NCLAT (29.11.2018) in Avance Logistics & Trading India Private Limited Vs Bell Finvest (India) Limited [Company Appeal (AT) (Insolvency) No. 07 of 2018] considered the issue of whether the AA can entertain or reject an application under section 7 of the Code on the ground of “usurious and extortionate penal interest”. It held: that the provisions of Sections 3 & 4 of the ‘Usurious Loans Act, 1918’ are not applicable to any of the proceedings under Section 7 or 9 of the ‘I&B Code’.
Excerpts of the order;
# 14. Learned counsel appearing on behalf of the ‘Corporate Debtor’ took similar plea that the proceedings under Section 7 cannot be initiated in respect to ‘usurious’ and ‘extortionate rate of interest’.
# 15. It was also submitted that the contravention of ‘NBFC Fair Practices Code’ prescribed by the Reserve Bank of India under Section 45L of the ‘Reserve Bank of India Act, 1934’ and provisions of Sections 3 and 4 of the ‘Usurious Loans Act, 1918’ stand violated in the present case.
# 16. According to learned counsel, the ‘Usurious Loans Act, 1918’ was enacted in the year 1918 whose object was to confer powers to all courts in India and equitable jurisdiction in cases relating to ‘usurious loans’ of money or in kind. It was submitted that the documents were deceitfully obtained by the ‘Financial Creditor’ under the garb of ‘standard documents’.
# 17. Reliance has also been placed on Section 2 of the ‘Usurious Loans Act, 1918’ which defines “interest” means rate of interest and includes the return to be made over and above what was actually lent, whether the same is charged or sought to be recovered specifically by way of interest or otherwise.
# 18. It was submitted that the charging of interest @ 1% per day for default levied by the ‘Financial Creditor’, even after recovery of interest for the entire tenure of loan at source was not only excessive but substantially unfair, which warrants re-opening of the transactions between the Appellant and the ‘Financial Creditor’.
# 19. In the present case, similar plea has been taken by the learned counsel appearing on behalf of ‘Bell Finvest (India) Limited’ and it was intimated that even the principal amount has not been returned by the ‘Corporate Debtor’ and they defaulted in making payment.
# 30. From the ‘I&B Code’, it will be evident that the ‘Corporate Insolvency Resolution Process’ is not a litigation and are not decided by Court of Law. Now, the ‘Adjudicating Authority’ deals with the matter of insolvency, which in its first stage is required to take steps for ‘resolution’ of the ‘Corporate Debtor’. Therefore, the Adjudicating Authority being not a Court of law and as the Adjudicating Authority do not decide a money claim or suit, it cannot exercise any of the power vested under Sections 3 or 4 of the ‘Usurious Loans Act, 1918’.
# 31. ‘The Presidency- Towns Insolvency Act, 1909’ having repealed, and there being a bar of jurisdiction under Section 231 of the ‘I&B Code’ as no civil court have jurisdiction in respect of any matter in which the Adjudicating Authority is empowered to decide under the Code, we hold that the provisions of Sections 3 & 4 of the ‘Usurious Loans Act, 1918’ are not applicable to any of the proceeding under Section 7 or 9 of the ‘I&B Code’.
# 32. Further, as initiation of ‘Corporate Insolvency Resolution Process’ under Sections 7 or 9 do not amount to recovery proceedings, the question of deciding the claim, which may include the interest by the Adjudicating Authority does not arise for the purpose of triggering the ‘Corporate Insolvency Resolution Process’.
# 33. In “Innoventive Industries Limited Vs. ICICI Bank and Another− (2018) 1 SCC 407”, the Hon’ble Supreme Court observed and held as follows:
“28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor- it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in part III, particulars of the financial debt in part IV and documents, records and evidence of default in part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the “debt”, which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occurred, the application must be admitted unless it is incomplete, in which case it may give notice to the applicant to rectify the defect within 7 days of receipt of a notice from the adjudicating authority. Under sub-section (7), the adjudicating authority shall then communicate the order passed to the financial creditor and corporate debtor within 7 days of admission or rejection of such application, as the case may be.”
# 34. In the aforesaid background, if the application is complete and the Adjudicating Authority is satisfied that there is a debt due to the ‘Financial Creditor’ and there is a default on the part of the ‘Corporate Debtor’, it has no other option but to admit the application in absence of any other infirmity.
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