M/s Wanbury Ltd. vs. M/s Panacea Biotech Ltd. - Claim for Interest in absence of a written Contract

 NCLT Chandigarh (11.02.2019) in M/s Wanbury Ltd. vs. M/s Panacea Biotech Ltd. [RT No.9/Chd/Pb/2017 in CP No.8/2016] held that; it is never the intention of the legislature under the 'Code' that the Tribunal should determine the rate of interest and grant time to the company to pay the amount as per the directions.  It is clearly intended that an application filed under section 9 of the Act is either to be admitted or rejected within a period of 14 days of the receipt of the application. There is no scope of passing an interim order like the one suggested by the learned counsel for the applicant / petitioner. 

 

Excerpts of the order;

# 9.  In view of the above the only limited question for determining  would be whether the claim of interest falls within the term 'debt which the  respondent is liable to pay, failing which the petitioner is entitled to an order  of admission in terms of section 9 of the Code and for recommending the  appointment of the Insolvency Resolution Professional. It may be pointed  out that the petitioner has not named the RP to be appointed in case of admission, but has made a request for referring the matter to the Insolvency and Bankruptcy Board of India, for such an appointment in terms of section 16(3) of the Code 

 

# 10. I have heard learned counsels of parties and given my thoughtful consideration to the controversy involved in the case. It is not disputed by the learned counsel for petitioner that the respondent has issued cheques in respect of entire principal sum due. 

 

# 11. The learned counsel mainly relied upon the judgement of Hon'ble Supreme Court in Vijay Industries Vs. NATL Technologies Limited (2009) 3 Supreme Court Cases 527,  in support of his contention. The question before the Hon'ble Supreme Court was whether interest payable on the sum due would be a debt so as to attract the provisions of sections 433 and 434 of the Companies Act, 1956. The Hon'ble Supreme Court held as under: - 

• "34. Section 433 of the Companies Act does not state that the debt must be precisely a definite sumn. It has not been disputed' before us that failure to pay the agreed interest or the statutory interest would come within the purview of the word "debt". It is one thing to say that the amount of debt is not definite or ascertainable because of the bona fide dispute raised thereabout or there exists a dispute as regards quantity or quality of supply or such other defences which are available to the purchaser; but it is another thing to say that although the dues as regards the principal amount resulting from the quantity or quality of supply of the goods stands admitted but a question is raised as to whether any agreement had been entered into for payment of interest or whether the rate of interest would be applicable or not in the latter case, in our opinion, the application for winding up cannot be dismissed'." 

 

# 12. The facts of the case before the Hon'ble Supreme Court were that the invoices of the credit bills attached with each of the supply contained a clause relating to payment of interest in the following terms - "amount must be paid within 7 days or you are liable to pay 2% Interest per month." It was not in dispute that on the foot of each credit bill, the officer of the respondent company has put his signatures as a token of acceptance. 

 

# 13 It was further found that the respondent company had adjusted the amount paid first towards the interest at a stipulated rate and the balance against the principal amount. The Hon'ble Supreme Court, on the facts of the case, further held as under: - 

• "43. The findings of the High Court, with respect, are not correct for more than one reason; firstly, because the Division Bench did not hold that the invoices were not proved by cogent evidence; secondly, question of leading evidence would arise only after the company petition is admitted and, thirdly, issuance of invoices and signature of the respondent thereon is not disputed" 

• 44. The judgment of the Division Bench also contains a legal flaw insofar as it failed to take into consideration that the appellant had in fact issued three notices being dated 6-1-2003, 8-9-2003 and legal notice dated 23-12-2003 specifically mentioning that the payments had been adjusted towards interest first and balance, if any, shall be adjusted towards the principal Thus, a prima facie case was made out." 

 

# 14. The Hon'ble Supreme Court set aside the judgment of High Court. Further, instead of remitting the case back to the High Court, disposed of the matter in exercise of its jurisdiction under Article 142 of the Constitution of India, directing the respondent company to pay simple interest on the admitted sum @ 12% p.a. on the balance amount instead of 24% p.a. within 8 weeks from the date the amount became due till it was paid, failing which the consequences provided under the Law were to ensue 

 

# 15. I am, however, of the view that the issue here is to be determined, in view of the provisions of the 'Code' which has come into force w.e.f. 01.12.2016. Learned counsel for parties have not disputed that the term "debt" or operational creditor were not defined in the 1956 Act. This term is now defined in section 3(11) of the Code' as meaning a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt'. We are presently concerned with the definition of the term "operational debt" as defined in section 5(21) of the Code'. Section 5 (20) defines "operational creditor" as meaning 'a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred'. Section 5 (21) of the Code' says that "operational debt'' means 'a claim in respect of the provisions of goods and services including employment or a debt in respect of the repayment of the dues arising under any law for the time being in force and payable to the Central Government or State Government or any local authority. 

 

# 16. There is a marked difference between the definition of the term 'financial debt and the operational debt'. Under section 5 (8) the term financial debt means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and that is an inclusive definition. In the definition of the term 'operational debt under section 5 (21) the word 'interest has not been mentioned. 

 

# 17. Anyhow, to resolve the issue, it would be relevant to refer to the documents on record and the agreement, if any, between the parties. In the present case, admittedly, the amount being paid by the applicant / petitioner from time to time was being regularly adjusted towards the principal only and the interest has accumulated for the amount claimed by the petitioner Even the invoices filed along with the winding up petition, do not contain any clause of payment of interest. It is only now with the present application that the operational creditor has attached 'Tax Invoices' [Annexure A-4 (colly)] containing the clause of payment of 24% p.a. towards the interest in case the payment is not made within 3 days. These Tax Invoices were not part of the petition before the Hon'ble High Court. It is not the version of the petitioner that the Credit Invoices or Tax Invoices bear the signatures of the representative of the respondent Company. The term of 'interest' is thus only a unilateral act of the petitioner / applicant. 

 

# 18. It would be pertinent to refer to the reply of respondent dated 23.03.2015 (Annexure P-8), attached with the Company Petition filed in the High Court. In this reply, the respondent has explained the reasons for the delayed payment. ………. The petitioner has not placed on record the purchase orders issued by the respondent with the applicant company, in order to controvert the above stand of the respondent. 

 

# 19. The learned counsel for petitioner, however, vehemently contended that the interest can be determined by the Tribunal at the reasonable rate, as the petitioner is entitled to interest in accordance with section 61 of the Sales of Goods Act and section 3 of the Interest Act. I am of the considered view that it is never the intention of the legislature under the 'Code' that the Tribunal should determine the rate of interest and grant time to the company to pay the amount as per the directions. It is clearly intended that an application filed under section 9 of the Act is either to be admitted or rejected within a period of 14 days of the receipt of the application. There is no scope of passing an interim order like the one suggested by the learned counsel for the applicant / petitioner. 

 

In view of the aforesaid discussion, I hold that the entire amount of debt' as per the intention of the legislature under the Code having been paid by way of cheques, the instant petition is rejected. However, in case the cheques issued by the respondent are dishonoured, the petitioner would be at liberty to file a fresh petition, if so advised or take other appropriate steps in accordance with the Law. Certified copy of the order be sent to both the parties by speed post. 

 

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Coal India Ltd. Vs. Gulf Oil Lubricants India Ltd. & Anr. - Claim for Interest in absence of a written Contract

 NCLAT (11.02.2019) in  Coal India Ltd. Vs. Gulf Oil Lubricants India Ltd. & Anr.[Company Appeal (AT) (Insolvency) No. 807 of 2018] held that; the Adjudicating Authority has failed to notice that the principal amount has already been paid and original plea of the ‘Corporate Debtor’ was that no interest was payable in terms of the Agreement/ Contract, we set aside the impugned order dated 19th December, 2018 passed by the Adjudicating Authority.

Facts of the case; AA found that the CD has defaulted in payment of interest, which constituted ‘debt’ for IBC. The Bench found that the invoices clearly carried a stipulation of payment of interest @18% on overdue payment, and each invoice bore the signature of the authorized representative of the corporate debtor. Term No. 2 of the General Terms & Conditions of the demand letter also provided for interest @18% per annum on overdue/delayed payment. In these facts, the Tribunal found that the term to pay interest was accepted by the corporate debtor and non-payment of interest constituted default in payment of admitted debt, triggering CIRP.

 

Excerpts of the order;

11.02.2019─ An application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“I&B Code” for short) was filed by ‘M/s. Gulf Oil Lubricants India Limited’- (‘Operational Creditor’) for initiation of the ‘Corporate Insolvency Resolution Process’ against ‘Eastern Coalfields Limited’. The said application has been admitted by impugned order dated 19th December, 2018 by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata. The present appeal has been preferred by ‘Coal India Limited’.

 

# 2. On 22nd December, 2018, when the matter was taken up, taking into consideration the submissions made by learned Senior Counsel for the Appellant, the following order was passed:

• “22.12.2018 Learned Senior Counsel referred to the impugned order and enclosures annexed thereto, to suggest that the principal amount had already been paid and as per the terms of Agreement/ Contract, no interest is payable. This fact, though, noticed by the Adjudicating Authority (National Company Law Tribunal, Kolkata Bench), Kolkata, in spite of that impugned order dated 19th December, 2018 has been passed in an application under Section 9 of the I&B Code, 2016. It is also informed that parties have already settled the claim and nothing payable to the respondents (Operational Creditor).

• Let notice be issued on respondents by Speed Post.

• The requisite be filed by 26th December, 2018 by 11:00 AM. If the appellant provides email address of the respondents, let notice be issued through e-mail also.

• Post the matter for admission before the 1st Court on 29th January, 2019 within two cases. Appeal may be disposed of at the stage of admission.

• Until further orders, the operation of the impugned order dated 19th December, 2018 passed in CP (IB) No. 228/KB/2018 by NCLT Kolkata Bench shall remain stayed. The Resolution Professional, if joined may report.”

 

# 3. Pursuant to the notice, the Respondent has appeared.

 

# 4. Learned counsel appearing on behalf of the contesting Respondent- ‘M/s. Gulf Oil Lubricants India Limited’- (‘Operational Creditor’) accepts that the principal amount was paid prior to the admission of the application under Section 9 and interest has been paid and matter has been settled by agreement dated 26th January, 2019.

 

# 5. It is submitted that such settlement has already been made prior to the constitution of the ‘Committee of Creditors’.

 

# 6. In the case of ‘Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors. – Writ Petition (Civil) No. 99 of 2018’, the Hon’ble Supreme Court observed as follows:

• “52. It is clear that once the Code gets triggered by admission of a creditor‘s petition under Sections 7 to 9, the proceeding that is before the Adjudicating Authority, being a collective proceeding, is a proceeding in rem. Being a proceeding in rem, it is necessary that the body which is to oversee the resolution process must be consulted before any individual corporate debtor is allowed to settle its claim. A question arises as to what is to happen before a committee of creditors is constituted (as per the timelines that are specified, a committee of creditors can be appointed at any time within 30 days from the date of appointment of the interim resolution professional). We make it clear that at any stage where the committee of creditors is not yet constituted, a party can approach the NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule 11 of the NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the concerned parties and considering all relevant factors on the facts of each case.”

 

# 7. In view of the fact that the parties have now settled the matter prior to the constitution of the ‘Committee of Creditors’ and the Adjudicating Authority has failed to notice that the principal amount has already been paid and original plea of the ‘Corporate Debtor’ was that no interest was payable in terms of the Agreement/ Contract, we set aside the impugned order dated 19th December, 2018 passed by the Adjudicating Authority.

 

# 8. In effect, order (s), passed by the Adjudicating Authority appointing ‘Interim Resolution Professional’, declaring moratorium, freezing of account, and all other order (s) passed by the Adjudicating Authority pursuant to impugned order and action, if any, taken by the ‘Interim Resolution Professional’, including the advertisement published in the newspaper calling for applications all such orders and actions are declared illegal and are set aside. The application preferred by Respondent under Section 9 of the ‘I&B Code’ is dismissed. Learned Adjudicating Authority will now close the proceeding. The ‘Corporate Debtor’ (company) is released from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect.

 

# 9. The Adjudicating Authority will fix the fee of ‘Interim Resolution Professional’ and the ‘Corporate Debtor’ will pay the fees of the ‘Interim Resolution Professional’ for the period he has functioned. The appeal is allowed with aforesaid observation. However, in the facts and circumstances of the case, there shall be no order as to cost.

 

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