M/s. Steel Mech Engineers vs M/s Inox Wind Limited

PER: SH. L. N. GUPTA, M(T) & SH. HARNAM SINGH THAKUR, M(J)

M/s Steel Mech Engineers (for brevity, hereinafter referred to as the ‘Applicant’) has filed the present petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 with a prayer to initiate the Corporate Insolvency Resolution Process against M/s Inox Wind Ltd (for brevity, hereinafter referred to as the ‘Respondent’).

The Respondent namely, M/s Inox Wind Ltd is a Company incorporated on 09.04.2009 with CIN L31901HP2009PLC031083 under the provisions of the Companies Act, 1956 having its registered office at Plot No. 1, Khasra Nos 264 to 267, Industrial Area, Village-Basal, Himachal Pradesh, Una - 174303, which is within the jurisdiction of this Tribunal. The Nominal Share Capital of the Respondent is Rs.500,00,00,000/- and the Paid-up Share Capital is 221,91,82,260/- as per the Master Data annexed.

The Applicant is a partnership Firm incorporated under the Indian Partnership Act 1932 and is a manufacturer & supplier of multiple Plant, Machinery, tools, and fabrication and foundry items and incidental acts to complete a project. It is claimed by the applicant that it supplied goods to the Respondent as per quantity, specification and quality prescribed as per purchase orders and invoices of supply.

The particulars of the Operational Debt in terms of the total amount of default, and the date of default are mentioned in Part IV of the application, the relevant extract of which is reproduced below for the sake of convenience:

Thus, as per Part IV of the application (ibid), the Applicant has claimed the unpaid Operational Debt of Rs.1,88,53,723/- including interest and relied upon 21.01.2017 as the date of default.

It is stated by the Applicant that since the Respondent did not make the due payment of its operational debt, it issued a Demand Notice dated 27.10.2018 under Section 8 of IBC 2016 which was served to the Respondent at its registered office vide speed post. The applicant has placed Section 9(3)(b) affidavit on record (Page 27) stating that neither it received any reply of the demand notice nor the respondent raised any dispute with regard to the unpaid debt.

On issuance of the notice, the Respondent filed its reply dated 03.08.2022 and opposed the application on the following grounds:

ii) The principal amount of debt standing at Rs.97,34,507/-has already been paid in full by the CD after filing of this petition. Thus, the present petition is rendered infructuous on account of the payment of the principal debt to the OC, who is now staking its claim regarding the alleged interest charged @ 24% per annum on the principal debt, in absence of any agreement enabling charging of any such penal interest.

iii) It is a settled law that once the principal amount has entirely been paid and the issue is only regarding to interest, then the application under Section 9 of the Code is not maintainable as the spirit of the Code is for ‘resolution of debt’ and ‘not for recovery’.

iv) The interest cannot be awarded merely on the basis of a term in a bill or invoice, unless the OC proves that such provision is based on a contract or agreement on the part of the purchaser to pay interest and it is a settled law that in the absence of an agreement stipulating ‘interest’, interest is not chargeable. It is further a settled law that IBC does not empower this Adjudicating Authority to impose interest on the parties, much less determine the rate of such interest.

The Applicant also filed its rejoinder dated 05.12.2022 mainly stating the following :

ii) After coming to know that the CD has an even illegal modus operandi to usurp money and goods of the OC on frivolous allegations, the petitioner stopped further supplying goods. The last business date is 22.12.2016, and no supply has been made by the Petitioner thereafter.

iii) The annual balance sheet of the CD also discloses its liability to pay interest owed to MSME suppliers. As per the information/auditor’s remark to published financials for the F.Y. 2018-19, the company owed Rs.163.10 to MSME enterprises, to which it further owed Rs.195.28 lakhs towards accrued interest.

We heard the parties and perused the pleadings on record including written submissions filed by both parties. The parties are ad idem that the principal debt amounting to Rs.97,34,507/- has already been paid in full by the Respondent. This fact has been duly recorded in the order dated 25.09.2023 of this Adjudicating Authority.

Now, what is being claimed by the Applicant is the delayed payment interest of Rs. 91,19,216/- @ 20.25% per annum (i.e., 3 times of the bank interest as per the MSME Act) being the interest accrued till 30.09.2018. The Applicant has further contented that there was no pre-existing dispute between the parties. Per contra, the respondent has contended that the full amount of the principal debt has since been paid and the interest clause cannot be accepted unless it was admitted and accepted by the Respondent. Furthermore, the respondent referred to the email dated 06.09.2018 (annexed by the Applicant with the application itself) claiming a pre-existing dispute between the parties prior to the issuance of demand notice.

After taking note of the fact that the principal amount of debt has already been discharged, the issue which emerges for our adjudication is “Whether the CIRP can be initiated / triggered solely on the basis of the un-paid amount of interest when the entire principal amount of debt has been discharged by the Corporate Debtor”.

The Respondent has contended in this regard that no interest clause was admitted while availing the purchases and as per the “Standard Terms and Conditions” as placed by the applicant in its application (at Page No.56-64). Here we refer to the relevant pages 56 & 60, which read thus:

On the perusal of the aforesaid document, we find that no interest was payable from the due date.

In this backdrop, we consider it relevant to refer to the Judgment of Hon’ble NCLAT in the matter of S. S. Polymers v. Kanodia Technoplast Ltd. in Company Appeal (AT) (Insolvency) No. 1227 of 2019, dated 13.11.2019. The relevant extracts of the judgment (supra) are given below:

In view of the aforesaid judgment, it can be inferred that the “interest” component alone cannot be claimed or pursued, in absence of the debt, to trigger a CIR process against the corporate Debtor. Further, in our considered view, the application pursued for realization of the interest amount alone is against the intent of the IBC, 2016 as this Adjudicating Authority is not a Court of recovery.

Even otherwise, the Respondent has referred to the email dated 06.09.2018 claiming a pre-existing dispute between the parties prior to the issuance of demand notice. Hence, we examine the contention of the Respondent regarding the pre-existing dispute. In this context, we refer to the E-mail dated 06.09.2018 from Respondent to the Applicant (placed by the Applicant in its application at Pg no 153), which reads as reproduced overleaf:

Thus, on the perusal of the E-mail (ibid), we find that the Respondent had raised dispute regarding the quality of the material supplied by the Applicant as back as on 06.09.2018. As already noted in para 6 above, the Applicant issued the demand notice under Section 8(1) of IBC, 2016 on 27.10.2018. Thus, we find that there was a ‘dispute’ between the parties prior to the issuance of the demand notice.

In this context, we refer to the judgment of the Hon’ble Supreme Court Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited (2018) 1 SCC 353 wherein it was held that:

(Emphasis Supplied)

Thus, we find that the present Application is not maintainable both on the grounds of maintainability as well as on the pre-existing dispute. Accordingly, the Application is dismissed.

However, nothing expressed herein shall be construed as an opinion in respect of the rights of both parties to agitate before any other forum.

The IA No. 460/2023 seeking claim of additional interest for the delayed period is dismissed in view of the aforesaid order in the main Application. The Applicant, however, would be at liberty to pursue its claim, if any, in any other forum.