Vitson Steel Corp Private Limited vs Capacit'e Infraprojects Limited

Per: Rajasekhar V.K., Member (Judicial)

This is a Company Petition filed under section 9 of the Insolvency & Bankruptcy Code, 2016 ("IBC") by Vitson Steel Corp Private Limited ("the Operational Creditor") [CIN: U51420KL2012PTC032061], a company within the meaning of section 2(20) of the Companies Act, 2013 and represented by its Manager, Mr AH Quadri, on the basis of a Board Resolution dated 20.03.2019 seeking to initiate Corporate Insolvency Resolution Process ("CIRP") against Capacit'e Infraprojects Limited ("the Corporate Debtor").

The Corporate Debtor is a listed public company limited by shares and incorporated on 09.08.2012 under the Companies Act, 1956, with the Registrar of Companies (RoC), Maharashtra, Mumbai. Its CIN is L45400MH2012PLC234318. Its registered office is at No.605-606, Shrikant Chambers Phase-I (6^th Floor), Adjacent to RK Studios, Sion-Trombay Road, Mumbai 400 071, in the State of Maharashtra. Therefore, this Bench has jurisdiction to deal with this petition.

The present petition was filed on 10.04.2020 before this Adjudicating Authority on the ground that the Corporate Debtor failed to make payment of a sum of ₹13,84,122.00 (Rupees thirteen lakh eighty-four thousand one hundred and twenty-two only) as principal and ₹60,81,842.00 (Rupees sixty lakh eighty-one thousand eight hundred and forty-two only) as interest as on 16.04.2017, which is the date of default.

The case of the Operational Creditor is that the Operational Creditor supplied to the Corporate Debtor JSW Neo Steel TMT Bars Fe 500D, pursuant to purchase orders placed by the Corporate Debtor (para 1 at page 3 of the Petition). However, payment of a principal sum of ₹13,84,122/- along with interest of ₹60,81.842/- calculated @ 24% per annum from 20.10.2017 to 06.03.2019 and GST amounting to ₹10,94,731/- @ 18% on the interest component is due and payable by the Corporate Debtor (para 1 at page 3 of the Petition).

Invoices have been placed on record as Exhibit '7' at pp.27-29. The invoices do not provide for interest in case of delayed payments. Bank statements are attached as Exhibit '16' at pp.49-86. The total debt due and payable to the Operational Creditor is ₹74,65,964.00 (Rupees seventy-four lakh sixty-five thousand nine hundred and sixty-four only), plus GST of ₹10,94,731/- as mentioned at pages 3 and 24-26 of the Petition.

The Operational Creditor had served a Demand Notice in Form 3 dated 26.02.2019 to the Corporate Debtor (Exhibit '5', pp.16-23) in terms of section 8 of the IBC. The Corporate Debtor has sent a reply dated 12.03.2019, wherein they have stated that as per the terms of the purchase order placed upon the Operational Creditor, all payments except a sum of ₹13,84,129.37 has been paid. The interest component of 24% per annum is neither tenable nor payable, since it was never contracted for. The reply has been annexed at Exhibit '8' at pp.30 of the Petition.

Mr. Shyam Kapadia, learned Counsel appeared on behalf of the Corporate Debtor and made his submissions.

In its reply dated 19.09.2019, the Corporate Debtor has submitted as follows:-

We have heard the arguments of both sides and perused the records.

The calculation of the claim is at pp.21-22 of the Petition. There is a total of ninety-two invoices mentioned therein. Out of these, a total of fifty-nine invoices are fully paid, leaving a balance of thirty-three invoices which have not been paid. From the calculation sheet annexed at pp.24-26 of the petition, it is clear that the claim is not restricted only to the two invoices which have been attached at pp.27-29 of the petition, but to other invoices as well. Thus, there is no clarity on the quantification of the claim of the Operational Creditor

The invoices attached to the petition are only two - (1) Invoice No.JSW/B2B/PJ/0455 dated 23.12.2017 for ₹11,04,544.00; and (2) Invoice No.JSW/B2B/PJ/0464 dated 27.12.2017 for a sum of ₹8,55,954.00. The credit period is supposed to be forty-five days as mentioned in the purchase order at p.27 of the petition. If that be so, it is difficult to understand how the date of default can be taken as 16.04.2017 as mentioned at p.3 of the petition. Further, the sum total of the two invoices works out to ₹19,60,498/- only, whereas the computation of claim at pp.21-22 lists out ninety-two invoices from 02.03.2017 to 27.12.2017 for which interest is being claimed now. There is no provision for interest in the invoices or in the purchase order. In other words, there is no contractual rate of interest.

If the Operational Creditor is an MSME registered under the MSME Act, 2006, the interest component is covered under section 16 of the said Act. Section 17 of the said Act details the mode of recovery due. In such cases, a reference to the Micro and Small Enterprises Facilitation Council may be made under section 18(1) of the Act.

In the original petition, interest was being claimed at the rate of 24% per annum based on "industry practice." However, in the revised petition, the Operational creditor has stated that it is entitled to claim interest at three times the bank rate compounded at monthly rests.

Mr Shyam Kapadia, learned Counsel for the Corporate Debtor, has repeatedly submitted during the course of hearing that the corporate debtor is ready and willing to make full payment of the principal amount that may be due. However, this was not accepted by the learned Authorised Representative for the Operational Creditor.

This is a petition wherein there is a mismatch in the facts stated in the petition and in the statement of claim attached at pp.24-26 of the petition as regards invoices, the date of default and the interest component. Further, as regards interest, the fact of the Operational Creditor being an MSME has never been brought to the notice of the Corporate Debtor at any point of time until 13.08.2019, when the Bench posed the question to the learned Authorised Representative for the Operational Creditor as to how the claim for interest @ 24% is even sustainable.

Mr. Shyam Kapadia, learned Counsel for the Corporate Debtor also brought to our notice that in so far as the invoice No.JSW/B2BPJ/ 0455 dated 23.12.2017 is concerned, there seem to be two different invoices – one placed at p.28 of the revised petition, and the other at pp.132-133 of the rejoinder. While the claim amount and the material particulars are the same, at least one of them appears to have been typed. No reason has been given for the same invoice appearing in two different formats.

Mr Abhay Kumar Jain, learned Authorised Representative for the Operational Creditor, drew our attention to a decision dated 11.09.2019 of the Hon'ble NCLAT in P Vijay Kumar v Priya Trading Company & others,^{11.Company Appeal (AT) (Insolvency) No.204/2019} wherein it has been stated in para 7 as follows:

While we are in respectful agreement with this decision, it is clear that in the present case, the Corporate Debtor was kept completely in the dark as to the MSME status of the Operational Creditor even after the filing of the present petition. Therefore, there was, to that extent, suppression of material fact when the Demand Notice dated 25.02.2019 (pp.17-20 of the petition) was issued.

Mr Shyam Kapadia, learned Counsel for the Corporate Debtor, placed on record a decision dated 11.08.2017 of the Hon'ble NCLAT in the matter of Wanbury Limited v Panacea Biotech Limited,^{22.2017 SCC OnLine NCLAT 238} in support of his claim that interest claim does not fall under "operational debt." This was a matter taken in appeal from a decision dated 18.04.2017 of the NCLT Chandigarh Bench which held that the definition of the term "operational debt" under section 5(21) of the Code does not include "interest."

The petition itself is based primarily for interest, since the Corporate Debtor was ready and willing even during the course of hearings to pay the full amount of the principal sum outstanding, if any. Further, there is no clarity with reference to the claim itself in the present petition, as stated in paras 10 and 11 supra. Therefore, we are not convinced that this is a fit case for initiation of CIRP against the Corporate Debtor.

We may record here that the Operational Creditor has repeatedly spurned the offer of the Corporate Debtor to make payment of the principal sums due. However, in the interest of justice and because the Corporate Debtor has, during the course of hearings, repeatedly expressed its intention to settle the principal sum due, we hereby direct the Corporate Debtor to make payment of the principal sum due within a period of fifteen days from the date of pronouncement of this order. We leave it to the wisdom of the Operational Creditor to accept such principal sum due from the Corporate Debtor

As regards interest, in case the Operational Creditor is so advised, it may make a reference to the Council constituted in terms of section 18(1) of the MSME Act, 2006.

The Counsel for the Corporate Debtor also relied upon the decision dated 14.08.2018 of the Hon'ble Supreme Court in K Kishan v Vijay Nirman Company Private Limited,^{33.2018 SCC OnLine SC 1013} wherein it was held as under: -

The object of the Code is not advanced by surprising the Corporate Debtor with a claim for interest firstly by claiming that it was as per “industry practice” and thereafter making a pitch that it was as per MSME Act, when the Operational Creditor was confronted with a question posed by this Bench as to how the claim for interest was sustainable when neither the purchase order nor the invoices carried a provision therefor. In the present case, the claim for interest has been brought against the Corporate Debtor even though it was never put on notice that the Operational Creditor was registered under MSME Act.

For the reasons stated above, the present petition fails and therefore, the same is rejected.

We make it clear that any observations made in this order should not be construed as expressing opinion on merits. The right of the petitioner before any other forum shall not be prejudiced on grounds dismissal of the present petition by this Adjudicating Authority.

Let a copy of this order be communicated to the parties in terms of the provisions of section 9(5)(ii) of the IBC.