The Learned Counsel-Newsletter

What is the difference between overcharge and illegal charge?

Case Details: [2024 INSC 243]

The issue arose when the respondent company was attempting to get the refund of the excessive amount charged by the Railways, via Section 106 of the Railway Claims Tribunal Act, 1987.

In Para 64 of the judgment, the two judge bench clarified that

An“overcharge” would be any sum which has been paid in excess or over and above or more than what was payable by law / required by law. It pertains to only the actual quantum of liability. Furthermore, merely, because an incorrect or rather higher slab-rate has been applied, will not make it an illegal charge, as long as the charge was not itself open to objection i.e., not incorrect...

In para 70 -

An excess sum to be an “overcharge” the sum paid must par take the same character as the basic charge, or must belong to the same genus of charge which was payable or required to be paid by law. Whereas, for an illegal charge,the sum must not have been payable by law.

Another very fine but pertinent distinction between an ‘overcharge’ and an‘illegal charge’ is that, an ‘overcharge’ is generally inter-se the specific parties involved and in its peculiar facts. Whereas an ‘illegal charge’ is illegal for everyone irrespective of the parties or facts.

Is the amount payable to the Financial creditor, as part of the resolution plan, be prioritized only by way of cash payment?

Case Details: NCLAT New Delhi, Company Appeal (AT) (Insolvency) No.408 of 2024

Under the approved Resolution Plan, total claim of the Operational Creditor was admitted as Rs.16,36,64,956/- and the amount proposed to the Operational Creditor was Rs.35,34,092/-, i.e.,2.16% as a cash payment.

The Plan also proposed partly paid redeemable preference share of CD at the option of Operational Creditor.

The Operational Creditors were challenging this plan for violation of Section 30 (2)(b)(ii), and for its departure from the judgement of the Supreme Court in Jaypee Kenisington Boulevard Apartments Welfare Association & Ors. v NBCC & Ors.

It was admitted that liquidation value of the Financial Creditor is INR 5.74 lakhs and the total Plan amount offered by Successful Resolution Applicant is INR 9.05 crores.The Plan value being higher, the payment to the Operational Creditor has to be made as per Section 30(2)(b)(ii).

In this case there was only one Financial Creditor and the Resolution Plan proposed payment of secured Financial Creditor to 100% of its dues, i.e.,INR 19,65,908/-.

With respect to Govt. departments only only notional amount of Rs.1/- for each statutory department were admitted.However, an amount of Rs.15 lakhs were earmarked to the Government Department and the dues of Operational Creditor, which have been admitted is of Rs.16,36,64,956/-,whereas in the payment, it has been offered as Rs.35,34,092/-.

The NCLAT held that the balance amount of the Resolution Plan was to be distributed on pro-rata basis to the Operational Creditors, whereas cash amount offered to the Operational Creditor is only 2.16% and the rest amount, which is payable to the Operational Creditor as per Section 30, sub-section (2) (b) is sought to be subsumed by offering option of partly paid redeemable preferences hares as noted above.

The Hon’ble Supreme Court in Jaypee Kenisington has already held that the amount to be paid to the Financial Creditor has to be paid in priority only by way of cash payment and not byway of issuing equity. Hence, the payment offered to the Operational Creditor is not in accordance with Section 30, sub-section (2), (b) (ii) and is also contrary to the law laid down by the Hon’ble Supreme Court in Jaypee Kenisington.

The NCLAT then modified the resolution plan to the extent to the amount related to the operational creditors.