Moratorium u/s 14 of IBC does not impose any restriction on charging of any interest/Penal Interest during the CIRP period

Cause Title : Mr. Arun Kumar vs Ms. Sripriya Kumar, National Company Law Appellate Tribunal, Company Appeal (At) (Ch) (Ins.) No. 431/2022

Date of Judgment/Order : 08/08/2023

Corum : Abhay S. Oka; J., Rajesh Bindal; J.

Citied: 

1. Central Bank of India Vs. Ravindra and Ors.’ reported in [(2002) 1 SCC 367] 
2. S.P. Chengalvaraya Naidu (Debt) by LRs Vs. Jagganath (Debt) by LRs & Ors.
3. Irrigation Department, State of Orissa Vs. G.Roy’ reported in [(1992) 1 SCC 508]
4. Kottayam District Co-Operative Bank Vs. Annie John, [(2002) SCC Online KER 184]
5. Small Scale Industrial Manufactures Association Vs. Union of India & Ors., [(2021 8 SCC 511]
6. Binani Industries Vs. Bank of Baroda and Anr., Company Appeal (AT) (Ins) No. 32/2018
7. Central Bank of India Vs. Ravindra and Ors.’, [(2002) 1 SCC 367]

Background

This appeal was filed against the order of the NCLT rejecting the objection of the appellant against the Adjudicating Authority (AA) approving the Resolution Plan in relation to project ‘Arun Auroville’. Among the objections raised by the appellant/promoter of the Corporate Debtor was that that the amount claimed was Rs. 36,27,00,000/- whereas the amount provided for under the Plan was Rs. 46,00,00,000/-, which is inclusive of ‘interest’, which ought not to have been charged after the quantum of the Claim amount HAD already crystalized.

Judgment

As per the Settlement Agreement entered into between the Corporate Debtor, Promotors and Kotak Bank, the sanctioned amount was Rs. 20,00,00,000/- and the Promoters were required to pay Rs. 23.50,00,000/- which is inclusive of Principal, Interest and Penal Interest. The payment was to start on 31/12/2018 and in case of delay in payment and additional penal interest of 3 % p.m., compounded monthly interest would be charged by Kotak Bank on such delayed period. As per Clause 38 of the agreement, if the installments were not paid for three consecutive months, the Bank can proceed against the Corporate Debtor and its Promotors.

It is the case of the Appellant that in the present case, interest and penal interest and their rates have been set out in the Settlement Agreement and the same has been acted upon and claimed interest and penal interest till the Claim was admitted by the IRP.

The Appellant vehemently contended that after the RP admits the Claim, no further interest can be claimed. In the instant case, penal interest alone accrued to Rs. 13,65,00,000/- from 31/01/2020 to 30/04/2021 and the contractual rate of interest was Rs. 3,26,63,897/-. It is further submitted that Kotak Bank had recovered Rs. 9,30,00,000/- by initiating SARFAESI proceedings and invoking personal guarantee given by the Promotors.

The claim of Kotak Bank was settled for Rs. 43,00,00,000/- and is in excess of the admitted claim. It is submitted that the recovery made from the guarantees and from the assets of the Corporate Debtor together shall not be more than the claim admitted against the Principal Borrower. It is also the case of the Appellant that as per the BLRC Report, moratorium period is to be considered as ‘calm period’ without enhancing any claim, save and except to the extent envisaged under the Code.

The NCLAT held that a simple and purposive reading of this Section 14 does not specify any ‘interest waiver’ during the period of moratorium. The Tribunal was of the view that the contention of the Learned Counsel for the Appellant that no interest could be charged subsequent to the admission of the Claim by the RP is untenable, specifically keeping in view the Agreement, the Provisions of Section 14 of the Code. As regarding the argument of the Appellant that the RP ought not to have added the interest of the claim amount after admission of the Claim, the NCLAT held that the role of the RP under IBC, 2016 is only to collate the claims and that he does not have any adjudicatory powers. The Claim of the Creditors does not stop on initiation of CIRP. Only the actions of enforcement are suspended during the period of moratorium. The Claim is determined as of the CIRP commencement date so that the RP can state the value of the amount due to the Creditors in the Information Memorandum and invite Expression of Interest from Prospective Resolution Applicants.

The right which vested with the Kotak Bank / The Financial Creditor by virtue of the Loan Agreement / Settlement Agreement cannot be interfered by the Code. It is mainly for this reason that the non obstante clause, in the widest terms possible is contained in Section 238 of the Code, so that any vested right of either the Corporate Debtor or the Creditor, under any other law for the time being in force, cannot come in the way of the Code. The whole scheme and objective of the Code is to bring the defaulter Companies back on their feet, but at the same time cannot fiddle with the terms of the Contract as far as interest / penal interest or any other terms of the Agreement or Contract is concerned. To reiterate, it is not in the domain of the IBC, 2016, even to decide any contractual interest liability. Section 14 does not impose any restriction on charging of any interest till the amount is paid. It is the commercial wisdom of the CoC with respect to the quantum of amounts to be paid to the Creditors within the Provisions of the Code.