Swift Sales vs Sudhir Power Projects Limited

Pradeep R. Sethi, Member (T)

The instant application is filed under Section 9 of the Insolvency & Bankruptcy Code, 2016 (hereinafter referred to as the Code) read with Rule 6

of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 for initiation of corporate insolvency resolution process (CIRP) in

the case of Sudhir Power Projects Limited (hereafter referred to as Company). The Application is filed by Swift Sales (hereinafter referred to as

Operational Creditor) through its proprietor Sh. Shaleen Jain. He has signed the Application as well as the affidavit accompanying the Application.

The master data of the company is at Annexure A-16 of the Application. The CIN is U70102DL2007PLC160912 and the date of incorporation is

21.03.2007. The registered address is given as 507, International Trade Tower, Nehru Place, New Delhi 110019. Therefore the jurisdiction lies with

this Bench of the Tribunal.

In part IV of the application, it is stated that pursuant to purchase order No. PERTO/95 dated 14.03.2016 issued by the Company, the Operational

Creditor supplied material comprising Isolation Transformers, Batteries etc. vide Bills No. 385 & 386 dated 12.05.2016 and 13.05.2016 for Rs.

22,44,000/- and Rs. 12,32,670/- respectively. It is further stated that pursuant to the work order No. PERTO/19 dated 26.04.2016, the company placed

another order in sum of Rs. 40,000 which was invoiced vide Bill JB-97. It is submitted as per PO & WO issued by the Company in favour of the

Operational Creditor, the material and the works were to be supplied/ executed by the Operational Creditor directly in favour of Perto India Private

Limited at their project in Jaipur. It is stated that the Operational Creditor made various demands of the outstanding amounts from the company vide

emails from 20.07.2016 to 06.02.2017 and later, a sum of Rs. 17,95,200 was paid on 03.08.2016. It is stated that a sum of Rs. 3,40,850/- (Reserved

Towards Performance Guarantee) fell due on 16.05.2017 on completion of 12 months but the said period was extended by the company till December

2017 as per hand written agreement executed between the parties on 1.04.2017. It is submitted that another sum of Rs. 9,93,013 was paid on

10.04.2017 but till the issue of notice under Section 8 of the Code, the company neither paid the principal sum of Rs. 3,40,850/- nor interest.

Demand notice dated 06.10.2018 is stated to be issued and the company sent reply expressing its willingness to pay Rs. 3,40,850/- and called it a

neglect of applicant in not collecting the amount. It is submitted that the Operational Creditor reiterated his claim for the entire amount of Rs.

7,40,543/- and stated that in case the whole amount is not paid, he shall trigger his rights under Section 9 of the Code. It is stated that part payment of

Rs. 3,40,850/- was made on 15.10.2018 by electronic transfer and since the company accepted its liability (including that of interest) as stated in

Demand Notice and did not indicate the debt towards which the said payment were to be appropriated, the Operational Creditor adjusted the sum of

Rs. 3,40,850/- towards interest and thereby the amount in default as shown in part IV of the application is Rs. 3,99,693/- and interest at 24% p.a. of

Rs. 4,16,512/-.

It is noted in the order dated 19.12.2018 that the learned counsel for the company undertakes to file the reply within two weeks. The reply was filed

on 29.01.2019. It is stated that the present Application is not maintainable in view of existence of dispute towards any liability of interest. It is stated on

account of inferior quality of goods supplied by the Operational Creditor, which were constantly mal-functioning, it was mutually agreed to extend the

defect liability period tentatively till December 2017 as was also recorded in the meeting dated 1.4.2017. It is submitted that neither the work orders

placed upon the Operational Creditor nor the invoices raised by the Operational Creditor against such work orders, is there a clause of any interest

being chargeable/levied in the event of delayed payment and thus in the absence of any such clause whether or not the Operational Creditor is entitled

to any interest is a dispute is in itself coupled with the fact that it would require parties to lead detailed evidence for the court to examine which party

was at fault. It is stated that although the accounts between the company and its clients Perto India Private Limited were settled in July 2018, the

company had never refused payments of Rs. 3,40,850/- to the Operational Creditor but the payment could not be remitted since the Operational

Creditor failed to furnish the performance bank guarantee of Rs. 3,40,850/- in spite of agreeing to do so. It is stated that after receiving the demand

notice, the company called upon the Operational Creditor to collects its legitimate Rs..3,40,850/- and withdraw the Demand Notice thus making it very

clear that no other amount, in terms of the Demand Notice, was due and payable and thus the company has disputed the liability towards interest from

the first day.

The rejoinder was filed on 05.03.2019. It is submitted that the part payment made by the company in response to the Demand Notice under Section

8 of the Code was appropriated by the Operational Creditor towards interest payment while the company never disputed the liability to pay the

interest. It is submitted that the payments were to be made within fixed timeline and the delay and default in making the payment would certainly

attract interest, else the timelines would be meaningless. It is stated that the company has clearly stated that in its reply to the Demand Notice, without

raising any question to the quality of goods that they have always been ready and willing to pay the legitimate dues to the Operational Creditor, but it

was the Operational Creditor who neglected and failed to collect and even for the sake of arguments, though not admitted if PBG was the reason,

then also the same itself lasted till December 2017 and there was no occasion for the company to withhold the amounts beyond the said period.

During the course of the hearing, the learned counsel for the Operational Creditor relied upon the Indian Contract Act 1872 and stated that part

payment of Rs. 3,40,850/- was appropriated towards interest and therefore the amount in default was Rs. 3,99,693/- with interest at 24% per annum

from 01.10.2018 onwards. The learned counsel for the company pleaded that there was no contract for the payment of interest. It was also argued

that as per the agreement dated 01.04.2017 the payment of Rs. 3,40,850/-was to be made upon submission of PBG and that PBG was not furnished

and even then the payment was made. The learned counsel for the company relied on order dated 27.07.2018 of Hon’ble National Company Law

Appellate Tribunal in Company Appeal (AT) (Insolvency no) 144 of 2017 Krishna Enterprises Versus Gammon India Limited and others and has

argued that if in terms of any agreement, interest is payable to the Operational Creditor, then debt will include interest otherwise not.

We have carefully considered the submissions of the learned counsel for the Operational Creditor and the Company and have also perused the

records. We find that the Demand Notice under Section 8 of the Code [Annexure A-9 of the Application] gives the details of the total amount of debt

as Rs. 7,40,543/- including principal amount of Rs. 3,40,850/- and interest amount of 3,99,693/- till 02.10.2018. The reply dated 11.10.2018 of the

Company is at Annexure A-10 of the Application in which it was noted that on numerous occasions the Operational Creditor was asked to come and

collect the legitimate dues of Rs. 3,40,850/- but had neglected and failed to collect the same. Therefore, the acceptance in the reply to the Demand

Notice is only to the extent of the principal amount of Rs. 3,40,850/- and the claim of interest is disputed. The amount of Rs. 3,40,850/- was

subsequently received by the Operational Creditor before the filing of the Application. The computation of the amount in default as on the date of filing

of this Application is given at Annexure A-17 of the Application and shows that out of the total outstanding as 02.2.2018 at the time of Demand

Notice under Section 8 of the Code, of Rs. 7,40,543/-, payment of Rs. 3,40,850/- was received by the Operational Creditor and the remaining amount

outstanding was Rs. 3,99,693/-. To this amount interest at 24% from 02.02.2018 till 05.12.2018 of Rs. 16,819/- was added and thus the total amount of

Rs. 4,16,512/- was shown in part IV of the application.

The Operational Creditor has not been able to show an correspondence to substantiate his contention that interest at 24% per annum was payable.

The Company has pointed out that neither the work orders nor the invoices contained any clause of interest becoming chargeable/levied in the event

of delayed payment. The Operational Creditor has placed on record emails exchanged with the company. However, during the course of the

arguments, the learned counsel for the Operational Creditor has not referred to any email in which interest on delayed payment was accepted by the

company. The claim is that the interest payment was accepted in the reply to the Demand Notice. However, we have discussed that the reading of

the reply does not reveal any such acceptance. The contention of the learned counsel for the Operational Creditor is that the payment were to be

made within a fixed timeline and delay and default in making the payment would certainly attract interest. The issue whether the interest would arise

in such cases would be a matter of dispute between the two parties, especially regarding the responsibility for the default and the work order/invoices

not providing for any such interest. We may add that an agreement was made between the two parties on 01.04.2017 (Annexure A-7 of the

Application). This agreement provided for payment of Rs. 3,40,850/- being made subsequently upon submission of PBG. However, the agreement

does not provide for any payment of interest of whatsoever. In these circumstances, the payment of interest would be a matter of dispute between the

parties.

The learned counsel for the Operational Creditor has argued that the payment of Rs. 3,40,850/- was adjusted against interest and thereby, principal

amount of Rs. 3,99,693/- still remained due on the date of filing of the Application. We find that the relevant provisions for “appropriation of

paymentsâ€​ are contained in Section 59 to 61 of the Indian Contract Act, 1872. Section 59 provides that where a debtor owing several distinct debts to

one person, makes a payment to him, either with express intimation, or under circumstances implying, that the payment is to be applied to the

discharge of some particular debt, the payment if accepted, must be applied accordingly. We have referred to the agreement dated 01.04.2017

between the parties by which the amount of Rs. 3,40,850/- being principal amount was agreed to be made upon submission of PBG. Subsequently, in

the reply to the Demand Notice, the company has again stated that Operational Creditor may come and collect the legitimate dues amounting to Rs

3,40,850/-. It is accepted that the payment of the amount of Rs. 3,40,850/-was made by the company to the Operational Creditor before the filing of

the Application under Section 9 of the Code. In the circumstances, it is concluded that the payment of Rs. 3,40,850/- was made by the company with

express intimation or implication that the amount is towards the principal amount due and not the interest. In fact, we have discussed above that the

charge of the interest is not shown to have been accepted by the company at any point of time. Consequently, the payment of Rs. 3,40,850/-is to be

taken as applied towards the principal amount due. Therefore, as on the date of filing of this Application, the principal amount due is NIL. The claim is

only in respect of interest which is the matter of dispute between the parties.

We therefore hold that in view of the judgement of the Hon’ble Supreme Court in Civil Appeal No. 9405 of 2017 “Mobilox Innovative

Private Limited Vs. Kirusa Software Private Limitedâ€, a dispute truly exist in fact and is not spurious, hypothetical or illusory, and therefore, the

application is to be rejected.

We may add that the learned counsel for the company has relied on the order dated 27.07.2018 of the Hon’ble National Company Law

Appellate Tribunal in Company appeal (AT) (Insolvency) no. 144 of 2018 Krishna Enterprises Versus Gammon India Limited and others. It was held

in Para No. 5 of the order that as it was found that the principal amount has already been paid and as per agreement no interest was payable, the

application under Section 9 on the basis of claims for entitlement of interest were not maintainable and if for delayed payment there is any claim for

interest, it will be open to move before the court of competent jurisdiction but initiation of corporate insolvency resolution process is not the answer.

The ratio of the judgment is fairly applicable in the present case since no agreement for payment of interest to the Operational Creditor is proved in

the present case.

In view of the above discussion, the application is rejected under Section 9(5)(ii) of the Code. No order as to costs. A copy of the order shall be

forwarded to IBBI for its records.