NCLAT Delhi Evokes Doctrine Of 'Approbate & Reprobate', Imposes Rs. 1 Lakh Cost On Creditor, Allowing Action For Contempt

The National Company Law Appellate Tribunal ('NCLAT') Delhi, comprising Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member), and Mr. Indevar Pandey (Technical Member) evokes the Doctrine of 'Approbrate and Reprobrate' imposing a cost of Rs. 1 Lakh with allowing appropriate proceedings under the provisions of the Contempt of Court Act. Background Facts: Premjayanti Enterprises Pvt. Ltd. (Appellant) had initiated a Corporate Insolvency Resolution Process (“CIRP”) under Section 9 of IBC against Shivam Water Treaters Pvt. Ltd. (Corporate Debtor) for the investments amounting to Rs. 58.30 Lakhs plus interest of Rs. 20.87 Lakhs. The CIRP application was filed on a printed performa supported by an affidavit of Mr. Devendra Tripathi the Assistant Manager of the Appellant. The Counsel on behalf of the Resolution Professional (“RP”) appeared before the NCLT while the case was pending and informed it that the Corporate Debtor was in the CIRP process via Order dated 15.10.2018 under Section 7 of IBC by the NCLT, Mumbai Bench wherein the Interim RP (“IRP”) was appointed. Thus, the Appellant withdrew his CIRP application under Section 9 of IBC via Order dated 01.01.2019. However, on 12.07.2020, post withdrawal of the petition, the Appellant filed a CIRP petition under Section 7 of IBC as a Financial Creditor for the claim of his investment advanced as loan amounting to Rs. 1 crores (with principal amount of Rs. 58.30 Lakhs and interest of Rs. 42.16 Lakhs) which was earlier alleged to have been invested when the application under Section 9 was filed. During the proceedings of the CIRP petition, the Corporate Debtor repaid the principal amount of Rs. 58.30 Lakhs. Consequently, NCLT Ahmedabad rejected the CIRP petition stating that the same is not maintainable solely on the interest component as it did not qualify as a financial debt. The Appellant has challenged the said Order before the NCLAT. NCLAT Verdict: The NCLAT Delhi dismissed the appeal and evokes the Doctrine of 'Approbrate and Reprobrate' imposing a cost of Rs. 1 Lakh with allowing appropriate proceedings under the provisions of the Contempt of Court Act. The Appellate Tribunal observed that proceedings under IBC are characterized by their summary nature, relying on pleadings and documentary evidence. The applications are filed on standard forms provided in the Rules, accompanied by affidavits from the involved parties to support the claims. It noted that presently, the Appellant initially approached the NCLT Ahmedabad with an application under Section 9 of IBC claiming itself as an Operational Creditor and the disputed amount as an investment. These assertions were not only stated in the demand notice but also in the main application, supported by an affidavit. However, the Section 9 application was later withdrawn, not due to any perceived inaccuracies in the pleadings, but because another financial creditor had filed a Section 7 application against the Corporate Debtor, which was admitted by a different Adjudicating Authority. The Appellant post withdrawal of its Section 9 application and without any express desire to file a Section 7 application after withdrawal took a somersault and filed a Section 7 application in 2020 and changed its pleadings entirely and became a financial creditor from an operational creditor. Further, NCLAT pointed out that no notice was brought before NCLT Ahmedabad towards its bonafide mistake in filing the Section 9 application which has been pleaded in the rejoinder filed for the present appeal and wherein the operational debt has been claimed as financial debt. Moreover, presently, the Corporate Debtor has paid the principal amount of Rs. 58.30 Lakhs and the CIRP petition for resolution of the amount of interest is an abuse of the process of law because the Appellant cannot change the stand taken in the application filed under Section 9 of the Code by it on its convenience and drag the Corporate Debtor before the Adjudicating Authority and the Appellate Tribunal in unnecessary litigation. In conclusion, NCLAT has imposed a cost of Rs. 1 Lakh payable in 30 days from the passing of the Order on the Appellant's act of frivolous litigation is depreciable, deplorable and unacceptable. It also directed that the Corporate Debtor may initiate appropriate proceedings against the Appellant under the provisions of the Contempt of Court Act. Case Title: Premjayanti Enterprises Pvt. Ltd. vs. Shivam Water Treaters Pvt. Ltd. Case No.: Comp. App. (AT) (Ins) No. 124 of 2023 Counsel for Appellant: Ms. Purti Gupta, Ms. Henna George, Advocates. Counsel for Respondent: Mr. Vivek Kumar, Mr. Aditya Parolia, Mr. Akshay Srivastava, Advocates. Click here to Read/Download Order

NCLAT Delhi Evokes Doctrine Of 'Approbate & Reprobate', Imposes Rs. 1 Lakh Cost On Creditor, Allowing Action For Contempt

Sachika Vij

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