Status as on- 29/02/2020
In the matter of M/s Steel India vs. Theme Developers Pvt. Ltd., the bench held that it was are not inclined to interfere with the order passed by the Learned Bench at NLCT, Mumbai and the appeal was dismissed as there was a pre-existing dispute towards interest on the delayed payments before the issuance of the demand notice and that the alleged claim amount towards interest on loan alone, cannot be termed as an “Operational Debt”.
FACTS:
- M/s Steel India contended that they had supplied steel bars to Theme Developers Pvt. Ltd. for construction activity, at their project sites and as per the terms and conditions between both the parties; it was agreed that in case the payment is delayed beyond 60 (sixty) days, 2% interest per month would be charged. They further stated that interest amounting to Rs. 22,64,054/- was due from Theme Developers for delayed payment against the goods sold and delivered to them.
- M/s Steel India filed an application U/S 9 of the Insolvency and Bankruptcy Code 2016 before the Hon’ble National Company Law Tribunal, Mumbai Bench to initiate Corporate Insolvency Resolution Process (CIRP) against the corporate debtor M/s Theme Developers Pvt. Ltd.
- The Adjudicating Authority of NCLT, Mumbai Bench rejected the petition, on the ground that outstanding amount was in relation to the payment of interest-only, on account of the delayed payment, to the extent of Rs.22,64,054/-, i.e. for the period from 2015 to 2018.
- The Bench also noted that Theme Developers had raised a dispute on 10th January 2019, after receiving the first demand notice, stating that they are not liable to pay the amount, as claimed by the M/s Steel India. The petition was rejected, on the ground of pre-existing dispute, covered under Section 5 sub Clause 6(a) of the I & B Code 2016.
APPEAL TO NCLAT
Thereafter, the Appellant M/s Steel India preferred an appeal before the NCLAT, New Delhi challenging the said order. The Advocates representing Theme Developers contended that interest alone on loan does not qualify as Operational Debt, as defined under the I & B Code, 2016. They further submitted that the Appellant had suppressed the fact that before issuance of demand notice dated 13th January 2019, it had issued the purported demand notice on 28th December 2018 under the I& B Code, 2016, for a sum of Rs.36,00,006/-, which included the principal amount Rs.13,35,952/- and interest of Rs.22,64,054/-. In response to the first demand notice dated 28th December 2018, Theme Developers had made the payment of the principal amount of Rs.13,35,952/- via RTGS on 28th January 2019 and before the issuance of demand notice under Section 8 of the I & B Code, they had raised the dispute about the outstanding interest, i.e. Rs.22,64,054/-, which was purported to be claimed as interest on account of delayed payment @ 2% per month.
NCLAT’s OBSERVATION:
The Appellate Tribunal made the following observations:
- The Appellant M/s Steel India had placed reliance only on an email dated 05th September 2015, which showed that they had quoted the rate to Theme Developers wherein, it was mentioned that if payment was delayed for more than 60 days, then interest@ 2% per month will be charged. The Appellant had not filed any document to show that the debtor ever agreed to pay the interest on delayed payment.
- The Bench also observed that the Appellant has issued first demand notice on 28th December 2018 and based on this first demand notice Theme Developers made the payment of the principal amount, and only an interest amount of Rs.22,64,054/- remained outstanding towards interest, for which they had raised a dispute. After which the Appellant issued a demand notice on 15th January 2019, applying for initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the I & B Code before the Adjudicating Authority. Before the issuance of the second demand notice, the dispute relating to the payment of interest was existing. Therefore, the NCLT, Mumbai Bench rejected the Application by the Impugned Order.
The Appellate Tribunal also quoted the judgments passed in S.S. Polymers Vs Kanodia Technoplast Limited & SBF Pharma Versus Gujarat Liqui Pharmacaps Pvt. Ltd.
The Hon’ble Bench in its verdict held that there was a pre-existing dispute towards interest on the delayed payments before the issuance of the demand notice and that the alleged claim amount towards interest on loan alone, cannot be termed as an “Operational Debt”. For the reasons aforesaid, the bench held that it was are not inclined to interfere with the order passed by the Learned Bench at NLCT, Mumbai and the appeal was dismissed.
Disclaimer– The above article is based on the personal interpretation of related laws, which may differ from person to person. The readers are expected to take expert opinion before relying on this article. For more clarification, the readers can be expected at shriya@centrik.in or support@centrik.in
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