Adding Inflated Interest To Outstanding Liability Merely To Cross Threshold U/S 4 Of IBC Is Not Permissible: NCLAT

The National Company Law Appellate Tribunal (NCLAT) New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Arun Baroka (Technical Member) and Mr. Barun Mitra (Technical Member) has held that the interest cannot be added to the outstanding liability when there is no contract between the parties to this effect and no past practice justifying such action merely to cross the threshold of Rs. 1 crore under section 4 of the Insolvency and Bankruptcy Code, 2016 (Code). Brief Facts: A petition under Section 9 of the Code was filed by M/s Riddhi Siddhi Metals (Operational Creditor) seeking initiation of Corporate Insolvency Resolution Process (CIRP) against M/s Aquarius H2O Dynamics Pvt. Ltd. (Corporate Debtor) for an outstanding debt. The Operational Creditor issued a demand notice under section 8 of the code to the corporate debtor on 19 March 2024. Despite notice being issued on 12 July 2024, the corporate debtor failed to appear. Even after the notice was published in newspapers, no response was given by the corporate debtor. Consequently, the Adjudicating Authority closed the corporate debtor's rights to file a reply and admitted the petition under section 9 of the code ex-parte. Against the above order, the present appeal has been filed. Contentions: The Appellant submitted that the Respondent has suppressed material fact regarding the payment of Rs. 11 lacs already paid to the Operational Creditor. If this paid amount is taken into consideration, the threshold required for admitting the petition under section 9 of the code is not satisfied. It was also argued that since notice to the corporate debtor was served on the wrong address, the corporate debtor could not appear before the Adjudicating Authority. On this count also the impugned order deserves to be set aside as it was passed without giving a fair opportunity to the corporate debtor. Per contra, the Respondent submitted that the payments which have been claimed to have been made by the Corporate Debtor were not payments made by the Corporate Debtor. The purported payment of Rs 9.50 lakhs claimed to have been made by the Corporate Debtor was made by a different entity other than the Appellant and this payment related to a transaction separate from transactions entered into with the Corporate Debtor. It was submitted that the Appellant had falsely claimed that it was unaware of the proceedings initiated before the Adjudicating Authority. It was lastly submitted that the statutory demand notice under Section 8 was correctly served upon the Corporate Debtor. Despite sufficient opportunities given by the Adjudicating Authority, the Corporate Debtor had deliberately chosen not to appear compelling the Adjudicating Authority to proceed ex-parte. Observations: The Tribunal observed that when Respondent was questioned as to why payments made by Simon Kumar Patel and Rameshbhai Patel appeared in the Ledger Account of Shreeji Equipment instead of the corporate debtor, the Respondent failed to provide a credible explanation. This lack of explanation raises serious doubts about the accuracy and reliability of the Ledger Account maintained by the Operational Creditor regarding the corporate debtor. The Tribunal also noted that a review of the corporate debtor's Ledger Account shows that only payments received upto 12 May 2023 have been reflected. However, it fails to account for subsequent payments made by the corporate debtor including Rs. 9.50 lakhs on 11 October 2023 and Rs. 2.50 lakhs on 10 November 2023 and 31 January 2024 despite these transactions being recorded in their bank statements. It further said that there is a clear mismatch, and the Adjudicating Authority was misled into admitting the petition under Section 9 of the Code, which was not maintainable because if the payment made by the Corporate Debtor to the Operational Creditor is taken into consideration, the petition fails to meet the threshold of Rs. 1 crore under Section 4 of the Code. The Tribunal further observed that the interest cannot be added to the outstanding liability when there is no contract between the parties to this effect and no past practice justifying such action. It is therefore clear that the interest was added merely to meet the threshold for the application under Section 9 of the Code to be maintainable. Accordingly, the present appeal was allowed and the impugned order was set aside. Case Title: Aquarius H2O Dynamics Private Limited Versus M/s Riddhi Siddhi Metals Case Number: Company Appeal (AT) (Insolvency) No. 39 of 2025 Judgment Date: 26/03/2025 For Appellant : Ms. Nitu Mittal, Advocate. For Respondent : Mr. Pradhuman Gohi and Mr. Sahithya Krishna A., Advocates. Click Here To Read/Download The Order

Adding Inflated Interest To Outstanding Liability Merely To Cross Threshold U/S 4 Of IBC Is Not Permissible: NCLAT

Mohd Malik Chauhan

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