NCLT Delhi holds that Principal and Interest Amount Cannot Be Clubbed To Reach The Minimum Threshold of Rs. 1 Crore u/s 4 of IBC, 2016.

Title: NCLT Delhi holds that Principal and Interest Amount Cannot Be Clubbed To Reach The Minimum Threshold of Rs. 1 Crore u/s 4 of IBC, 2016.
by Saurabh Gandhi

Case:
CBRE South Asia Private Limited Versus M/s. United Concepts and Solutions Private Limited.
Court/Tribunal:
National Company Law Tribunal (NCLT), New Delhi Bench (Court-II)
Coram:
Sh. Abni Ranjan Kumar Sinha, Hon’ble Member (J)
Sh. L.N. Gupta, Hon’ble Member (T)

Counsel:
For the Applicant: Mrs. Pratik Malik
Date of order:
19.01.2022
Facts of the case:
    1. M/s. CBRE South Asia Pvt. Ltd. (Applicant) filed an Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC, 2016) with a prayer to initiate the Corporate Insolvency Resolution Process against M/s. United Concepts and Solutions Pvt. Ltd (Corporate Debtor).
    2. The Application stated that the principal amount of debt was INR 88,50,886 and the interest amount from the date of default till the date of filing was INR 51,33,514.
    3. The bench held that the Application was not maintainable under Section 4 of IBC, 2016 and was accordingly, dismissed.
Question of Law:
Since the principal outstanding claimed by the Operational Creditor was less than Rs. 1 Crore, a query to the Applicant was raised by the Bench as to whether the Principal and Interest amounts can be clubbed together to reach the minimum threshold of Rs. 1 Crore as stipulated under Section 4 of IBC, 2016.
Legal Submissions:
The Counsel appearing for the Operational Creditor submitted that the invoices raised in support of debt contained the provision of interest and accordingly, the Applicant has claimed the interest as part of the Operational Debt.
Provisions analysed:
To adjudicate the issue, the bench examined the following provisions of IBC, 2016:
    1. Definition of default [Section 3(12)]
    2. Definition of debt [Section 3(11)]
    3. Definition of claim [Section 3(6)]
    4. Definition of operational debt [Section 5(21)]
    5. Definition of financial debt [Section 5(8)]
Analysis leading to the conclusion:
    1. A reading of Sections 5(8) and 5(21) of IBC, 2016 (reproduced below) will reveal that the “interest” can be claimed as the Financial Debt, but neither there is any provision nor there is any scope to include the interest to constitute as the Operational Debt.
“(21) “operational debt” means a claim in respect of the provision of goods or services including employment or a debt in respect of the [payment] of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority;”

(8) “financial debt” means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes -……………..” (Empashis supplied)

    2. The bench also referred to a similar finding given by NCLT Chandigarh Bench in the matter of M/s. Wanbury Ltd. Vs. M/s. Panacea Bitotech Ltd. In CP No.8/2016 dated 18.04.2017 in which it was held that while the definition of financial debt includes interest, the definition of the term ‘operational debt’ does not mention the word ‘interest’.

Held:

The bench held that the interest amount cannot be clubbed with the Principal amount of debt to arrive at the minimum threshold of Rs. 1 Crore for complying with the provision of Section 4 of IBC, 2016.