appellant Versus Shri Sutanu Sinha Resolution Professional for M/s Simplex Projects Ltd. Duckback House 4th Floor 41,Shakespeare Sarani Kolkata, West Bengal- 700017. ...Respondent

Present:

For Appellant : Ms. Suruchi Aggarwal, Sr. Advocate with Mr. Gurmeet Singh, Mr. Ashish Garg, Advocates.

For Respondent : Ms. Ichccha Kalas, Advocate.

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal by Operational Creditor has been filed challenging order

dated 06.08.2024 passed by National Company Law Tribunal, Division

Bench, Court No.II, Kolkata in I.A.(IB) No.1033/KB/2023 in CP(IB)

No.56/KB/2019.

2. Brief facts necessary to be noticed for deciding the Appeal are :

(i) The Corporate Insolvency Resolution Process ("CIRP") against

the Corporate Debtor - M/s Simplex Projects Ltd. commenced

Company Appeal (AT) (Insolvency) No. 1927 of 2024 1 by order dated 27.04.2022, on an application filed by the State

Bank of India. The Interim Resolution Professional ("IRP")

made a public announcement on 29.04.2022. The Appellant

filed its claim before the RP to the tune of Rs.23,42,42,554/-.

(ii) The case of the Appellant was that the Appellant and Corporate

Debtor had entered into a Sub-contract Agreement dated

16.06.2010 whereby the Corporate Debtor assigned the

Applicant for the construction work of Kabrai Feeder Channel

starting from Arjun Reservoir, which the Corporate Debtor

availed from the Irrigation Department, Govt. of U.P. The

Appellant claimed to have raised bill from 30.06.2010 to

27.09.2014 for an amount of Rs.41,53,95,348/-, against

which an amount of Rs.10,36,47,148/- was yet to be paid by

the Corporate Debtor to the Appellant. The RP initially

admitted claim of only Rs.2,76,67,940/-.

(iii) On 18.01.2023, an application was filed by the Appellant

before the Adjudicating Authority, objecting to the amount of

claim admitted. The Adjudicating Authority vide order dated

05.03.2024 directed the Appellant to sit with the IRP regarding

the claim, pursuant to which joint meeting was convened on

16.05.2022.

(iv) The IRP filed a supplementary affidavit, whereby IRP stated

that claim of the Appellant has been admitted to the tune of

Company Appeal (AT) (Insolvency) No. 1927 of 2024 2 Rs.10,36,30,064/-. The IRP rejected the entire amount due

and payable with respect to interest.

(v) The Appellant filed IA No.1033/KB/2023, where the Appellant

has prayed for a direction to learned RP to admit the claim of

the Appellant to the tune of Rs.23,42,42,554/-. The RP has

filed affidavit in reply opposing the same. The RP has also filed

reply to the Supplementary Affidavit, which was filed by the

Appellant, with regard to interest, it was pleaded in the reply

that there is no clause of payment of interest on delayed

payment in the Sub-contract Agreement entered in

16.06.2010.

(vi) The Adjudicating Authority by the impugned order rejected IA

1033/KB/2023. The Adjudicating Authority in paragraph 99,

100 and 101, observed following:

"99. The Learned Counsel for the RP would submit that the interest component as claimed by the applicant has been rejected as there is no clause in the sub-contract agreement dated 16.06.2010 for the payment of interest on delayed payment.

100. In counter, the Learned Counsel for Vedic would submit that Vedic is a registered MSME and as per Section 16 of the MSMED Act, Vedic is entitled to receive principal amount along with interest calculated at compound inters at three time of the bank rate notified by the RBI. Further, the amount was payable since 2016 and for eight years the same is being illegally withheld and the same amount is due. Further, the corporate debtor had deposited TDS amount in 2016 itself

Company Appeal (AT) (Insolvency) No. 1927 of 2024 3 but has failed to pay the same amount though admittedly due and payable since 2015- 16.

101. We find that the claim of the applicant Vedic is an Operational Debt. As per Section 5(21) of the I&B Code, an "Operational Debt" is a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government, or any local authority. It is apparent that definition under Section 5(21) does not include any provision of `interest' with the 'debt'. The Hon'ble NCLAT in Krishna Enterprises v. Gammon India Ltd. reported at 2018 SCC OnLine NCLAT 360 held that:

"4. It is submitted that the 'debt' includes the interest, but such submission cannot be accepted in deciding all claims. If in terms of any agreement interest is payable to the Operational or Financial Creditor then debt will include interest, otherwise, the principal amount is to be treated as the debt which is the liability in respect of the claim which can be made from the Corporate Debtor."

(Emphasis Added)"

(vii) The order of the RP was upheld by the Adjudicating Authority

and in paragraph 105 to 106, following was held:

"105. However, concerning the Section 16 of MSMED Act, which caters to that where any buyer fails to make payment of the amount to the supplier, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank

Company Appeal (AT) (Insolvency) No. 1927 of 2024 4 of India. We are of the view this is not the appropriate forum to consider the issue pertaining to the interest as claimed by the Applicant under MSMED Act. 106. In terms of the view above, we are of the considered opinion that the RP, having an administrative and facilitative role under the I&B Code and its Regulations, has not committed any error by rejecting the interest amount from the principal amount as nowhere in the agreement or work order mentions the clause of payment of interest."

(viii) Aggrieved by which order, this Appeal has been filed.

3. Learned Counsel for the Appellant in support of the Appeal submits

that Adjudicating Authority failed to consider the fact that Appellant is a

MSME, to whom money was due and payable by the Corporate Debtor

("CD") since 2016, which was withheld by the CD. The Adjudicating

Authority failed to consider the fact that Section 16 of the MSMED Act

specifically provides interest to the MSME unit for any outstanding

amount.

4. Learned Counsel for the Respondent refuting the submissions of

learned Counsel for the Appellant submits that in the Sub-contract

Agreement entered between Corporate Debtor and the Appellant, there was

no Clause for any payment of interest. The sub-contractor was only

entitled for payment of his bills and sub-contractor was not entitled for any

interest on the amount of the invoice. It is submitted that RP, who only

exercise administrative functions, as a facilitator, could not have admitted

the claim of interest as filed by the Operational Creditor and entire

principal amount having been admitted by the RP, no error has been

Company Appeal (AT) (Insolvency) No. 1927 of 2024 5 committed by the Adjudicating Authority in rejective the claim of the

Appellant to accept the entire claim of Rs.23,42,42,554/-.

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

parties and have perused the records.

6. Sub-contract Agreement was entered on 16.06.2010 between the

Corporate Debtor and the Appellant. Under Clause 5 of the Agreement,

under the heading 'Payment of Bills', following has been contracted

between the parties:

"5. Payment of Bills

BPL shall make payment to VPPL after deducting:

a. Its margin of 18% of the gross value of each bill to be passed and paid by the client.

b. Security deposit @ 10% of the value worked out s above subject to a maximum of 10% of the contract price of VPPL to be reckoned as SPL's Contract price less 18%. Which shall be refunded after clearance of Defect Liability period of the contract.

c. Any further sum as may be recovered by client towards cost of cement. Steel supplied for the work in terms of the Contract Agreement as also any other account except taxes and;.

d. Applicable taxes under statuette for VPPL. e. The Client namely SPL is free to with hold money in case if the contractor namely VPPL fail to fulfill the documentation as per the requirement of SPL, e.g. The original levels, the competition levels maintained records etc.

Company Appeal (AT) (Insolvency) No. 1927 of 2024 6 VPPL shall execute the items of work as detailed in the drawings, specifications and other information furnished in the "Contract Agreement", including extra items, deviations and substitutions of the work. VPPL agrees and confirms that if any additional work(s) is required to be done by the Client in connection with the execution of the said project, then they shall undertake to take-up and complete the same and adhere to and comply with the rules and conditions of the contract mentioned in the Contract documents."

7. The copy of the Sub-contract Agreement between the parties dated

16.06.2010 has been filed Annexure A-3 by the Appellant. We have looked

into the relevant clauses of the Sub-contract Agreement. The Sub-contract

Agreement does not contemplate payment of any interest to the Sub-

contractor in event of any delayed payment. Whereas, under the Sub-

contract Agreement, the Corporate Debtor is free to withhold money in case

if the contractor namely VPPL fail to fulfill the documentation as per the

requirement of SPL of the CD. Clause 7 deals with 'Penalties', which

provides that penalties, damages and other demands, if any, imposed by

the CD as per the Contract Agreement in respect of any defaults, committed

in connection with execution of works etc. shall be borne by the Appellant.

The RP in its affidavit filed before the Adjudicating Authority, in reply to

the Application has categorically stated that claim of interest was rejected

in view of the absence of any clause for payment of interest on delayed

payment. In paragraph 8 of the reply filed by the RP to the supplementary

affidavit, following has been pleaded:

Company Appeal (AT) (Insolvency) No. 1927 of 2024 7 "8. As far as the interest component claimed by Applicant of Rs.13,05,95,406/- is concerned, the Answering Respondent submits that the same has been rejected in view of the absence of any clause for payment of interest on delayed payment under the Sub-Contract Agreement dated 16.06.2010."

8. The RP has pleaded that the RP is bound to verify every claim in

terms of Regulations 13 and 14 of the CIRP Regulations, 2016, hence, the

Appellant's claim for principal amount was admitted fully and interest

component was not admitted due to absence of any binding Agreement.

The RP has further pleaded that no Agreement of interest has been reflected

in financial statements of the CD. In paragraph 10 of the reply to the

supplementary affidavit, following has been pleaded:

"10. The Hon'ble National Company Law Appellate Tribunal, New Delhi in Company Appeal (AT) (Insolvency) No. 144 of 2018 in Krishna Enterprises Vs Gammon India Ltd. has held that:

4. It is submitted that the 'debt' includes the interest, but such submission cannot be accepted in deciding all claims. If in terms of any agreement interest is payable to the Operational or Financial Creditor then debt will include interest, otherwise, the principle amount is to be treated as the debt which is the liability in respect of the claim which can be made from the Corporate Debtor.

5. In the present appeals, as we find that the principle amount has already been paid and as per agreement no interest was payable, the applications under Section 9 on the basis of claims for entitlement of interest, were not maintainable. If for delayed payment Appellant(s) claim any interest, it will be open to them to move before a court of competent jurisdiction, but initiation of

Company Appeal (AT) (Insolvency) No. 1927 of 2024 8 Corporate Insolvency Resolution Process is not the answer."

9. The submission which has been pressed by learned Counsel for the

Appellant is that the claim of the Appellant is based on the entitlement of

the interest, the Appellant being MSME. The learned Counsel for the

Appellant has relied on Section 16 of the MSMED Act. Section 16 of the

MSMED Act provides as follows:

"16. Where any buyer fails to make payment of the amount to the supplier, as required under Section 15, the buyer shall notwithstanding anything contained in any agreement between the buyer and the and the supplier or any law for the time being in force, be liable to pay compound interest with monthly rests to the supplier on that amount from the appointed day or, as the case may be from the date immediately following the date agreed upon, at three times of the bank rate notified by the Reserve Bank."

10. With regard to claim under the MSME, the Adjudicating Authority

has observed that NCLT is not appropriate Forum to consider the issue

pertaining to the interest, claimed by the Appellant under Section 16 of the

MSMED Act. The RP has admitted the entire principal amount, which was

due to the Corporate Debtor and admission of principal amount of

Rs.10,36,47,148/- is not under dispute. The RP has to consider the claim

and verify the claim as per the claim submitted by an Operational Creditor.

The Sub-contract Agreement and other materials, which have been

submitted by Appellant, were examined and RP could admit the claim only

to the principal amount. There being no clause in the Agreement to include

the interest on the delayed payment, we do not find any error in the order

of the Adjudicating Authority, refusing to accept the claim of the Appellant

Company Appeal (AT) (Insolvency) No. 1927 of 2024 9 towards interest on the operational debt, which was claimed by the

Appellant.

11. We, thus, do not find any error in the order of the Adjudicating

Authority, not allowing IA No.1033/KB/2023 filed by the Appellant for

admission of entire claim of Rs.23,42,42,544/-, which included the

principal amount of Rs.10,36,47,148/- and rest towards interest. We,

thus, affirm the decision of the RP, admitting the claim towards the

principal amount and rejecting the claim for interest. There is no merit in

the Appeal. The Appeal is dismissed. There shall be no order as to costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

NEW DELHI

12th November, 2024

Ashwani

Company Appeal (AT) (Insolvency) No. 1927 of 2024 10