NCLT Ahmedabad: Application U/S 9 Is Not Maintainable If Operational Creditors Return Principal Amount Paid During The Pendency Of The CIRP Application.

Background Facts

Shah Paper Mills Ltd (“Applicant/Corporate Debtor”) made a default in payment of the debt to its Operation Creditors (“Respondent’). Accordingly, the Respondent filed a petition C.P. No. 251 of 2019 under Section 9 for initiation of CIRP.

On 20.07.2022, NCLT rejected the Section 9 application on the ground that there was a serious dispute about the actual amount payable by the Applicant to the Respondent. The Respondent then filed an appeal with the National Company Appellate Tribunal (“NCLAT”).

On 21.12.2022, NCLAT accepted the appeal and asked the NCLT to reconsider its decision within one month.

During the ongoing proceedings, the Applicant tried to pay the entire amount of debt to the Respondent by way of a Demand Draft (“DD”), however, the Respondent refused the DD and returned it to the Applicant.

On 16.01.2023, the Applicant transferred the entire amount through RTGS in the account of the Respondent, but the Respondent returned the amount for the second time, stating that the interest @18% was not paid along with the debt.

The Applicant then filed an application for dismissal of C.P. No. 251 of 2019 filed under Section 9 of IBC by the Respondent for initiation of CIRP.

Contentions of Applicant

The Applicant argued that the principal amount was tried to be paid twice – once by sending DD and then by transferring the amount through RTGS but those were returned by the Respondent. The Applicant further argued that the invoices by the Respondent cannot be relied on to charge interest as they are unilateral documents and are not signed by the Applicant. The Applicant pointed out that the purchase orders also had no stipulation for interest.

The Applicant relied on S.S. Polymers Vs. Kanodia Technoplast Ltd. Company Appeal (AT) (Ins) No. 1227 of 2019 Admittedly, before the admission of application under section 9 of the I&B Code, the Corporate CP (IB) No.251/AHM/2019 with IA 123/AHM/2023 Page 8 of 9 Debtor paid the total debt. The application was pursued for the realization of the interest amount, which according to us is against the principle of I&B Code as it should be treated to be an application pursued by applicant with malicious intent (to realize only interest) for any purpose other than the resolution of insolvency, or liquidation of Corporate Debtor and which is barred in view of section 65 of the I&B Code.”

The Applicant further relied upon S.S. Polymers Vs. Kanodia Technoplast Ltd it was also observed therein that the principal amount has entirely been paid and the issue was only regarding interest for which the application under section 9 of the Code was not maintainable as the spirit of the legislation of the Code is for “resolution of debt” and not for “recovery”.

Contentions of Respondent

The Respondent denied the submissions of the Applicant and argued that although the Applicant had tried to pay the principal amount the interest has not been paid and therefore this application under section 9 for the initiation of CIRP is valid.

NCLT Verdict

NCLT rejected the application and held that any application as per Section 9 of IBC is not maintainable if Operational Creditors return the principal amount paid during the pendency of the application of CIRP. The Bench further observed that the spirit of legislation of IBC is for ‘resolution of debt’ and not for ‘recovery’.

Case Title: Shah Paper Mills Ltd V/s Shree Rama Newsprint & Papers Ltd.

Case No.: I.A. No. 123 of 2023 in C.P. No.251 of 2019

Counsel For the Applicant: Mr. Ravi Pahwa, Adv. a/w. Ms. Pragati Bansal, Adv.

Counsel For the Respondent: Mr. Kamil Lokhandwala, Adv. a/w Ms. Uma Acharya, Adv. & Mr. Mihir Kakade, Adv.

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