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The National Company Law Tribunal (NCLT), Mumbai Bench has recently dismissed a Section 9 Insolvency and Bankruptcy Code, 2016 (IBC) plea seeking payment of interest on principal amount on the ground that there was a pre-existing dispute between the parties with respect to existence of the amount of debt.
The order was passed by a two-member bench of Member (Judicial) Bhaskara Pantula Mohan and Member (Technical) V Nallasenapathy.
A Section 9 IBC plea was filed by Steel India (Operational Creditor) against Theme Developers Pvt. Ltd. (Corporate Debtor) for an alleged default in making payment to the extent of Rs. 22,64,054. The amount included interest @2% on the delayed payments against goods sold and delivered by the Operational Creditor to the Corporate Debtor. A Demand Notice under Section 8 was issued to the Corporate Debtor in January 2019 for repayment of this unpaid interest. The Operational Creditor contended that in spite of the receipt of Demand Notice, the Corporate Debtor neither replied to the demand notice nor repaid the outstanding dues.
Subsequently, a Section 9 IBC plea was preferred.
The Corporate Debtor, on the other hand, contended that it had procured Steel bars from the Operational Creditor in the year 2015-16 to the tune of Rs 48,42,784 and the entire principal sum was paid prior to filing of the petition. The Corporate Debtor also brought on record a Demand Notice issued in December 2018 by the Corporate Debtor. At this point, the Corporate Debtor claimed a total sum of Rs 36,00,006 which included principal amount of Rs 13, 35,952 and interest to the tune of Rs 22,64,054.
In response to the old Demand Notice, the Corporate Debtor has written to the Operational Creditor stating that there was no provision for payment of interest in final purchase invoice and hence could not claims for it. However, the principal sum of Rs. 13, 35.952 was also cleared by the Corporate Debtor.
The Corporate Debtor argued that there was no agreement to pay interest to the Operational Creditor and they they had already raised a dispute prior to receipt of Demand Notice under Section 8 of the IBC. Since ‘existence of prior dispute’ is a ground for rejection of petition filed under Section 9, the Corporate Debtor argued that the petition is liable to rejected on that ground itself.
The Operational Creditor had however pointed out that the Corporate Debtor’s balance sheet for the year 2015-16 mentioned “interest of delayed payment” as part of Audited Financial Statements. It was also submitted that TDS was deducted by the Corporate Debtor on the interest component which was a proof of debt.
The NCLT, after perusal of the documents, noticed that the Corporate Debtor had already paid the entire Principal amount to the Operational Creditor and the same was also accepted by the Operational Creditor. Therefore, the demand notice under IBC was sent with the sole purpose of demanding payment of the interest payable on the principal sum, which subsequently formed the basis of the present petition, the NCLT observed.
The NCLT also noted that the invoices issued by the Operational Creditor showed that there was no provision of charging of interest. Hence, the claim of interest by the Petitioner is devoid of merit, it said. The contention of the Operational Creditor with respect to the deduction of TDS was also rejected by the NCLT in view of the fact that the TDS was under section 194C of the Income Tax Act, 1961 which dealt with TDS on payment by a Contractor for carrying out any work.
As far as the balance sheet of the Corporate Debtor was concerned, the NCLT remarked that an ordinary scanning of the same showed interest on delayed payment only to the extent of Rs 2,90,459. It however also observed that but that this interest could not be relatable to the interest claim made by the Operational Creditor.
In view of the above, the NCLT concluded that there was a clear existence of a dispute with respect to the claim of interest and the same was categorically informed to the Operational Creditor at the time of the first Demand Notice.
“..the dispute raised by the Corporate Debtor that they are not liable to pay interest as claimed by the Petitioner, which was categorically informed to the petitioner when reply was given to the first Demand Notice, as early as on 10.01.2019, whereas the second Demand Notice based on which this petition is filed was sent only on 15.01.2019, this is a clear dispute in existence as defined under Section 5(6)(a) of the Code.“
The Section 9 plea was thus dismissed.
An appeal against the order is currently pending before the National Company Law Appellate Tribunal.
The Operational Creditor was represented by Advocates Nausher Kohli with Ashish Singh.
The Corporate Debtor was represented by Advocates Rashmin Khandehar with MA Kamdar and Kanga & Co.
Read the Order: