GLS Films Industries Private Limited Vs Chemical Suppliers India Private Limited - All that is required is for the adjudicating authority to satisfy itself as to the existence of a plausible pre-existing dispute, which was not spurious, hypothetical or illusory. Whether the party raising that dispute would succeed on the strength thereof is not within the ken of such inquiry.

 SCI (2026.04.09) in GLS Films Industries Private Limited Vs Chemical Suppliers India Private Limited [2026 INSC 344, (2026) ibclaw.in 183 SC, Civil Appeal No. 4019 of 2025] held that;-

• 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.

• 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.’

• This Court referred to the observations in Mobilox (supra) that it is not necessary that the Court should be satisfied that the defence of a pre-existing dispute is likely to succeed and it is enough if such a dispute exists between the parties. Per this Court, what is to be seen is whether there is a plausible contention requiring investigation for the purpose of adjudication for it to satisfy the requirement of a pre-existing dispute.

• All that is required is for the adjudicating authority to satisfy itself as to the existence of a plausible pre-existing dispute, which was not spurious, hypothetical or illusory. Whether the party raising that dispute would succeed on the strength thereof is not within the ken of such inquiry.

Excerpts of the Order;

# 1. Initiation of corporate insolvency resolution process was denied by the adjudicating authority but the appellate authority reversed that decision. Aggrieved thereby, the corporate debtor is in appeal. On 28.03.2025, this Court stayed the operation of the judgment under appeal.

# 2. Company Petition (IB)-792(ND) of 2021 was filed before the National Company Law Tribunal, New Delhi Bench (Court II) (hereinafter, ‘the NCLT’), by Chemical Suppliers India Private Limited, the respondent herein, under Section 9 of the Insolvency and Bankruptcy Code, 20161, against GLS Films Industries Private Limited, the appellant.

# 3. The case of the respondent was that it had supplied chemicals to the appellant over a period of time and a sum of ₹2,92,93,223/- was due and payable to it as on 26.05.2021. Demand notice dated 11.11.2021 was issued by it under Section 8 of the Code. In response, the appellant addressed email dated 06.12.2021 disputing the claim. The respondent thereupon filed the subject application under Section 9 of the Code. The appellant contested the proceedings claiming that there was a pre-existing dispute between the parties prior to issuance of the demand notice. According to it, the respondent had supplied two consignments of solvent on 10.04.2021 and 11.04.2021 respectively at its factory premises at Gurugram but the same were found to be defective. This was brought to the notice of the respondent, which promised that it would do better. Basing on the said representation, the appellant claimed to have sourced some more solvent supplies from the respondent on 20.04.2021 and 23.04.2021. However, these supplies were also found to be defective. The respondent assured the appellant that it would compensate it for the losses suffered and supplied another batch of solvent on 21.06.2021. Yet again, upon checking, this batch was also found to be defective and was returned forthwith.

# 4. According to the appellant the respondent was called upon time and again to come and settle accounts and compensate the appellant for the losses suffered by it. However, no steps were taken in that regard but the authorised representative of the respondent started applying arm-twisting tactics by threatening to commit suicide if payment was not made for the defective supplies. The appellant filed a police complaint in relation thereto. According to the appellant, in view of the losses suffered by it due to such defective supplies, it issued a debit note on 31.12.2021 for ₹2,42,11,648/-. After adjusting the account, per the appellant, the respondent was still due and liable to pay it a sum of ₹70,09,430/-.

# 5. The NCLT took note of the letter dated 10.12.2020 written by the appellant to the respondent detailing the defective supplies made between 16.09.2020 and 24.10.2020, amounting to ₹1,66,89,770/-. The appellant had stated therein that its customer had debited its account by ₹6.50 crore but, owing to its long association with the respondent, the appellant was not planning to debit the said amount from its account. However, the appellant requested the respondent to take note of the debit note raised by it for ₹1.66 crore and arrange a credit note for that sum.

# 6. The NCLT noted that the respondent replied to this letter dated 10.12.2020 by way of email dated 14.07.2021. Therein, it denied that its supplies of solvent were defective and requested for payment to be made against overdue bills. In turn, by email dated 16.10.2021, the appellant reiterated that the material supplied to it was defective and called upon the respondent to reconcile the accounts and appropriate the losses caused to it due to defective supplies. The appellant asserted that it was only after repeated efforts on its part that the respondent incorporated a credit note for ₹1.66 crore but the original thereof and the tax paid note were never delivered to it. On the other hand, by email dated 10.09.2021, the respondent raised a demand for ₹4,60,05,397/-. The NCLT also noted that the appellant had lodged a police complaint on 27.09.2021, long prior to issuance of the demand notice, raising the issue of the defective quality of the supplies made by the respondent and its pressure tactics in seeking payment therefor under threat of suicide. Therein, the appellant had also referred to the fact that it called upon the respondent to come for reconciliation of accounts but to no avail.

# 7. On a conspectus of these facts, the NCLT opined that there was a plausible dispute raised by the appellant, which was not disclosed by the respondent upfront in its application. The NCLT also took note of the counterclaim of the appellant that it was due and payable a sum of ₹70,09,430/-. The NCLT opined that the respondent had approached it to recover its alleged dues and that was not the objective of the process provided under the Code. The NCLT, accordingly, concluded that there existed a dispute between the parties prior to issuance of the demand notice which necessitated a detailed investigation of documents and adducing of evidence by all concerned, which was beyond the scope of its summary jurisdiction under the Code. The respondent’s application was accordingly dismissed by the NCLT, vide order dated 16.12.2022.

# 8. Aggrieved thereby, the respondent filed Company Appeal (AT) (Ins) No. 157 of 2023 before the National Company Law Appellate Tribunal, Principal Bench, New Delhi (hereinafter, ‘the NCLAT’). This appeal was allowed by the impugned judgment dated 11.02.2025. Therein, the NCLAT noted that the respondent had raised eight invoices between the dates 27.03.2021 and 26.07.2021, amounting to ₹1,72,04,137/-, for the material supplied by it to the appellant and as the appellant failed to make payment therefor within time, the respondent charged interest @24% per annum, as per the invoice terms, amounting to ₹1,20,89,086/-. As no payment was made even thereafter, the respondent was stated to have issued demand notice dated 11.11.2021 under Section 8 of the Code for ₹2,92,93,223/-, being the principal and the interest due, and then filed the application under Section 9 of the Code on 21.12.2021.

# 9. The NCLAT observed that the appellant had addressed letter dated 10.12.2020 to the respondent, complaining about the poor quality of the material supplied by it in September, 2020 and October, 2020 and that this letter found reference in the appellant’s email dated 16.10.2021. The NCLAT, however, opined that the respondent had accepted its liability in that regard and issued a credit note to the appellant for ₹1.66 crore. The NCLAT also noted that the appellant had incorporated this credit note in its ledger account on 31.03.2021. According to the NCLAT, this credit note resolved the issue raised by the appellant in its letter dated 10.12.2020, which was again raked up in the email dated 16.10.2021. On this basis, the NCLAT concluded that it could not be treated as a pre-existing dispute. The NCLAT then referred to the appellant’s email dated 06.12.2021 in reply to the respondent’s demand notice dated 11.11.2021. Therein, the appellant had referred to the credit note dated 31.03.2021 for ₹1,66,89,770/-, the original of which was still awaited by it. The NCLAT opined that the amount covered by the demand notice did not take into account this sum of ₹1.66 crore which was in relation to the defective material supplied from September, 2020 to October, 2020. Further, the NCLAT was of the opinion that the issues raised by the appellant in its reply to the Section 9 application related to developments and events after receipt of the demand notice dated 11.11.2021 and could not be taken into consideration for the purpose of determining whether there was any pre-existing dispute.

# 10. The NCLAT was also of the opinion that the failure of the appellant to point out the defects in the supplies within seven days from the date of delivery was sufficient to hold that its contentions in that regard were nothing but a moonshine defence. The NCLAT rejected the contention urged by the appellant that levy of interest on the alleged delayed payment would be a disputed issue in itself. The NCLAT noted that the police complaint lodged by the appellant referred to the respondent’s demand for ₹4.60 crore as its outstanding dues but accepted the plea of the respondent that it had made a mistake in its email dated 10.09.2021 while making that demand and that it had clarified on 09.12.2021 that it had failed to adjust the sum of ₹1.66 crore. The NCLAT further noted that the respondent’s demand notice mentioned ₹2.92 crore as being due and payable to it and not ₹4.60 crore, which showed that adjustment of ₹1.66 crore had been taken care of.

# 11. The NCLAT also rejected the plea of the appellant that its recovery suit in Civil Suit No. 37 of 2022, filed in April, 2022, was an indication of the existing dispute between the parties, as the said suit was filed after the respondent’s Section 9 application. On that ground, the NCLAT refused to consider the proceedings in that suit which, according to the appellant, supported its plea that there was a pre-existing dispute. Holding so, the NCLAT set aside the order dated 16.12.2022 passed by the NCLT and directed admission of the respondent’s application under Section 9 of the Code after one month. During that period, the NCLAT left it open to the appellant to settle the issue with the respondent for discharge of the debt and, in the event of the same fructifying, the NCLAT left it open to the parties to bring it to the notice of the NCLT for passing appropriate orders.

# 12. At this stage, we deem it apposite to set out the sequence of events. The appellant’s letter dated 10.12.2020, informing the respondent of the defective supplies made in September, 2020, and October, 2020, resulting in a loss of ₹6.50 crore and requesting a credit note for ₹1.66 crore was followed up by the respondent’s supplies made on 09.04.2021 and 10.04.2021. Notably, the tax invoices in that regard were signed only by the respondent’s authorised signatory. Further, it was only on 14.07.2021 that the respondent considered it appropriate to reply to the letter dated 10.12.2020, denying that the supplies made by it were of inferior quality. It was only after this date that the respondent started raising debit notes on account of interest @24% on the alleged delayed payments made from April, 2016 onwards. Debit notes dated 25.08.2021, five in number, and debit notes dated 15.09.2021, three in number, and the debit note dated 12.10.2021, bear out the fact that interest demands from April, 2016, to October, 2021, were raised only after the respondent’s reply email dated 14.07.2021. As to whether such interest could have been claimed in August, 2021, on the strength of unilaterally signed invoices quoting an interest rate of 24% per annum, in relation to alleged delayed payments dating back to 2016-17 and 2018 is itself a moot point.

# 13. Further, the respondent’s ledger account from 01.03.2021 to 13.11.2021, filed by the respondent with its counter, reflects that the credit entry of ₹1,66,89,770/- was made therein only on 31.07.2021 as a ‘sale discount’ without reference to the appellant’s letter dated 10.12.2020. The credit entry of ₹35,59,982/- marked ‘sale return’ was made on 01.07.2021 in relation to the supplies rejected by the appellant on 21.06.2021. The ledger account also discloses that debit notes were raised for interest on delayed payments only from 25.08.2021. The ledger account of the appellant for the FYs 2020-21 and 2021-22, which was also filed by the respondent along with said counter, disclose that the debit entry for ₹1,66,89,770/- was made on 31.03.2021, with the endorsement that the account had been debited due to ‘stringent smell and impurity in solvents’. The ledger account also discloses that a debit was raised on 21.06.2021 for ₹35,59,982/-, in relation to the material that was rejected and returned on that day. That apart, debit entries were made on 22.06.2020 and twice on 31.03.2021 due to ‘short quantity received’. The discrepancies between the ledger accounts are, therefore, quite patent. Further, the respondent’s eight invoices that were relied upon by the NCLAT added up to a sum of ₹1,72,13,065/- and not the sum of ₹1,72,04,137/-, which was mentioned in the demand notice.

# 14. Significantly, had the respondent actually given effect to the credit entry of ₹1,66,89,770/- on 31.07.2021, there is no explanation forthcoming as to why it had sent the email dated 10.09.2021, raising a demand for ₹4,60,05,397/-, which admittedly included the sum of ₹1,66,89,770/- also. The belated email dated 09.12.2021 issued by it, professing to correct the mistake made in including ₹1,66,89,770/-, speaks for itself.

# 15. Further, the irrefutable fact also remains that the appellant lodged a police complaint on 27.09.2021, long before the respondent’s demand notice dated 11.11.2021. The appellant mentioned therein that it had called upon the respondent to come for reconciliation of accounts, clearly indicating that there were issues to be settled between them. Even in its email dated 16.10.2021, issued prior to the respondent’s demand notice, the appellant had called upon the respondent to reconcile the accounts pursuant to the losses caused by supply of defective materials.

# 16. The respondent’s debit notes raising exorbitant demands for interest on delayed payments dating back to periods, in defiance of limitation, manifest that such claims are open to question. Further, though the NCLAT was not inclined to consider the proceedings in the appellant’s civil suit on the ground that the same were post-initiation of the corporate insolvency resolution process (CIRP), the same assume importance as what was stated therein by Ankur Aggarwal, the Director of the respondent, has relevance. In his cross examination in the said suit, speaking as PW1, he stated that he used to interact only telephonically with the appellant’s personnel and that there were no written correspondence or emails between them. He admitted that written/email correspondence started only when disputes arose regarding payment. He also admitted that there was no written protest of delayed payments by him from 2016-17 till 2021. He conceded that supply of material was made on 10.04.2021 and 11.04.2021 by the respondent from the stock at Delhi, which was kept in drums, and was supplied as it was, in drums, and not in tankers as it used to be in other transactions. He admitted that the drums had been purchased from vendors, other than the vendors of chemical products, locally from Delhi and there was no cleaning certificate for them. These admissions of the Director did not relate to post-CIRP events but had reference to pre-CIRP issues relevant to this case. The NCLAT, therefore, ought not to have eschewed them from consideration.

# 17. Once the respondent admitted that written correspondence commenced only after disputes arose, and the first such written correspondence dated back to 10.12.2020, long prior to issuance of the demand notice on 11.11.2021, this was sufficient in itself to show that there were pre-existing disputes between the parties. When the appellant sought reconciliation of accounts in that context and the respondent failed to oblige, its demand for a sum of money in excess of ₹1 crore would not be sufficient to meet the threshold for maintaining an application under Section 9 of the Code. More so, when the respondent had raised a demand for ₹4.60 crore just two months prior to issuance of the demand notice and clarified the same only on 09.12.2021, that is almost a month after issuance of the demand notice. This confusion and lack of clarity on the part of the respondent in deciding as to what was the amount allegedly due to it, clearly supports the case of the appellant that the accounts required reconciliation.

# 18. Further, the delay on the part of the respondent in replying to the letter dated 10.12.2020 is another factor which strengthens the premise that the respondent’s belated reply followed by its multiple debit notes for interest in quick succession were just afterthoughts to build up a case so as to file an application under Section 9 of the Code.

# 19. In this regard, useful reference may be made to Mobilox Innovations Private Limited vs. Kirusa Software Private Limited [(2017) ibclaw.in 01 SC]2, wherein this Court had observed as under: –

• ‘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)(i)(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.’

Thereafter, in S.S. Engineers vs. Hindustan Petroleum Corporation Limited and others [(2022) ibclaw.in 92 SC]3, this Court noted that when examining an application under Section 9 of the Code, the adjudicating authority has to examine (i) whether there was an operational debt exceeding ₹1 lakh (after 24th March, 2020, ₹1 crore); (ii) whether the evidence furnished with the application showed that the debt was due and payable and had not till then been paid; and (iii) whether there was in existence any dispute between the parties or the record of pendency of a suit or arbitration proceedings filed before the receipt of demand notice in relation to such dispute and in the event, any of the aforestated conditions was not fulfilled, the application of the operational creditor would have to be rejected.

# 20. In Sabarmati Gas Limited vs. Shah Alloys Limited [(2023) ibclaw.in 02 SC]4, this Court considered the scope of the word ‘reconciliation’ and applying the definition in Black’s Law Dictionary, 10th edition, this Court opined that the apt meaning suitable to the situation in relation to accounting would mean an adjustment of amounts so that they agree, especially by allowing for outstanding items. This Court referred to the observations in Mobilox (supra) that it is not necessary that the Court should be satisfied that the defence of a pre-existing dispute is likely to succeed and it is enough if such a dispute exists between the parties. Per this Court, what is to be seen is whether there is a plausible contention requiring investigation for the purpose of adjudication for it to satisfy the requirement of a pre-existing dispute.

# 21. Given the obtaining facts and the aforestated settled legal position, it was not for the NCLAT to delve into the appellant’s dispute to decide whether it had actual merit. All that is required is for the adjudicating authority to satisfy itself as to the existence of a plausible pre-existing dispute, which was not spurious, hypothetical or illusory. Whether the party raising that dispute would succeed on the strength thereof is not within the ken of such inquiry. That being so, we are of the opinion that the NCLT was correct in concluding that the application filed by the respondent under Section 9 of the Code did not merit consideration, owing to pre-existing disputes. The NCLAT was not justified in reversing the said decision. There was clearly no consensus between the parties as to who was liable to pay to the other and the amount that was payable.

# 22. The appeal is accordingly allowed, setting aside the judgement dated 11.02.2025 passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi, in Company Appeal (AT) (Ins) No. 157 of 2023 and restoring the order dated 16.12.2022 passed by the National Company Law Tribunal, New Delhi Bench (Court II), in Company Petition (IB)-792(ND) of 2021.

Parties shall bear their respective costs.

----------------------------------------------------------------

Shitanshu Bipin Vora vs Shree Hari Yarns Pvt. Ltd. and Anr. - Therefore, in the absence of any agreement between parties, regarding payment of interest on delayed payment, the claim with respect to interest on pending invoices is not sustainable, and on this ground the captioned Application is liable to be dismissed.

 NCLAT (2025.04.16) in Shitanshu Bipin Vora vs Shree Hari Yarns Pvt. Ltd. and Anr. [(2025) ibclaw.in 271 NCLAT, Company Appeal (AT) (Insolvency) No. 2204 of 2024] held that;

• We note that there is an explicit mention of interest in financial debt but such a provision does not exist for operational debt. Accordingly, the interest can be claimed only if there is an explicit agreement or contract between the parties.

• We are inclined to agree with the argument of the Appellant that the Code does not provide the AA with the power to interpret a document as in the facts and circumstances of the case. In the absence of any agreement between the parties, the calculation of interest cannot be agreed by us and the claim with respect to interest on pending invoices is not sustainable.

• Therefore, in the absence of any agreement between parties, regarding payment of interest on delayed payment, the claim with respect to interest on pending invoices is not sustainable, and on this ground the captioned Application is liable to be dismissed.

• 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.”

Excerpts of the Order;

The instant Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, is impugning the Order dated 05.09.2024 as passed by the Ld. National Company Law Tribunal, Mumbai Bench, in C.P. (IB) No. 1133/MB/2023 (‘Ld. Adjudicating Authority’), thereby initiating the Corporate Insolvency Resolution Proceedings (‘CIRP’) against Corporate Debtor-Exclusive Linen Fabrics Pvt. Ltd. The Appellant herein is the suspended Director of the Corporate Debtor. The Impugned Order has been passed by the Ld. Adjudicating Authority on an Application filed by the Respondent No.1-Shree Hari Yarns Pvt. Ltd. under Section 9 of the Insolvency and Bankruptcy Code, 2016 (‘Code’), alleging a default of an amount of Rs.1,29,08,449/- on the part of the Corporate Debtor.

Submissions of the Appellant:

# 2. The Respondent No.1 in its application has alleged that a principal amount of Rs.88.16.301/- and an interest of an amount of Rs.40,92,148/-, is outstanding from the Corporate Debtor. However, it is an admitted fact that there is no agreement between parties which can demonstrate the consensus of the Corporate Debtor regarding levy of interest on delayed payment, if any. The Adjudicating Authority has relied on payment of interest paid in February 2021 and June 2021. Even the invoices say interest @ 18% without saying per annum or per month or any other period. So the time period is indefinite. the date of default has been arrived at. No document has been produced by the Respondent No.1 substantiating the days in which payment was to be made. Code does not provide the AA with the power to interpret a document as in the instant case the AA Authority has gone ahead to interpret the alleged delayed interest clause from ‘18%’ to ‘18% per annum’.

# 3. Rs. 88 lakhs have been paid by the Appellant before NCLAT. There is no contract or agreement for payment of interest for delayed payment. The date of default has been taken as 08.05.2021. This was done behind his back as the order was reserved on 06.08.2024 (at page 206). The matter was again listed on 30.08.2024 for seeking clarification on the ground of date of default and the matter was adjourned to 03.09.2024. On 03.09.2024 Additional Affidavit filed by Operational Creditor was taken on record and orders were reserved. The orders were pronounced on 05.09.2024. The Appellant argues that no debt is due and payable by the Corporate Debtor and that the alleged default includes an arbitrary interest component of Rs.40,92,148/-, in the absence of any agreement permitting such interest. It is submitted that the Respondent No-1 has sought an interest of Rs.40,92,148/- towards interest for delayed interest at 18%. However, the Respondent No-1 while raising its invoices added the interest component without any discussion with the Appellant. There was no agreement between the Appellant and the Respondent No-1 with regard to the interest component and as such the Respondent No-1 has arbitrarily added the interest amounts and claimed the aforesaid amount, which is not maintainable, as no interest terms were agreed upon between the parties.

# 4. The Respondent No. l in, order to reach the threshold of Rs l crore, as provided under Section 4 of the Code, has included a mammoth of interest amounting to Rs.40,92,148/-, thereby making the alleged default amount as Rs.1,29,08,449/-. The principal amount claimed, Rs 88,16,301/-, falls below the Rs 1 crore threshold required under Section 4 of the IBC, rendering the Application non-maintainable. Further, the Appellant alleges a violation of natural justice, stating that after reserving the Order on 06.08.2024, the Adjudicating Authority listed the matter again on 30.08.2024 without intimation to the Corporate Debtor. The Operational Creditor was permitted to file an Additional Affidavit, and a subsequent hearing took place on 03.09.2024 without notifying the Corporate Debtor. The Tribunal proceeded to pass the Impugned Order on 05.09.2024 without allowing the Corporate Debtor an opportunity to rebut the Additional Affidavit or advance arguments. The Appellant also contends that the date of default cited in the Additional Affidavit, 08.05.2021, is incorrect, as it does not consider a payment made on 02.06.2021. The Respondent has failed to substantiate how the default date was determined, and the Tribunal overlooked these deficiencies while passing the Impugned Order. Accordingly, the Appeal has been filed, challenging the initiation of CIRP on the grounds of maintainability, procedural irregularities, and violation of natural justice.

# 5. The Impugned Order does not take into consideration that the Code provides for definition of the term operational debt under Section 5 (21), wherein ‘interest’ has not been specifically mentioned as a part of the debt, unlike in the definition of financial debt provided under Section 5 (8) of Code, wherein the legislation has expressly included the term ‘interest’ to be a part of the debt, that can form a part of the claim against the Corporate Debtor. This deliberate difference in the language used for both terms by the legislation, clearly provides that interest could not have been accepted by the Adjudicating Authority as a part of the default amount as claimed by the Respondent No 1.

# 6. The term ‘debt’ under the Code does not include interest on operational debt unless the parties specifically agreed on a rate of interest to be payable on any delayed payment. The claim on account of interest on unpaid invoices is not sustainable since the parties never agreed on levy of any interest and therefore the Applicant’s claim for the same is untenable. Pertinently, the Applicant has not furnished any contract between the parties to substantiate its claim for interest.

# 7. Admittedly, there is no agreement between the parties for levy of any interest on delayed payment. The Impugned Order is against the law laid down by this Appellate Tribunal in

• Mr Maulik Kiritbhai Shah vs United Telecoms Ltd [Company Appeal (AT) (CH) (Ins) No. 268/2023], decided on 15.09.2023,

• Rohit Motawat vs Madhu Sharma, Proprietor Hind Chem Corporation and Anr [CA (AT) (Ins) No. 1152 of 2022], decided on 03.02.2023,

• Swastik Enterprises vs Gammon India Limited [Company Appeal (AT) (Insolvency) No. 144, 145, 146, 147 and 148 of 2018],

• SS Polymers vs Kanodia Technoplast Limited [Company Appeal (AT) (Insolvency) No. 1227 of 2019],

• Krishna Enterprises Vs. Kanodia Technoplast Limited [2019 SCC OnLine 1310]

In all these, it has been specifically held that interest, unless otherwise agreed, cannot form part of the operational debt.

# 8. The invoices issued by Respondent No.1 annexed as A/12 to A/29 do not provide for term intervals in which interest has to be paid. The invoices are having vague terms which were never accepted by the Appellant. The Appellant never agreed for any interest to be paid. The present Petition is not maintainable as if Rs.40,92,148/- is reduced from the total claimed amount of Rs.1,29,08,449/-, then the amount of claim will be below Rs 1 crore, which, as per notification SO 1205 (E) dated 24.03.2020, issued by the Ministry of Corporate Affairs, is the pecuniary jurisdiction of this Tribunal. As such, this Petition deserves to be rejected.

# 9. The interest clause in the invoice is a generic clause contained in the invoices by default, which was unilateral in nature and also not specific. The interest clause is vague in nature and not agreed by the Appellant.

# 10. The Respondent No-1 is attempting to misuse the provisions of the Code to initiate CIRP against the Respondent, which is a healthy and solvent company and is regularly meeting all its debt obligations. This clearly runs contrary to the object and purpose of the Code, which mandates reorganisation of the Corporate Debtor and maximisation of its assets.

# 11. The appellant has relied upon the judgement of this Appellate Tribunal in Binani Industries Limited vs. Bank of Baroda in 2018 SCC OnLine NCLAT 521 where it was held that the first order objective of the Code is resolution. The second order objective is maximisation of value of assets of the firm and the third order objective is to promote entrepreneurship, availability of credit and to balance the interests of the stakeholders.

# 12. The focus on maximising the value of the Debtor’s assets was further reiterated in Swiss Ribbons Pvt Ltd vs Union of India in (2019) 4 SCC 17. Thus, the Respondent No-1 has only turned a blind eye to the existing issues between the parties and made misleading submissions before this Tribunal to seek recovery through provisions of the Code, and such an Application seeking insolvency of the Appellant under Section 9 of the Code is in respect of the invoices when there are material pre-existing disputes, is not permitted. Thus, the Respondent No-1 is simply trying to use the resolution proceedings under the Code as a recovery tool, which is against the basic objectives sought to be achieved under the code.

# 13. Appellant also relies upon the judgements of Hon’ble Apex Court in Transmission Corporation of Andhra Pradesh Limited vs Equipment Conductors and Cables Limited in (2018) SCC OnLine SC 2113, and Mobilox Innovations (supra), M/S SS Engineers vs Hindustan Petroleum Corporation Ltd and Ors in 2022 SCC OnLine SC 1385 wherein it was held that the Code is not intended to be a substitute to a recovery forum and the object of the Code is efficient resolution of corporate debtor and to bring the company out of distress.

# 14. In light of the dispute in respect of the alleged sums payable, the instant Application filed by the Applicant under the Code is not maintainable, and the Application has been filed with an ulterior motive to extort payments from the Respondent disregarding the grave issues pertaining to the quality of the supplies and losses suffered by the Respondent on account of it. Further, Section 65 of the Code clearly lays down the penal consequence for any person initiating CIRP fraudulently or with malicious intent for any purpose other than for resolution of insolvency. Courts and Tribunals have consistently held that where a Petition if filed collusively and not with the purpose of achieving resolution, then despite fulfilling all the conditions of the Code, this Tribunal can exercise its discretion in rejecting the Application by relying upon Section 65 of the Code, to avoid and protect the company from being dragged into CIRP in a mala fide manner. It has also been held that initiating CIRP against a company only with an intention to recover dues, is against the very spirit and purpose of the Code. Such recovery proceedings fall within the scope and ambit of words “for any purpose other than for the resolution” as defined under Section 65 of the Code.

# 15. The Respondent No 1 has malafidely concealed the cash discount offered by it from time to time and, lastly, on 31.03.2021, which clearly demonstrates that the Respondent No 1 admitted issue of quantity and quality of yarn material supplied by it.

# 16. The Adjudicating Authority was wrong in taking into consideration the debit note, dated 11.09.2023, which was a document prepared by the Respondent No 1 itself and ought not to have been considered relevant for adjudication of the instant case.

# 17. The Adjudicating Authority ought to have dismissed the Application filed by the Respondent No 1 under Section 9 of the Code in the absence of a clear date of default in the Application. After the conclusion of final arguments and reserving the matter for final order on 06.08.2024, the Adjudicating Authority was wrong in de-reserving the matter on 30.08.2024 at the request of the Respondent No 1 and in the absence of Corporate Debtor. The Adjudicating Authority was further wrong in providing an opportunity to the Respondent No. 1 to file an Additional Affidavit and that too without providing due opportunity to the Corporate Debtor to rebut the contentions raised therein. The Adjudicating Authority did not take into consideration the fact that the date of default could not have been 08.05.2021, as the Corporate Debtor has also made payment on 02.06.2021, a fact which was concealed by the Respondent No 1.

# 18. The Adjudicating Authority ought to have taken into consideration the fact that no affidavit under Section 65 B of the Indian Evidence Act was filed by the Respondent No 1 supporting the electronic record filed along with the Application. The Adjudicating Authority ought to have appreciated that the proceedings initiated by the Respondent No 1 before the Adjudicating Authority were sole for recovery of its alleged dues and were, thus, an abuse to the process provided under the Code.

# 19. The Respondent No 1 has sought initiation of Corporate Insolvency Resolution Process against Corporate Debtor in order to arm twist the Corporate Debtor in paying monies which are otherwise not due and payable. By way of this Application, Respondent No-1 is simply attempting to abuse the process prescribed under the Code in order to initiate Corporate Insolvency Resolution Process (CIRP) against a healthy and solvent company. It is nothing but a mere desperate attempt on the part of the Respondent No-1 to coerce payment (that is, as a recovery of its alleged dues) by seeking to initiate CIRP, which runs counter to the objective, spirit, and purpose of the Code.

# 20. The application should have been dismissed owing to the inherent nature of inadequacies and false information it contains, inter alia on the following grounds as summarised below:

(a) The Applicant is not entitled to claim interest on the alleged unpaid invoice amounts as the same was never agreed to between the parties.

(b) The rate of interest in the terms has no time interval mentioned in the invoices annexed by the Applicant in this Petition. 

(c) Initiation of CIRP will defeat the object and purpose of the Code which is aimed at resolution and value maximisation.

Submissions of the Respondent

# 21. Appellant has never disputed the outstanding claim amount and the Invoices nor disputed any of the following demand notice/letters/emails sent to Appellant:

(i) Letters dated 8.08.2023, 16.08.2023 and 30.08.2023;

(ii) Emails dated 31.08.2023, 22.08.2023, 17.08.2023, 9.08.2023, 31.07.2023, 24.07.2023, 17.07.2023, 4.07.2023, 26.06.2023, 19.06.2023, 12.06.2023, 6.06.2023, 16.05.2023, 21.03.2023, 13.03.2023, 8.03.2023, 27.02.2023, 14.02.2023, 7.02.2023, 2.02.2023, 20.06.2022, 30.05.2022, 23.05.2022, 16.05.2022, 7.05.2022, 2.05.2022, 25.04.2022, 18.04.2022, 11.04.2022;

(iii) Statutory Demand Notice dated 18.9.2023 without annexures.

# 22. Respondent No.1 has been supplying yarn as an agent to Appellant since November 2020. The total value of yarn supplied by Respondent No.1 is Rs.5,14,14,078/- as against 58 invoices in total. Appellant has always been well aware of the terms and conditions mentioned in the invoices. Whenever Appellant paid in advance, Respondent No.1 issued cash discount [Ex. C/Pg 16 of Reply] towards those invoices as an incentive for making advance payment. Likewise, if Appellant delayed in making payment, then as per unambiguous terms of invoice, Respondent No.1 levied interest which was paid by Appellant. 

# 23. Appellant for the first time before the NCLT contended that there is no agreement towards interest. All the 18 invoices contain an interest clause which were accepted without demur. Appellant paid interest and deposited TDS in the past on the Debit Notes issued by Respondent No.1, which entries can be seen in Respondent No.1’s ledger. All invoices are sent on the same day the yarn is supplied.

# 24. Appellant has also never raised any dispute with respect to quantity or quality of yarn supplied by Respondent No.1 as an agent.

# 25. In the present matter, Respondent No.1 supplied yarn under 18 invoices to Appellant from 9.03.2021 to 13.04.2021. Appellant has not annexed to Appeal, the Additional Affidavit dated 9.05.2024 filed by Respondent No.1 before NCLT which reflects the working statement [Annexure A-1/Pg. 51-Impugned Order]. Annexure 5 to CP inadvertently mentioned identical amounts for “Principal Amount” and “Due Principal Amount”. There was no change in the claim amount. Appellant has not disputed the working statement.

# 26. It is clearly stipulated in all the 18 invoices that interest is payable at 18% p.a. on delayed payment, which terms and conditions have never been disputed by Appellant. In fact, in the past, Appellant has paid interest to Respondent No.1 on delayed payments. Not only has Appellant paid interest but also deposited TDS on interest in terms of Section 194A of the IT Act, 1961. The interest paid, Debit Notes raised by Respondent No-1 [Ex. B/Pg 14- 15 of Reply] and TDS deposited by Appellant [Ex. A/Pg 12-13 of Reply] can be seen below as well as in the ledger of R1 at Pg 96 &102:

Sr. No.	Interest due (incl. GST)	Interest paid	TDS deposited by Appellant	Debit Note No	Invoice No.	Date of payment of interest	Relevant Page of Appeal
1.	6,212	5,768	444 [Pg. 12 -Reply]	Bd-489 [Pg. 14-Reply]	4367	4.2.2021	96
2.	10,365	9,376	988 [Pg. 13- Reply]	Bd-75 [Pg. 15-Reply]	5281, 6638, 6902, 7403	2.6.2021	102
Total	16,577	15,144	1,432

[Pages 12 to 16 (Exhibits A, B & C) were not produced before the NCLT.]

# 27. The above Appeal ought to be dismissed due to the following reasons:

(i) Appeal is time barred. The Impugned Order was pronounced on 5.09.2024 (uploaded on 6.09.2024). The Appellant applied for certified copy on 29.09.2024 i.e. after a delay of 24 days from 5.09.2024 and filed Appeal on 8.10.2024. There is an unexplained delay in filing the Appeal and the same should not be condoned.

(ii) Appellant has paid interest on delayed payments in the past.

(iii) There is a debt and default by the Appellant of Rs. 1,29,08,449/-

(iv) No dispute has been raised at any time with respect to the yarn supplied or any invoices raised by R1 even before the Hon’ble NCLT.

(v) Appellant has not replied to the statutory Demand Notice dated 18.09.2023.

(vi) Appellant for the first time before the NCLT falsely contended that there is no agreement between the parties towards interest. 

(vii) After the Hon’ble NCLT heard both the parties, the matter was reserved for orders on 6.08.2024. Thereafter the matter was listed on 30.08.2024 before the Hon’ble NCLT for clarification on last date of default. Additional Affidavit dated 30.08.2024 specifying the last date of default 08.05.2021 for the last invoice, was served upon Appellant’s Advocate on the same day. No grievance was raised by Appellant. The matter was then listed on 3.09.2024 for further consideration when the NCLT perused Addl. Affidavit and took the same on record and once again reserved CP for orders. On 5.09.2024, CP was listed for pronouncement of orders. There is no such practice that an Advocate who is on record and has filed vakalatnama should be informed about the listing of the matter by the Hon’ble NCLT or by R1/Orig. Petitioner. Once an Advocate has entered appearance, he/she has to keep a watch on the causelist.

(viii) Appellant chose not to appear on 30.08.2024, 3.09.2024 and 5.09.2024 before NCLT and has now raised frivolous grounds and unfounded allegations against NCLT and Respondent No.1.

# 28. The judgments relied upon by Appellant do not apply to the facts of the present case and are distinguishable. In the present case, Respondent No.1 has claimed both principal and interest, which has never been disputed by Appellant.

# 29. Respondent relies upon the judgment of Hon’ble High Court of Bombay in the matter of Jatin Koticha v. VFC Industries, [(2007) SCC OnLine 1092], wherein it was held that where invoices form the written contract between parties, specific stipulations which form a part of the invoice must be complied with. The Appellant was thus obligated to pay interest at 18% on delayed payments as had been done in the past.

# 30. Respondent No.1 also relies upon the judgement of this Appellate Tribunal in the matter of Mr. Prashant Agarwal, member of suspended board of Bombay Rayon Fashions Ltd. v. Vikesh Parasrampuria & Anr. in Company Appeal (AT) (Ins) No. 690 of 2022 where it was held that “since interest on delayed payment was clearly stipulated in invoice and therefore, this will entitle for “right to payment” (Section 3(6) IBC) and therefore will form part of “debt” (Section 3(11) IBC).”

# 31. In absence of any pre-existing dispute, Hon’ble NCLT has rightly concluded that there exists an operational debt and default in terms of IBC and passed the Impugned Order. The Appeal and the IAs filed thereunder ought to be dismissed with costs.

Appraisal

# 32. Heard Learned Counsels for both sides and also perused the material on record. The Respondent had raised the issue that the Appeal is time barred and is not maintainable. It is to be noted that condonation of delay was allowed by this Tribunal as prayed for in IA 8261 of 2024 in the orders dated 27.02.2025.

# 33. The main issue before us is whether Section 9 Application can be accepted on the basis of invoices having total amount claimed as operational debt with interest component which is arrived based on a condition contained in the invoices for delayed payment.

# 34. The Appellant has raised some technical issues relating to rehearing the matter after it was reserved for final order on 06.08.2024. We have gone through the details of the proceedings. The Adjudicating Authority wanted some clarifications with respect to the date of default, which was done in the open Court and we don’t find any infirmity in the procedure. The Respondent was informed about this hearing but he chose not to appear on those dates and there is no prejudice caused to the Appellant on this basis and therefore the claim of the Appellant that he has suffered from lack of natural justice cannot be accepted.

# 35. In these proceedings CIRP was based on the application filed under Section 9 of the IBC, which alleges that the Corporate Debtor has defaulted on a payment of Rs.1,29,08,449/-. The Appellant disputes this amount and claims it is inflated by unsubstantiated interest charges, including the principal amount of Rs.88,16,301/- and an interest of Rs.40,92,148. Briefly speaking, The Appellant claims that the impugned order was based on a frivolous application filed by Respondent No.1. According to the Appellant, there is no agreement between the parties for the levy of interest, and the claim of interest is unjustified. Additionally, the principal amount falls below the threshold of Rs.1 crore, which is required for initiating CIRP under Section 4 of the IBC. The Appellant contends that the Respondent inflated the claim by including an excessive interest component to meet the threshold. Further, the Appellant challenges the procedural aspects of the NCLT proceedings. On 06.08.2024, the NCLT reserved its order after hearing both parties, but without fixing any date for pronouncement. The Tribunal then listed the matter on 30.08.2024 without informing the Corporate Debtor or its counsel. On 30.08.2024, Respondent No.1 filed an additional affidavit without proper intimation, and the Tribunal considered it on 03.09.2024 in the absence of the Corporate Debtor. The Appellant claims that this was a violation of natural justice, as the Corporate Debtor was not given an opportunity to respond to the new affidavit or the new grounds being introduced. The final order of the Tribunal on 05.09.2024 initiated the CIRP despite the Appellant’s objections.

# 36. Briefly speaking the main arguments presented by the Respondent No.1 are that the Corporate Debtor defaulted on the payment of Rs.1,29,08,449/-, which includes Rs.88,16,301/- as principal and Rs.40,92,148/- as interest. This claim is based on unpaid dues for materials supplied to the Corporate Debtor. The Respondent argues that the NCLT acted correctly in initiating CIRP under Section 9 of the IBC and that the additional affidavit filed on 30.08.2024 was within procedural guidelines. The Corporate Debtor was given adequate opportunity to respond, and their failure to do so should not invalidate the process. The date of default is correctly stated as 08.05.2021, and there is no obligation on their part to account for any payments made by the Corporate Debtor without proper documentation or acknowledgment. 

# 37. Before entering into the merit of the payment of interest in Section 9 proceeding, we may look into the definition of operational debt and the financial debt as provided in the Code. Financial debt is mentioned in Section 5(8) of IBC, which states as follows:

“….

(8) “financial debt” means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes-

(a) money borrowed against the payment of interest;

…..”

This definition clearly brings out that financial debt means a debt along with interest, if any, which is disbursed against the consideration for the time value of money. On the other hand, the definition of the operational debt doesn’t include interest in it, which is extracted as below:

“5(21) “Operational debt” means a claim in respect of the provision of goods a services including employment or a debt in respect of [payment] 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;”

We note that the Code defines the term operational debt under Section 5 (21), wherein ‘interest’ has not been specifically mentioned as a part of the debt, unlike in the definition of financial debt provided under Section 5 (8) of Code, wherein the legislation has expressly included the term ‘interest’ to be a part of the debt, that can form a part of the claim against the Corporate Debtor. This deliberate difference in the language used for both terms by the legislation, clearly provides that interest could not have been accepted by the Adjudicating Authority as a part of the default amount as claimed by the Respondent No 1. We note that there is an explicit mention of interest in financial debt but such a provision does not exist for operational debt. Accordingly, the interest can be claimed only if there is an explicit agreement or contract between the parties.

# 38. In the present case the Section 9 Application against the Corporate Debtor – Exclusive Linen Fabrics Pvt Ltd. was admitted on 05.09.2024 on the Application of the Respondent No.1 – Shree Hari Yarns Pvt. Ltd. – Operational Creditor. The Operational Creditor had claimed a demand of Rs.1,29,08,449/- which consisted principal amount of Rs.88,16,301/- and an interest component of Rs.40,92,148/-. From the material on record, we find that Respondent No.1 was claiming an interest of Rs.40,92,148/- relying upon a condition in the invoices as raised by the Respondent No.1- Operational Creditor. Before we proceed further, we extract the condition relating to the interest in one of the invoices at page 134 of the APB as below:

From the perusal of the condition as contained in a typical invoice placed on record, we extract this condition of interest: “interest will be charged on delayed payment @ 18%”. This clause of interest doesn’t specify after how many days delayed payment interest is to be charged and on whether per annum or per month or any other period. We find that this clause is non-specific as the time period is indefinite basis which the date of default has been arrived at. So, we are inclined to agree with the contention of the Appellant that this is a vague statement. Furthermore, there is no agreement on record between the parties, which can demonstrate the justification regarding levy of interest on delayed payment, if any. Without any explicit agreement between the parties regarding levy of interest on delayed payment, just relying on a vague statement does not make it a contractual obligation. The claim of the Respondent that in all the 18 invoices (page no. 134 to 174 APB) interest is payable @ 18% per annum on delayed payment is stipulated. This fact is not borne out from the material on records as we have noted in earlier paragraph that the clause relating to interest payment is a vague statement.

# 39. Therefore, the arguments of the Respondent that the Appellant is liable to pay the interest as calculated by them on delayed payment do not commend us.

# 40. Specifically, in the facts of the case, if we exclude the interest amount of Rs.40,92,148/-, the default amount of Rs.1,29,08,449/- becomes just the principal amount of Rs.88,16,301/-, which falls below the Rs 1 crore threshold as required under Section 4 of the IBC, rendering the Application nonmaintainable.

# 41. The Adjudicating Authority has relied on payment of interest paid in February 2021 and June 2021. However, no document has been produced by the Respondent No.1 substantiating the days in which payment was to be made. The Adjudicating Authority has not delved into the issue of the payment of interest with respect to the operational debt as defined in the code and has relied on the invoices which contains an interest clause of 18% on account of delayed payment. We find that the Respondent No 1 is relying upon the unilaterally formulated condition regarding charging of interest, when no such agreement exists between the parties. Furthermore, the delayed interest clause being relied upon by the Respondent No1 is non-specific and vague as the same does not state the period for the rate of interest as alleged in the invoice. We also agree with the contention of the Appellant that the Code does not provide the Adjudicating Authority with the power to interpret a document as in the instant case the Adjudicating Authority has gone ahead to interpret the alleged delayed interest clause from “18%” to “18% per annum”. We are inclined to agree with the argument of the Appellant that the Code does not provide the AA with the power to interpret a document as in the facts and circumstances of the case. In the absence of any agreement between the parties, the calculation of interest cannot be agreed by us and the claim with respect to interest on pending invoices is not sustainable.

# 42. Therefore, the arguments of the Respondent that the Appellant is liable to pay the interest as calculated by them on delayed payment do not commend us.

# 43. The Respondent has mainly relied on the judgment of Hon’ble Bombay High Court in Jatin Koticha Vs Vfc Industries Pvt. Ltd. 2008(2) BOM CR155 decided on 13 December, 2007. The relevant extract of which is as follows:

• “….

• 5. Now it is clear that there is no written contract signed by both the parties relied on by the plaintiff. It is not the requirement of the law that it should be a written contract signed by both the parties. What is necessary is that the suit should be based on a written contract. That, one can find in this case, in the form of invoices which were raised on the defendants along with delivery of the goods in pursuance of each purchase order. The invoices, as stated above, contained the terms and conditions. There is a clear parole acceptance of the invoice on the part of the defendants. The defendants accepted delivery of the goods along with the invoice without any demur or suggestion that they do not accept any of the terms whether pertaining to the rate, price, quantity etc. It makes no difference therefore that the invoices are not signed by both the parties. I am of view that the invoices must be treated as a written contract and the suit based on such invoices is a suit based on the written contract. This view is fortified by the Madras High Court reported in The Madras Law Journal Reports 1988 page 187 (Lucky Electrical Stores, by partner Mahendra Kumar Shah and Anr. v. Ramesh Steel House by Partner Babulal 1988 ML.J.R. 187, where the Chief Justice M.N. Chandurkar, rejected the contention similar to the one applied by the defendants in this case.”   [emphasis supplied]

The above judgment relates to a summary suit for recovery of some amount, wherein it was held that there is no requirement of the law that it should be a written contract signed by both the parties and the invoices can be the basis for a party to charge interest. But the matter in hand relates to Insolvency and Bankruptcy Code, which differentiates between the operational debt and financial debt, as has been discussed in the earlier part of the judgment. The definition of operational debt does not include the interest. On the other hand, the financial debt includes interest, if any. The judgment quoted by the Respondent No.1 is not relevant in the facts and circumstances of the present case as in this case the claim of the interest is being disputed as the clause relating to payment of interest is non-specific, vague and subject to multiple interpretations and cannot be relied upon without explicit contract or understanding between the parties.

# 44. It is argued by the Respondent No.1 that interest has been paid by the Appellant for delayed payments. Not only that but also TDS on interest in terms of the Section 194A of IT Act 1961 was paid by the Appellant. Per contra, it is the contention of the Appellant that Respondent No.1 supplied material to the Corporate Debtor, which went through thorough quality check and the Respondent No.1 was intimated about the shortfall and quality issues with the yarn material supplied by it. It is also claimed that the Respondent No.1 used to issue various credit notes in the form of cash discount to the Corporate Debtor for the shortfall and degraded quality yarn supplied by it. It is also claimed that as the quality check of the yarn material took considerable time and only after the same was concluded that the payment was made by the Corporate Debtor to the Respondent No.1. However, no interest was demanded by the Respondent No.1 in the past and also no evidence has been placed on record by the Respondent No.1 to show that interest was demanded by the Respondent No.1 in the past. It is also claimed by the Appellant that Respondent No.1 has concealed the cash discount offered by it from time to time and lastly on 31.03.2021, which is claimed to be due to issues with the quality and quantity of yarn material supplied by it. We are, therefore, inclined to agree with the submissions to the extent that this hints a plausible pre-existing dispute. Another contention of the Appellant which hints of a plausible pre-existing dispute is that the argument of the Respondent No.1, which was not pleaded before the Ld. Adjudicating Authority, that the payment made by the Corporate Debtor on 02.06.2021, for a meagre amount of Rs.9,376/-, was made by the Corporate Debtor towards interest, was not towards interest as no intimation was sent by the Corporate Debtor along with payment specifying that the said payment was towards interest nor was there any specific demand of interest of Rs.9,376/- by the Respondent No.1, against which the Corporate Debtor made that specific payment. We also note the argument of the Appellant that the payment made by the Corporate Debtor on 02.06.2021 is towards interest, cannot be accepted as the said payment is claimed to be concealed by the Respondent No.1 in their Application under Section 9 of the Code and thus, the Respondent No.1 now cannot take advantage of the same payment to assert its argument on interest component. So, we find that basis this payment, it cannot be concluded that there is an existing arrangement and understanding alluding to a contract as claimed by the Respondent No.1. 

# 45. In the facts of the case, we are therefore, inclined to note that there is pre-existing dispute with respect to the claim of interest and on the basis of judgment of Hon’ble Supreme Court in Mobilox Innovations Private Ltd vs Kirusa Software Private Ltd cited as 2018 (1) SCC 353 and also in S. S. Engineers v Hindustan Petroleum Corporation Ltd. & Ors., Civil Appeal No. 4583 of 2022 and Tottempudi Salalith vs State Bank of India & Ors. Civil Appeal No.2348 of 2021, the Impugned Order cannot be sustained.

# 46. The Respondent has also relied upon the judgment of this Tribunal in Prashant Agarwal Vs Vikash Parasrampuria & Anr. in Company Appeal (AT) (Ins) No. 690 of 2022 decided on 15.07.2022, wherein this Tribunal has held that the total amount which includes both principal debt and interest on delayed payment as was stipulated in the invoices itself will become the total debt outstanding as per the requirements of Section 4 IBC in a Section 9 Application. The facts of each case are different. We note contrasting judgments relied upon by the Respondent. The Appellant has relied upon the judgment of this Tribunal in Rishabh Infra Through Hari Mohan Gupta Vs. Sadbhav Engineering Ltd in Company Appeal (AT) (Insolvency) No. 1881 of 2024 decided on 04.11.2024, wherein this Tribunal has held that in the view that invoices which have been sent by the Operational Creditor containing the term of interest cannot be operated against the Corporate Debtor unless there is an agreement for interest or any other document showing that the Corporate Debtor has accepted the obligation for interest at para 9. On this basis, this Tribunal has not accepted claim of the Operational Creditor for claiming interest in a Section 9 Application filed by the Operational Creditor.

# 47. Similarly, the Appellate Tribunal in the case of SS Polymers vs Kanodia Technoplast Limited, had held that relying on the invoices to raise claims for payment of interest is against the principle of the Code. Relevant extracts from this judgment are reproduced hereinbelow:

• “4. The Learned Counsel for the Appellant relied on ‘invoices’ to suggest that in the ‘invoices,’ the claim was raised for payment of interest. However, we are not inclined to accept such submission as they were one side Invoices raised without any consent of the ‘Corporate Debtor’.

• 5. Admittedly, before the admission of an application under Section 9 of the 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 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 Code.” [emphasis supplied]

Therefore, in the absence of any agreement between parties, regarding payment of interest on delayed payment, the claim with respect to interest on pending invoices is not sustainable, and on this ground the captioned Application is liable to be dismissed.

# 48. The Appellant has relied upon the judgments of this Appellate Tribunal in Krishna Enterprises vs. Gammon India Ltd [supra] wherein vide order dated 27.07.2018 it was held that ‘debt’ in terms of the Code does not include interest, unless payable in terms of any agreement among parties. The relevant extract of the judgment passed by the Appellate Tribunal is reproduced below:

• “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.”    [emphasis supplied]

# 49. It is also contended that the Respondent is attempting to misuse the provisions of the code to initiate CIRP against the Appellant, which is a healthy and insolvent company and is regularly meeting all its obligation. In its support the Appellant has relied on various judgments wherein it has been held that the primary objective of the code is resolution and not recovery. Some of these are extracted as below:

49.1 Binani Industries Limited vs Bank of Baroda (supra) wherein it was held that the first order objective of the Code is resolution. The second order objective is maximisation of value of assets of the firm and the third order objective is to promote entrepreneurship, availability of credit and to balance the interests of the stakeholders. The relevant extracts of the judgment are reproduced below: 

• “2. The objective of the ‘I & B Code’ is Resolution. The Purpose of Resolution is for maximisation of value of assets of the ‘Corporate Debtor’ and thereby for all creditors. It is not maximisation of value for a ‘stakeholder’ or ‘a set of stakeholders’ such as Creditors and to promote entrepreneurship, availability of credit and balance the interests. The first order objective is “resolution.” The second order objective is “maximisation of value of assets of the ‘Corporate Debtor’ and the third order objective is ‘promoting entrepreneurship, availability of credit and balancing the interests.’ This order of objective is sacrosanct.” [emphasis supplied]

49.2 Swiss Ribbons Pvt Ltd vs Union of India (supra): The focus on maximising the value of the Debtor’s assets was further reiterated wherein the Supreme Court recorded the following observations:

• “..As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganization and insolvency resolution of corporate debtors. Unless such reorganization is affected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximization of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme – workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximize their investment.” [emphasis supplied] 

49.3 M/s SS Engineers vs Hindustan Petroleum Corporation Ltd and Ors (supra) wherein it was held that:

• “31. The NCLT, exercising powers under Section 7 or Section 9 of IBC, is not a debt collection forum. The IBC tackles and/or deals with insolvency and bankruptcy. It is not the object of the IBC that CIRP should be initiated to penalize solvent companies for non-payment of disputed dues claimed by an operational creditor.” [emphasis supplied]

49.4 Transmission Corporation of Andhra Pradesh Limited vs Equipment Conductors and Cables Limited, and Mobilox Innovations (supra): Hon’ble Supreme Court has held that the Code is not intended to be a substitute to a recovery forum and the object of the Code is efficient resolution of corporate debtor and to bring the company out of distress.

# 50. Further we are also inclined to agree with the submission of the Appellant that IBC aims at resolution and not recovery and cannot be used to push a healthy and solvent company into CIRP. The appeal of the Respondent No 1 clearly runs contrary to the object and purpose of the Code, which mandates reorganisation of the Corporate Debtor and maximisation of its assets. We are inclined to agree with the submissions of the Appellant in the light of the fact that the Appellant is a solvent company and discharging its debt obligation and also willing to pay the principal amount to the Respondent No.1.

# 51. In the above background, we find that the claim of the Operational Creditor with respect to the interest is not maintainable and, in that situation, the claim does not meet the threshold for admitting Section 9 Application. Also we find that the objective of the Code, that is, maximising the value Debtor’s assets, is unlikely to be served by initiating CIRP against the Appellant. We therefore do not concur with the claim of the Respondent No.1 and do not find justification in upholding the finding of the Adjudicating Authority.

# 52. The matter was earlier heard by us on 12.12.2024 and as an interim measure it was ordered by this Tribunal that no resolution plan shall be put for voting on depositing the entire principal amount as claimed in the Section 9 Application in a fixed deposit interest bearing account in the name of Registrar, NCLAT.

# 53. The Appellant had before this Appellate Tribunal through written submissions stated that the “debt claimed by Respondent No. 1 in the Application under Section 9 of the Code is disputed, particularly with regard to the principal amount and interest, as no agreement exists on the latter. However, pursuant to the Order of this Hon’ble Appellate Tribunal dated 22.12.2024, the Appellant has deposited the principal amount, which may be released to Respondent No. 1 upon setting aside the Impugned Order. The disputed interest, absent any agreement, shall not be considered outstanding unless adjudicated by a competent of Court jurisdiction, wherein evidence is led by both the parties.”

# 54. Accordingly, the amount deposited with the NCLAT, is released to Respondent No.1 to discharge the liability with respect to the Principal amount. Accordingly, we set aside the impugned order, and release the Corporate Debtor-Appellant-Exclusive Linen Fabrics Pvt. Ltd from the rigours of the CIRP. No order as to costs. Liberty is given to the Operational Creditor – Shree Hari Yarns Pvt. Ltd. to seek appropriate remedy in accordance with law.

-----------------------------------------------------------