The National Company Law Tribunal ("NCLT"), New Delhi Bench, comprising of Shri Abni Ranjan Kumar Sinha (Judicial Member) and Shri L.N. Gupta (Technical Member), while adjudicating a petition filed in Saraf Chits Private Limited & Anr. v KAD Housing Private Limited, has held that Corporate Insolvency Resolution Process ("CIRP") cannot be initiated against a Corporate Debtor solely on the basis of the un-paid amount of interest, where the entire principal amount has already been discharged by the Corporate Debtor. The order was passed on 23.05.2022.
M/s Saraf Chits Pvt. Ltd and M/s. VKSS International Pvt. Ltd. had filed an application under the Section 7 of the Insolvency and Bankruptcy Code, 2016 ("IBC") before the NCLT Delhi ("Adjudicating Authority"), seeking initiation of CIRP against KAD Housing Private Limited ("Corporate Debtor"), for a default of Rs.1,76,04,484/- inclusive of interest.
The Corporate Debtor had paid the principal amount of Rs 1.5 Crore to the Financial Creditors during the pendency of the application and only an amount of Rs. 64 Lakh was left to be paid towards the interest component.
Contentions Of The Parties
The Applicants submitted that though the liability towards the principal amount was discharged, the application was still maintainable for the outstanding amount of interest. It was further argued that the term "financial debt" as defined under Section 5(8) of IBC includes the interest component.
The Corporate Debtor contended that since the principal amount was already paid, the application under Section 7 was liable to be dismissed.
Whether the CIRP can be initiated solely on the basis of the un-paid amount of interest when the entire principal amount of debt has been discharged by the Corporate Debtor?
Section 5(8)(f) of IBC
"(8) "financial debt" means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes –"
Observations Of The Adjudicating Authority
The Bench observed that interest is not included in the term "debt" per se under IBC. Rather, "interest" can be claimed as "financial debt" only if such debt exists.
Reliance was placed on NCLAT judgment in S. S. Polymers v. Kanodia Technoplast Ltd., Company Appeal (AT) (Insolvency) No. 1227 of 2019, wherein it was held that:
"5. Admittedly, before the admission of an application under Section 9 of the I&B Code, the 'Corporate Debtor' paid the total debt. The application was pursued for realisation of the interest amount, which, according to us is against the principle of the I&B Code, as it should be treated to be an application pursued by the Applicant with malicious intent (to realise only Interest) for any purpose other than for the Resolution of Insolvency, or Liquidation of the 'Corporate Debtor' and which is barred in view of Section 65 of the I&B Code.."
The Bench opined that the "interest" component alone cannot be claimed or pursued in absence of the debt for initiating CIRP against the Corporate Debtor. An application pursued for realization of the interest amount alone is against the intent of the IBC.
Decision Of The Adjudicating Authority
The Bench dismissed the application with the observation that CIRP cannot be initiated against a Corporate Debtor solely on the basis of the un-paid amount of interest where the entire principal amount has already been discharged by the Corporate Debtor.
Case Title: Saraf Chits Private Limited & Anr. v KAD Housing Private Limited, (IB)-255(ND)/2021.
Counsel for the Applicant: Adv. Rakesh Kumar, Adv. Preeti Kashyap and Adv. Ankit Sharma.
Counsel for the Respondent: Adv. Anil Kher, Adv. Kunal Kher and Adv. Aishwarya Kumar.