Interest Accrued During & After S.10A Period Can Be Combined With Principal Amount To Meet ₹1 Crore Threshold U/S 4 IBC: NCLT Kolkata

The National Company Law Tribunal (NCLT), Kolkata Bench, comprising Justice Bidisha Banerjee (Member-Judicial) and Siddharth Mishra (Member-Technical), has held that if the default is committed prior to or during the section 10A period and liability to pay interest is accrued during the section 10A period and continued thereafter, such interest could be counted to meet the threshold of Rs. 1 Cr. The operational creditor supplied kraft paper to the corporate debtor on the basis of purchase orders. The corporate debtor failed to make a payment of Rs. 1.42 Cr. for the goods purchased. It is the case of the operational creditor that it had raised invoices from time to time that were duly accepted and signed by the corporate debtor. The payment was required to be made within 90 days of the issuance of the invoice; however, a total of 87 invoices are still not paid. On December 10, 2020, the last invoice was issued. After issuance of the demand notice, the corporate debtor started making payment in installments, and it made payment of Rs. 44.5 lakhs between July 2021 and January 2024. After that, no payment was made; hence, the operational creditor served another demand notice in May 2024. In reply to the demand notice, the corporate debtor said that an invoice was disputed, and it also questioned the calculation. Thereafter, the operational creditor issued another revised demand notice, but the corporate debtor again questioned the calculations. Hence, the operational creditor filed a section 9 application before the adjudicating authority. Contention of the Parties The corporate debtor argued that the petition is not maintainable, as the alleged default fell within the period protected u/s 10A of the IBC. It highlighted that invoices worth Rs. 82.11 lakhs were of the protected period, hence, the amount should be excluded. And, after the exclusion of this amount, the remaining amount will not meet the threshold limit of Rs. 1 Cr as prescribed u/s 4 of the IBC, 2016. The corporate debtor also argued that it had not agreed upon an interest rate of 18% and also highlighted that the adjustment of payments against the interest first, instead of the principal, is contrary to the settled law. Per contra, the operational creditor argues that the default was a continuous one, which originated before or during the section 10A period but continued thereafter. Relying on the NCLAT's ruling in the case of Beetel Teletech Ltd. v. Arcelia IT Services Pvt. Ltd., the operational creditor submitted that section 10A bars only those defaults that arose and concluded during the protected period, and its protection does not extend to the defaults that continued thereafter. Further, it submitted that all the invoices issued had a clause regarding the 18% interest, and the corporate debtor has duly signed these invoices without any objection. Relying on section 60 of the Indian Contract Act, 1872, it submitted that if no specific instruction had been given by the debtor, then it is at the discretion of the creditor to adjust the payment against the interest first. Observations of the Adjudicating Authority Relying on the ruling of Beetel Teletech Ltd. v. Arcelia IT Services Pvt. Ltd., the bench observed that section 10A protection does not extend to a default that continued beyond the protected period. Therefore, the application is not barred under section 10A of the IBC, especially when the last payment was made in January 2024 and default continued beyond that. Considering the issue pertaining to the threshold, the bench observed that even if the amount of the protected period is excluded, then also the amount is above the threshold limit of Rs. 1 Cr., considering the interest due. Hence, the petition is maintainable. Further, the bench observed that the invoices contained clauses with regard to the interest of 18%, and the corporate debtor failed to make any objections to that. Also, referring to the common law and commercial practice, the bench noted that in the absence of any specific instruction, it is the discretion of the creditor to adjust the payment against the interest first, which is also consistent with Section 60 of the Indian Contract Act, 1872. Lastly, relying on the ruling of Raghavendra Joshi v. Axis Bank Limited & Anr, Company Appeal (At) (Ins.) No. 914 of 2023, the bench ruled that if the default is committed prior to or during the section 10A period and liability to pay interest accrued during the section 10A period and continued thereafter, such interest could be counted to meet the threshold of Rs. 1 Cr. Hence, the application is not hit by section 10A and is accordingly admitted. Case Name: Dhanuka Udyog Private Limited v. Kamala Board Box Private Limited Case No.: C.P. (IB) No. 293/KB of 2024 For Applicant: Mr. Subhrangshu Majumder, Advocate For Respondent: Mr. Aditya Shankar Sharma,...

Interest Accrued During & After S.10A Period Can Be Combined With Principal Amount To Meet ₹1 Crore Threshold U/S 4 IBC: NCLT Kolkata

Mohd.Rehan Ali

Tags