Company: The calculation of interest at 24% was not agreed as the agreed rate was

only 12% and hence the due is not INR 12,000 crores but much lower than that,
especially, when the company had made some repayments as per the scheme and
before that. It further submitted that though the aspect of ‘dispute’ is relevant only
for an application filed by operational creditors, the logic of the law is that if there
is a genuine dispute regarding the very amount itself to be paid then such
application cannot be entertained

Actually in this case the objective would be to interpret Section 7 in such a manner
that an operational debtor is entitled to an opportunity to be heard or contest the
claim..Along with this the issue of dispute as regards to total amount be taken into
consideration..Prime facie we just need to prove the existence of dispute in similar
terms as to Section 8..Then using Section 8 and 9 along with interpretation of
Section 7 (4)

(4) The Adjudicating Authority shall, within fourteen days of the receipt of the
application under sub-section (2), ascertain the existence of a default from the
records of an information utility or on the basis of other evidence furnished by the
financial creditor under sub-section (3).

(5) Where the Adjudicating Authority is satisfied that—

(a) a default has occurred and the application under sub-section (2) is complete,
and there is no disciplinary proceedings pending against the proposed resolution
professional, it may, by order, admit such application; or

(b) default has not occurred or the application under sub-section (2) is incomplete
or any disciplinary proceeding is pending against the proposed resolution
professional, it may, by order, reject such application:

Provided that the Adjudicating Authority shall, before rejecting the application
under clause (b) of sub-section (5), give a notice to the applicant to rectify the
defect in his application within seven days of receipt of such notice from the
Adjudicating Authority.
Now the objectve would be to interpret Section 7(4) in such a manner wherein we
will contend that theadjudicating authoriyu is bound to use of principles of
Naturaljustice (Sec 424 of Compnay Act ) ..Since it is the adjudicating authority
who has discretion to entertain the application under Section 7 and NCLT is bound
by Natural Jsutice so we have to interpret the ooportunity to be given from Section
7 (5) . Alos we will take into consideration the rule of interpretation of statues “ex
visceribus actus”

Charging of penal interest wherehr on principal amount or interest ?

We will proceed this issue in a three fold direction

We will have to take into consideration the very first issue and loan agreement

 As stated in loan agreement the principal amount was not to be paid unless
rhere is a demand by bank and then in the very issue we will hae to prove
that there was no clear demand by the bank with regards to the principal
amount
 Now the thing in our favour here is that bank has calculated 12000 taking
into consideration the principal amount ie 6000 .But penal interest is only
applicable with regards to default payments ..So even if penal intesret was to
be applicable it would apply on the interest amount unpaid and to be
calaculated in that very manner ..Heres the existence of dispute as amount to
be paid is unclear
 First we will prove that there is a dispute with regards to existence of dispute
with regards to agreed terms of loan as the interest agrred upon was
12percent whereas bank is asking for 24 perent .Also herein we will have to
contend that specific payments were paid to bank during manystages which
the bank has failed to consider while calculating amount tobe paid
 Secondly we will contend that the penal interest cannot be applicable as
company was acting as per instructions of Bank ie DRS was ongoing
 Moreover we will say that there is a dispute with regards to calculation of
totalamount tobepaid since as per the bankthe amount claimed which is
 approx. 12000 is calculated taking intoconsider the principal
amount..Howeverasealier contented the loan agreement there was no
demand of any kind by bank to get back principal amount

 We will also contend that the amount calculate by Bank which is nearly
12000 crores is exorbihant since the bank has not taken into consideration
the amounts which

Then we will have to prove that the NCLT has jurisdiction to deal with the
existence of dispute when an application is filed under Section 7read with
Insolb=vency Rues ,rule no 1 ..Furthermore the interpretation has to be in such a
manner that if thee isan existence of dispute under Section 7 then the application
cannot be admitted

The mainqueston being whetehr Existence of dispute is a bar to Section 7 of the

Act

We will contend the definition of dispute under the act and its interepretation

Quite recently, the National Company Law Appellate Tribunal (NCLAT) in Kirusa
Software Private Limited v. Mobilox Innovations Private Limited39 discussed this
important issue of "dispute" and "existence of dispute" under the Code. The
NCLAT discussed the issue at length and remitted the case back to the Tribunal.

It is humbly submitted that there exists a dispute with regards to the amount to paid
and hence the original claim is not justifiable .the es=xisteb=nce of dispute has to
be given a wider meaning. Mobilox judgement

The definition of 'dispute' under Section 5(6) of the Code is inclusive and not
exhaustive. It must be given wide meaning. The 'dispute' is not limited only to a
pending suit or a pending arbitration. (Mobilox)

The issue was whether the existence of a dispute by itself without the record of
initiation of any suit or arbitration proceedings in relation to it is sufficient to make
an application for insolvency resolution at the instance of operational creditor
unsustainable....
The test of plausible connection developed by Supreme Court in Mobilox
Judgement need sto be taken into consideration.The thrust of this test appears to be
on the aspect that the defence must be in the nature of a contention which is
plausible and meriting trial, rather than the likelihood of success, which would be
something akin to the prima facie test applied

 That interest should not be charged on principal amount

It is submitted that the original amount as per bank which is to be paid stands
12000INR..However there exists a dispute with regards to the same as

 Company had made some repayments

It is humbly submitted that the company had paid back its interest in the very intial
quarter .Moreoevr the amount that was also paid bythe company during the Debt
Restructing Scheme .Existence of DRS is a proof that there was no default.The
compan

 That the interest charged is more than the agreed terms

It is humbly submitted that as per the loan agreement the amount of onteerst that
was to be charged was clearly specified in the loan agreement,As per the loan
agreement the amount of interrst that is to be charged stands 12 percent
.Moreoever if we go by the Debt Restructing Scheme it was agreed that theamlunt
of interest be reduced from 12 percent to 10 percent .Furthermore the Debt
Restructing Schmee was extednded by the bank for the third year before
approaching issuing a notice under Section 13 of the SARFAESI Act .
  That the interest is exorbitant

It is humbly submitted that the calculation of amount with interest beingtaken as 24

percentn and is exhorbihant

...As per the RBI guidelines

8. Penal Rate of Interest

Banks are permitted to formulate a transparent policy for charging penal interest
with the approval of their Board of Directors. However, in the case of loans to
borrowers under priority sector, no penal interest should be charged for loans up to
Rs. 25,000. Penal interest can be levied for reasons such as default in repayment,
non-submission of financial statements, etc. However, the policy on penal interest
should be governed by well-accepted principles of transparency, fairness, incentive
to service the debt and due regard to genuine difficulties of customers.

“Where interest claimed by financial creditor as loan given on corporate

debtor was excessive, interest rates were usurious and, therefore, petition filed
by financial creditor under section 7 was to be dismissed”(CASE NAME YET
TO BE WRITTEN)

2 case laws (whrein applicqation was rejected as interest claimed was exhorbiant
and not as per the agreed terms ) (will get it soon)

(Waiting for clarifications. Even one more ground can be added which is that
interest cannot be charged on NPAs..All I am saying is whilecqlaculating the total
amount if bank is taking into consideration the penal interest after a notice was
served under 13(2) then that also is a provision in our favour..NPAs cannot be
charged with penal interests..)

In this regard The view of the NCLT, Ahmedabad Bench, in the matter of State
Bank of India, Colombo Vs. Western Refrigeration Pvt. Ltd is relevant wherein
while deciding on an application under Section 7, the NCLT distinguished between
the role of the adjudicating authority under Section 7 as opposed to Section 9. It
held that, where satisfaction of the adjudicating body with respect to the
occurrence of defa...

In the case of Sree Metaliks Limited v. Union of India, the Calcutta High Court
has said that the Adjudicatory Authority has to adhere to the principle of natural
justice while deciding application under section 7.

The following paragraph clearly shows the objective of the High Court,

“In an application under Section 7 of the Code of 2016, the financial creditor is the
applicant while the corporate debtor is the respondent. A proceeding for
declaration of insolvency of a company has drastic consequences for a company.
Such proceeding may end up in its liquidation. A person cannot be condemned
unheard. Where a statute is silent on the right of hearing and it does not in express
terms, oust the principles of natural justice, the same can and should be read into
in. When the NCLT receives an application under Section 7 of the Code of 2016,
therefore, it must afford a reasonable opportunity of hearing to the corporate debtor
as Section 424 of the Companies Act, 2013 mandates it to ascertain the existence
of default as claimed by the financial creditor in the application”

The above mentioned rationale was reiterated by National Company Law

Appellate Tribunal in the case of ICICI Bank v. Innoventives Industries
Ltdobserving,

“52. The insolvency resolution process under Section 7 or Section 9 of I&B Code,
2016 have serious civil consequences not only on the corporate debtor company
but also on its directors and shareholders in view of the fact that once the
application under Sections 7 or 9 of the I&B Code, 2016 is admitted it is followed
by appointment of an ‘interim resolution professional’ to manage the affairs of the
corporate debtor, instant removal of the board of directors and moratorium for a
period of 180 days.
Although, the Code by itself does not provide any recourse for the corporate debtor
to raise the grievance. It is for the Adjudicatory Authority taking into consideration
the principles of Natural Justice to make ways for the corporate debtor to represent
himself.

In the case of Rural Electrification Corporation Ltd. Vs. Ferro Alloys

Corporation Ltd, the adjudicating authority acknowledged ie NCLT that
principles of natural justice require an opportunity or hearing before admission, as
held in the Innoventive decision, and directed the corporate debtor to file his
arguments before the application is listed for final hearing

Supreme Court's observation in Mithlesh Singh Vs. Union of India (2003) 3 SCC
309 stated that "the Legislature is deemed not to waste its words or to say anything
in vain."’

Therefore, if the legislature intended to limit the ambit of the word 'dispute' it
would have mentioned the requirement of notice of a dispute to only refer to a
record of pendency of the suit or arbitration proceedings and not to 'existence of a
dispute, if any'.

With regards to the present case, the NCLAT set aside the order of the NCLT as it
was made mechanically and was based on a very vague, got up and
motivated dispute made merely with the view of evading the liability.

The same views have been followed by the NCLAT, New Delhi Bench, in the case
of Kaliber Associates Pvt. Ltd. Vs. Mrs. Tripat Kaur, pronounced on May 26,
2017. In this case, the Appellant (corporate debtor) appealed against an order
admitting an application under Section 7 of the Code. The NCLAT, while citing
the Innoventive Industries decision, held that the order passed was in violation of
principles of natural justice

From the scheme of the Code, it is apparent that the petition under Section 7 and 8
of the Code shall not be maintainable if there is a slightest dispute or doubt about
the payability of the amount claimed either by (i)Financial Creditor or by
(ii)Operational Creditor. The above provisions has been held in the case law
Annapurna Infrastructure Pvt. Ltd and Ors. Vs. Soril Infra Resources Ltd.
where the petition is rejected since the amount claimed was in dispute due to a
counter claim.

> Sections 420 and 424 of the Act suggests that while the procedural
requirements would be followed as prescribed under the Code and shall have a
mandatory and over-riding effect as envisaged in Section 238 of the Code, the
Tribunal shall be bound by the principles of Natural Justice

 In the present case although under Section 7 there is no proper mentioning of

contesting the claim or opportunity to be given to the operational debtor but
taking into consideration the interepreation of statue rule and interpreting
Section 7 in consonance with Section 8 and 9 the existence of dispute is a
bar to initiationof proceedings under Section 7

Now in the present case there persists a dispute with regards to the total amount to
be paid and the interest charged is exhorbiant and hence the application under
Section 7 should not been entertained ..Hence relate it to our issue