‘Filed Only For Recovery Of Balance Interest Amount’: NCLAT Delhi Upholds Dismissal Of Section 9 Petition

The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating an appeal filed in Permali Wallace Pvt. Ltd. v Narbada Forest Industries Pvt. Ltd., has held upheld the Adjudicating Authority’s dismissal of a Section 9 petition, which was filed merely for recovery of balance interest amount in view of a settlement agreement and not for resolution of the Corporate Debtor. Background Facts In 2017, Permali Wallace Pvt. Ltd. (“Operational Creditor”) filed a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), seeking initiation of Corporate Insolvency Resolution Process (“CIRP”) against Narbada Forest Industries Pvt. Ltd. (“Corporate Debtor”). The principal amount in default was Rs. 1,74,16,527/- alongwith an interest of Rs. 48 Lakhs. The petition was withdrawn by the Operational Creditor when the Parties entered into a settlement agreement dated 07.11.2017. The Corporate Debtor paid Rs. 1,74,16,527/- towards full settlement of principal amount and Rs. 16 Lakhs towards settlement of the interest component. The Operational Creditor preferred yet another Section 9 petition before the Adjudicating Authority, claiming an additional amount of Rs. 1,28,00,000/- towards the interest, which amount is disputed by the Corporate Debtor. On 03.11.2022 the Adjudicating Authority rejected the Section 9 petition. It was observed that the petition was filed for execution of terms of settlement agreement. The amount arising out of a settlement agreement is not an operational debt under Section 5(21) of IBC. The Adjudicating Authority further observed, “The balance amount of Rs. 32,00,000/- remained unpaid against Rs. 48,00,000/- towards interest as per settlement agreement. However, now the Operational Creditor is before us to claim a sum of Rs. 1,28,00,000/- (Rs. 1,44,82,040-Rs. 16,00,000/-) towards the interest. We sincerely feel that the Operational Creditor has been using the IBC proceeding for recovery of disputed amount and which is not object of the Insolvency and Bankruptcy Code, 2016. On this ground alone, this application is not maintainable. Moreover, there appears to be a dispute about the terms of settlement agreement as far as calculation of interest amount is concerned. It cannot be resolved before this Adjudicating Authority.” The Operational Creditor filed an appeal before NCLAT challenging the order dated 03.11.2022. NCLAT Verdict The Bench placed reliance on the Supreme Court judgment in Swiss Ribbon Pvt. Ltd. v Union of India, (2019) 4 SCC 17, wherein it was held that IBC is not a recovery proceeding. The Bench opined that the Section 9 petition was only for recovery of balance amount of interest and not for resolution of the Corporate Debtor’s insolvency. The Bench upheld the decision of the Adjudicating Authority of dismissing the petition and accordingly, dismissed the appeal. Case Title: Permali Wallace Pvt. Ltd. v Narbada Forest Industries Pvt. Ltd. Case No.: Company Appeal (AT) (Insolvency) No. 36 of 2023 Counsel For Appellants: Mr. Ashutosh Ranjan, Ms. Savita Valecha, Advocates. Counsel For Respondent: Mr. Karan Valecha, Advocate. Click Here To Read/Download the Order

‘Filed Only For Recovery Of Balance Interest Amount’: NCLAT Delhi Upholds Dismissal Of Section 9 Petition

Pallavi Mishra

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