Tribunal Upholds Commercial Obligations Despite COVID-19 Pandemic Impact
In a significant ruling, the National Company Law Tribunal (NCLT) Mumbai Bench has rejected the plea of Rudra Construction Co. seeking a waiver of interest on delayed payment for the purchase of assets from the liquidated S. Kumars Nationwide Limited. The judgment was delivered by Sh. Hariharan Neelakanta Iyer and Ms. Lakshmi Gurung, addressing the impact of COVID-19 on commercial obligations.
The case stemmed from the liquidation process of S. Kumars Nationwide Limited, where Rudra Construction Co. emerged as the successful bidder in an e-auction conducted by the liquidator, Om Prakash Agarwal. As per the Letter of Intent (LoI) dated March 4, 2021, Rudra Construction Co. was required to pay the balance sale consideration within 30 days, failing which, an interest rate of 12% per annum would be applicable.
Rudra Construction Co. argued that the delay in payment was due to the COVID-19 pandemic and the subsequent lockdown, which severely impacted their business operations. Despite extensions granted by the liquidator, the company could only complete the payment by September 15, 2021, far beyond the initial 90-day deadline.
The Tribunal, while acknowledging the challenges posed by the pandemic, maintained that the obligation to pay interest on delayed payments was a commercial contract and not a timeline-bound statutory task. The Tribunal cited Regulation 33 and Schedule I of the Insolvency and Bankruptcy Code, 2016, which mandates interest on delayed payments and emphasized the mandatory nature of these provisions.
The Tribunal also referenced the Supreme Court's judgment in Mr. V.S. Palanivel v. P. Shriram Cs Liquidator, highlighting the strict adherence required for timelines in liquidation processes. Although the Tribunal recognized the extension of timelines due to the pandemic, it concluded that such extensions do not translate into a waiver of interest, which remains a commercial obligation.
The decision reinforces the principle that commercial contracts must be honored even amidst unforeseen circumstances like the pandemic, emphasizing the distinction between regulatory timelines and contractual obligations.
Bottom line:-
Liquidation process - Interest on delayed payment of sale consideration under Letter of Intent (LoI) cannot be waived, even if the delay is attributed to the impact of the Covid-19 pandemic, as interest payment is a commercial obligation and not a timeline-bound statutory task.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Regulation 33, Schedule I of Liquidation Regulations, Regulation 47A, National Company Law Tribunal Rules, 2016 Rule 11.
Rudra Construction Co. v. Om Prakash Agarwal, (NCLT)(Mumbai Bench) : Law Finder Doc id # 2936490
