NCLAT Delhi Imposes Rs. 1 Lakh Cost Using 'Approbate And Reprobate' Doctrine, Opens Contempt Proceedings

NCLAT Delhi Imposes Rs. 1 Lakh Cost Using 'Approbate And Reprobate' Doctrine, Opens Contempt Proceedings

The National Company Law Appellate Tribunal ('NCLAT') Delhi, bench comprising Justice Rakesh Kumar Jain (Judicial Member), Mr. Naresh Salecha (Technical Member), and Mr. Indevar Pandey (Technical Member), invokes the doctrine of 'Approbate and Reprobate,' imposing a cost of Rs. 1 lakh, along with permitting appropriate proceedings under the provisions of the Contempt of Court Act.

Premjayanti Enterprises Pvt. Ltd. (Appellant) commenced a Corporate Insolvency Resolution Process (“CIRP”) under Section 9 of the IBC against Shivam Water Treaters Pvt. Ltd. (Corporate Debtor) for investments totaling Rs. 58.30 lakh plus interest of Rs. 20.87 lakh. The CIRP application was submitted on a printed form accompanied by an affidavit from Mr. Devendra Tripathi, the Assistant Manager of the Appellant.

The Counsel representing the Resolution Professional (“RP”) appeared before the NCLT while the case was pending and notified the court that the corporate debtor was undergoing the CIRP process pursuant to the Order dated October 15, 2018 under Section 7 of the IBC by the NCLT, Mumbai Bench, whereby the Interim RP (“IRP”) was appointed. Consequently, the appellant withdrew their CIRP application under Section 9 of the IBC via Order dated January 1, 2019.

However, on July 12, 2020, following the withdrawal of the petition, the appellant filed a CIRP petition under Section 7 of the IBC as a financial creditor. The claim pertained to their investment, previously characterized as a loan, totaling Rs. 1 crore (with a principal amount of Rs. 58.30 lakh and interest of Rs. 42.16 lakh), which was purportedly advanced at the time the application under Section 9 was filed.

During the proceedings of the CIRP petition, the corporate debtor repaid the principal amount of Rs. 58.30 lakh. Subsequently, the NCLT Ahmedabad rejected the CIRP petition, asserting that it was not maintainable solely based on the interest component as it did not qualify as a financial debt. The appellant has contested this decision before the NCLAT.

The NCLAT Delhi dismissed the appeal and invoked the doctrine of 'approbate and reprobate,' imposing a cost of Rs. 1 lakh and permitting appropriate proceedings under the provisions of the Contempt of Court Act.

The Appellate Tribunal noted that proceedings under the IBC are known for their summary nature, relying on pleadings and documentary evidence. The applications are submitted on standard forms provided in the Rules, accompanied by affidavits from the concerned parties to substantiate the claims.

The Appellate Tribunal observed that initially, the appellant approached the NCLT Ahmedabad with an application under Section 9 of the IBC, asserting itself as an operational creditor and labeling the disputed amount as an investment. These assertions were not only presented in the demand notice but also in the main application, backed by an affidavit. However, the Section 9 application was subsequently withdrawn, not due to any perceived inaccuracies in the pleadings but because another financial creditor had filed a Section 7 application against the corporate debtor, which was admitted by a different adjudicating authority.

After withdrawing its Section 9 application, the appellant, without expressing any intention to file a Section 7 application, made a drastic change by filing a Section 7 application in 2020. It completely altered its pleadings, transitioning from being an operational creditor to asserting itself as a financial creditor.

Furthermore, the NCLAT highlighted that no notice was presented before the NCLT Ahmedabad regarding the appellant's genuine error in filing the Section 9 application, a matter that has been asserted in the rejoinder filed for the current appeal. In the rejoinder, the operational debt has been reclassified as financial debt.

Furthermore, the corporate debtor has currently settled the principal amount of Rs. 58.30 lakh. The CIRP petition seeking resolution of the interest amount is deemed an abuse of the legal process. This is because the appellant cannot conveniently alter the stance taken in the application filed under Section 9 of the Code and subject the corporate debtor to unnecessary litigation before the adjudicating authority and the appellate tribunal.

In conclusion, the NCLAT has imposed a cost of Rs. 1 lakh, payable within 30 days from the passing of the order, on the appellant for engaging in frivolous litigation, which is deemed depreciable, deplorable, and unacceptable. Additionally, it directed that the corporate debtor may initiate appropriate proceedings against the appellant under the provisions of the Contempt of Court Act.