NCLT’s CIRP Plea Admission was Overturned as IBC doesn’t cover Increased Interest Recovery

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  • Last Updated on 10 April, 2023

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CIRP plea

Case Details: Anita Jindal v. Jindal Buildtech (P.) Ltd. - [2023] 148 taxmann.com 398 (NCLAT-New Delhi)

Judiciary and Counsel Details

    • Anant Bijay Singh, Judicial Member & Ms Shreesha Merla, Technical Member
    • Abhijeet Sinha, Adv. for the Appellant.
    • Ms Priya Hingorani, Sr. Adv., Himanshu Yadav & Swati Saluja, Advs. for the Respondent.

Facts of the Case

In the instant case, the respondent No. 2 (i.e. financial creditor) advanced a certain amount to the corporate debtor as a short-term loan, and the corporate debtor issued two post-dated cheques for Rs. 57 lakhs and 30.5 lakhs with the intention of providing security for the amount lent.

However, the said cheques were returned unpaid by the bank with the remark ‘insufficient funds’. Consequently, the respondent No. 2 initiated proceedings at a 6% interest against the corporate debtor under u/s 138 of the Negotiable Instruments Act.

During the ongoing proceedings, the corporate debtor paid an amount of Rs. 67.90 lakhs along with an interest of 6% vide a demand draft as per the directions of the Trial Court.

Subsequently, the respondent No. 2 filed an application u/s 7 for initiation of the CIRP against the corporate debtor, claiming an amount of Rs. 87.50 including 18% of interest. The Adjudicating Authority (NCLT) by the impugned order, admitted the said application and initiated the CIRP against the corporate debtor.

Thereafter, an appeal was made to the National Company Law Appellate Tribunal (NCLAT) against the order passed by the NCLT.

NCLAT Held

The NCLAT observed that the NCLT is not a debt collection forum and IBC cannot be purely used to initiate the CIRP to penalize solvent company for non-payment of dues.

The NCLAT, further observed that having accepted 6% interest, the second respondent was now claiming an interest at 18% p.a., recovery proceedings of this nature did not fall within the scope and ambit of words ‘for any purpose other than resolution’ as defined under section 65.

Therefore, the instant appeal was to be allowed and the impugned order of the NCLT was to be set aside.

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