Hindustan Zinc Limited vs Mahindra Susten Pvt. Ltd.

Ashok Bhushan, J.

This Appeal has been filed challenging the order dated 28.11.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Jaipur Bench on an application filed under Section 9 filed by the Respondent– Mahindra Susten Pvt. Ltd. in C.P. No. (IB)-81/9/JPR/2021. The Adjudicating Authority by the impugned order directed as follows:

The Appellant who was Respondent in the Section 9 application impleaded as Corporate Debtor has come up in this Appeal challenging the order dated 28.11.2022. Brief facts of the case necessary to be noticed for deciding this Appeal are:

We have heard Shri Krishnan Venugopal, learned senior counsel for the Appellant and Shri Paras Kuhad, learned senior counsel appearing for the Respondent – Operational Creditor.

Learned counsel for the Appellant submits that the Section 9 application was filed for Safeguard Duty reserving right to claim future interest or penalties or delay charges. Entire Safeguard Duty having been paid on 14.11.2022, the petition under Section 9 deserved to be rejected under Section 9(5)(ii)(b) of the I&B Code. The Adjudicating Authority committed error in refusing to exercise its jurisdiction in rejecting the application and have directed the parties to settle amicably between themselves, which order is not in accordance with law. It is submitted that the debt having been paid, the Adjudicating Authority had to reject the application. It is submitted that claim of interest was not subject matter under Section 9 Application before the Adjudicating Authority and the Adjudicating Authority erred in directing the parties to amicably settle the issue of interest within one week. The claim must be crystalized and quantified to become an operational debt. The subsequent quantification of amounts by the Customs Authorities is irrelevant because the relevant date to determine maintainability of the claim is the date on which the Section 9 application was filed. The Statement made by Learned Senior Counsel for the Appellant on 07.09.2022 was only with regard to payment of safeguard duty, which payment having been made, the same counsel requested the Adjudicating Authority to dismiss the application. Continuation of Section 9 application for interest is not maintainable. The payment of interest has been disputed by the Appellant. The Appellant has requested the Respondent to challenge the demand by filing an appropriate appeal. Under the Contract between the parties, the Operational Creditor was required to indemnify the Appellant against all claims in connection to the Government taxes, duties, etc. Challenge to the safeguard duty itself is sub-judicate before the Hon’ble Supreme Court and Hon’ble High Court including Writ Petition filed by the Appellant. Appellant is a fully solvent company with a net worth of Rs.34,281 crores in the year 2021-22 with profit after tax of Rs.9,629 crores. There is no justification of initiating any insolvency proceeding against the Appellant.

Shri Paras Kuhad, learned senior counsel appearing for the Operational Creditor vehemently opposed the submissions of learned counsel for the Appellant. It is submitted that as per clause 4.2 of the Contract dated 30.04.2018, it is liability of the Appellant to pay the Safeguard Duty. The Appellant has undertaken to pay amount of Safeguard duty levied by the Government Authorities for import of solar modules including the interest thereon. In the Writ Petition filed by the Appellant before the Rajasthan High Court, no protective order has been passed. As per Section 47 of the Customs Act, 1962, imported goods were liable to be cleared for home consumption only upon payment of import duty. Import duty is liable to be paid on the date of presentation of the bill of entry. Failure to pay the duty within the time specified would attract interest on the duty. The Appellant who is owner was fully liable to pay the Safeguard Duty as well as interest. Only payment of Safeguard Duty on 14.11.2022 shall not absolve the Appellant from its liability to pay the Safeguard Duty and interest. Section 9 application has to be treated as an application Safeguard Duty alongwith up to date interest. Hence, the payment of interest is also matter of Section 9 application. It is submitted that learned senior counsel for the Appellant made statement that “once assessment of safeguard duty is done by the competent authority, he will make payment of the same”, which clearly meant that entire payment i.e. Safeguard Duty and interest shall be paid by the Appellant. Appellant cannot go back from its statement made on 07.09.2022 before the Adjudicating Authority. Appellant failed to make payment of Safeguard Duty, hence is fully liable to pay the interest also. Assessment order dated 04.10.2022 crystalized the interest which is now liability of the Appellant to clear. Demand made by the Operational Creditor is founded on documents relating to contract for supply of goods.

We have considered the submissions of learned counsel for the parties and perused the record.

Before we enter into respective submissions of learned counsel for the parties, it is relevant to notice the particulars of operational debt as claimed in Part IV of the Section 9 application. Part IV of the Section 9 application is as follows:

In Part IV, under the heading ‘Details of transactions on account of which debt fell due’, in Para 26 and 27 following has been pleaded:

In last part of the Part-IV, which deals with ‘Amount claimed to be in default and date on which the default occurred’, following has been stated:

When we look into the Section 9 application filed by the Respondent, the Operational Debt claimed was Rs.17,24,06,024.33 and the column in Part IV specifically reserves right of the Operational Creditor in following words:

Admittedly, the levy by the Custom Department is by Assessment Order dated 04.10.2022 by which finalization of duty on the bill of entry was made. In the Safeguard Duty, on the date when application was filed, interest could not have included as the amount of interest has been crystalized only subsequently when provisional assessment has been finalized by letter dated 04.10.2022. We, thus, are of the view that claim of interest levied by order dated 04.10.2022 cannot be said to be included in the debt as claimed by the Applicant under Section 9.

The impugned order records that Appellant has deposited on 14.11.2022, entire claim amount of Rs.16,41,96,213.38/- Principal amount and applicable GST making a total amount of Rs.18.68,55.290.82/-. On deposit of the aforesaid amount, thus, the debt as was claimed in the application stood paid. The order further notice that submission was made on behalf of the learned senior counsel for the Appellant that in view of the aforesaid deposit, the application should be rejected, which was opposed by learned counsel for the Respondent stating that interest is also to be paid by the Corporate Debtor.

Operational Debt as was claimed in the application under Section 9 which is apparent from Part IV of the Application which clearly states that the Operational Debt was only Rs.17,24,06,024/- and Applicant has reserved its right to claim further interest, penalties or delayed charges, etc. We, thus, are of the view that on payment of entire Operational Debt as was claimed in the application, there was no occasion to continue the Section 9 application any further.

We also notice submission of learned counsel for the Respondent that the Appellant through its senior counsel has made categorical statement on 07.09.2022 that once assessment is made they shall make the payment, which statement clearly means that Appellant undertake to make the payment of assessed amount which includes Safeguard Duty and interest.

We may first notice the order dated 07.09.2022 passed by the Adjudicating Authority recording the aforesaid statement of learned senior counsel for the Appellant, which order is as follows:

Mr. M. S. Singhvi, learned counsel appearing for the Appellant had on 07.09.2022 made statement as recorded above. The statement stated that once assessment of safeguard duty is done by the competent authority, he will make the payment of the same within stipulated period. The statement can be read as statement for payment of Safeguard Duty, which is clear from the use of word ‘same’ in the same sentence. Furthermore, on 28.11.2022, when the matter was heard again by the Adjudicating Authority, Mr. M. S. Singhvi, the same counsel appeared for the Appellant and prayed that in view of the payment of Safeguard Duty, the application be rejected. We are, thus, unable to read the statement of Mr. M. S. Singhvi, learned counsel for the Appellant that he made statement to make payment of Safeguard Duty with interest.

Learned counsel for the Respondent submits that now in view of the Assessment Order, the liability has come on the Operational Creditor to make the payment of Safeguard Duty + Interest. Only payment of Safeguard Duty shall not absolve the Corporate Debtor from its liability to make payment of interest and the Customs Department may take coercive action against the Operational Creditor. It is submitted that it is obligatory on behalf of the Appellant to make payment of interest which was its liability as per the contract of supply.

Learned counsel for the Appellant submits that Appellant has made the payment of Safeguard Duty under protest and has further requested the Operational Creditor to challenge the interest.

We are of the view that it is open for the Appellant to challenge the levy of interest, if they are so aggrieved to liability of interest which ultimately will come on them as per the supply agreement. Appellant cannot get away from liability of interest by saying that it has requested the Operational Creditor to challenge the levy of interest since if the liability of the interest is of the Appellant as per the Supply Agreement, it was open for the Appellant to take such recourse in accordance with law challenging the levy of interest.

In view of the foregoing discussion, we, thus, are of the view that Section 9 application which was filed by the Operational Creditor, the entire Operational Debt having been paid by the Corporate Debtor, there is no useful purpose in continuing the Section 9 proceeding any further. The Adjudicating Authority ought to have closed the matter and the observation that the parties are permitted to settle the matter amicably within one week, was uncalled for. Thus, we are of the view that Appeal deserves to be allowed closing the application under Section 9 filed by the Operational Creditor being CP (IB) No. 81/9/JPR/2021. We, however, are also of the view that it is open for the Appellant to take such legal proceeding as he may be advised, challenging the levy of interest. The dismissal of Section 9 application filed by the Operational Creditor being CP (IB) No. 81/9/JPR/2021 shall not preclude the Operational Creditor to take such proceedings in law against the Corporate Debtor in event the liability of interest is not discharged by the Corporate Debtor. The Appeal is disposed of accordingly.