NCLAT (29.11.2018) in Bell Finvest (India) Limited Vs Intercon Container & Survey & Commodities Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 10 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;
# 20. Learned counsel for the Appellant- ‘Bell Finvest India Limited’- (‘Financial Creditor’) submitted that the ‘Intercon Container & Survey & Commodities Pvt. Ltd.’- (‘Corporate Debtor’) defaulted in making repayment of dues amounting to Rs. 58,55,500/- as on 20th June, 2017, which was the reason for filing application for ‘Corporate Insolvency Resolution Process’ against the ‘Corporate Debtor’.
# 21. According to the Appellant, the ‘Corporate Debtor’ approached the Appellant- ‘Financial Creditor’ for allowing loan of Rs. 30,00,000/- by its application dated 17th March, 2016. The loan was sanctioned by the Appellant by their letter dated 19th March, 2016 with the condition that the rate of interest payable would be @24% per annum flat rate payable in advance for the entire tenure. After negotiation rate of interest was discounted to 24% as against the applicable rate of 36% per annum. It is being further conditioned that interest amount of Rs. 4,80,000/- is payable in advance, EMI amount would be Rs. 3,75,000/- per month. The ‘Corporate Debtor’ has to give ‘corporate guarantee’ and the Directors have to give ‘personal guarantee’. This loan amount was to be paid within 8 months from the first day of disbursement. It was also agreed upon that in case, the ‘Corporate Debtor’ defaulted in making payment, an additional interest @ 1% per day over and above the interest rate for defaulted/delayed period on the installment amounts will be charged.
# 22. It was submitted that pursuant to the agreement entered by the ‘Corporate Debtor’, and in view of Promissory Notes, Deeds of Guarantees and Warrantees, the Appellant disbursed Rs. 10 Lakhs on 31st March, 2016 and Rs. 15,20,000/- on 31st March, 2016 after remitting Rs. 4,80,000/- towards the advance interest in the loan account of the ‘Corporate Debtor’.
# 23. It was alleged that since then not even a single payment was made by the ‘Corporate Debtor’, the Appellant was compelled to issue notice to the ‘Corporate Debtor’ on 11th September, 2016 under Sections 433 and 434 of the Companies Act, 1956, stating that since the ‘Corporate Debtor’ failed to make any of the installments as agreed by the ‘Corporate Debtor’, it is liable to pay additional interest @1% per day on and over the outstanding interest. It is only thereafter petition under Section 7 was filed.
# 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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