GROWING CONCERNS OF CORPORATE DEBTORS AGAINST EXCESS CLAIMS MADE BY FINANCIAL CREDITORS

A section 9 petition in NCLT to trigger CIRP against corporate debtor does not attract as much traction as the one between SA Consultants and Forwarders Private Limited and Cargo Planners Limited did. For one, the order which was passed cleared the air on the distinction between dispute and admission of debt, solidifying the law. There however was a master caution warning which was given by NCLT, which is often overlooked, yet essential to any CIRP.

The case of freight forwarding services

In the case of SA Consultants and Forwarders Pvt. Ltd. vs Cargo Planners Ltd., the petitioner who was an operational creditor sought to initiate CIRP for default on payment of 1.21 corers. The operational creditor offered freight forwarding services to the corporate debtor over a period of a month. Having adduced all necessary proofs of debt, the creditor proposed Mr. Ashok Kumar Juneja as interim insolvency professional. The respondents – Cargo Planners, the corporate debtors in this case, post correcting of a few defects in the petition, submitted that there exists a dispute under Sections 138 and 139 read with Sections 141 and 142 of Negotiable Instruments Act, 1881before Patiala House Court, New Delhi. Section 138 of the NI Act deals with dishonored cheques and the consequences thereof.

Dispute under Negotiable Instruments Act – Admission of Debt

Relying on the case of Sudhi Sachdev vs APPL industries (NCLAT), it was held that an ongoing proceeding under section 138/141 of NI Act, does not amount to dispute but rather an admission of debt. In the above case, the tribunal has interpreted Section 8 of IBC and concluded that since the existence of a preexisting dispute has to be disclosed to the creditor by corporate debtor within 10 days of receipt of demand notice. The reason why nonexistence of a dispute is an important proof is because, unless it is proved that there does not exit a dispute, operational creditor does not fall within the realm of IBC.

Excess claims and allied concerns

Having established the existence of debt, the tribunal proceeded with other formalities in a Section 9 petition. The tribunal in its concluding remarks noted that it often receives complaints of higher claims against financial creditors, banks and NBFC. The interest rates charged on the amount owed are compounded monthly, leading to an exorbitant claim amount causing hardship to corporate debtors. This issue raises two concerns – one is the fact that unlike, other processes, the claims under CIRP are not rectifiable. Rather, there is no mechanism in place for rectification of claims made. This only imposes more responsibility on the part of the creditors to ensure that the claims are legitimate and only an appropriate amount is claimed. Furthermore, knowing that there does not exist a review mechanism may often lead to abuse of process. This leads us to the second concern – the role of resolution professionals in cases of excessive claims or other concerns expressed by the corporate debtor. The professionals, have at their disposal, experts and management during the process. It is therefore the duty of the resolution professionals in ensuring a fair process and avoid injustice to corporate debtor.

Conclusion

The tribunal by its observations in the order, tacitly cautioned resolution professionals to look out for such excessive claims and maintain fairness of process. Not only is it the duty of the resolution professional to ensure that there does not exist excessive claims, but also that they have a general duty toward ensuring fair process. In order for the ends of justice to meet, it is only fitting that the practices in the code are followed in a bona fide and proper manner. This way, the interests of both creditors and corporate debtor are taken care of.

By

Yasaschandra Devarakonda

Student Reporter

Reporters’ Committee INBA