On July 15, 2022, the Full Bench of the National Company Law Appellate Tribunal (“NCLAT”) gave its decision in the case of Mr. Prashant Agarwal v. Vikash Parasrampuria, [Company Appeal (AT) (Ins) No. 690 of 2022], wherein it has held that the total amount for maintainability of a claim by an operational creditor will include both the principal debt amount as well as the interest on delayed payment to meet the criteria of Rs. 1 crore as per Section 4 of the Insolvency and Bankruptcy Code, 2016 (“IBC”).
The appeal was preferred by Mr. Prashant Agarwal, member of suspended board of Bombay Rayon Fashions Limited (“Appellant”) aggrieved by the order dated June 7, 2022 (“Impugned Order”) passed in CP (IB) No. 1443/MB-IV/2020 by the National Company Law Tribunal, Mumbai Bench (“NCLT”), whereby an application filed by Vikash Parasrampuria (“Operational Creditor/ Respondent No.1”) was admitted against Bombay Rayon Fashions Limited (“Corporate Debtor”) under Section 9 of the IBC.
The Operational Creditor is a supplier of different types of yarns and supplied goods to the Corporate Debtor for which the Operational Creditor raised nine invoices between March 2017 and January 2020 for Rs. 2,02,26,017/-. The invoices stipulated a clause for interest on delayed payment. The Corporate Debtor paid three invoices with a delay and made a part payment for one invoice with the remaining five invoices left unpaid for which the Operational Creditor filed the application under Section 9 of the IBC for initiation of Corporate Insolvency Resolution Process (“CIRP”). After considering the facts before it, the NCLT admitted the Section 9 application and appointed the Interim Resolution Professional (“IRP/Respondent No.2”).
The issue, inter-alia, which arose for consideration before the NCLAT was whether the application for CIRP under Section 9 of IBC would be maintainable if the principal operational debt was below the minimum threshold limit of Rs. 1 crore as per Section 4 of the IBC.
The NCLAT observed that all 9 invoices clearly stipulated provision of interest on delayed payment and that payments of three invoices were made in full and for one invoice in part by the Corporate Debtor and no dispute on the interest clause was ever raised.
The NCLAT, thereafter, analysed the definitions of debt - Section 3(11), claim - Section 3(6) under the IBC and the notification No. S.O 1205 (E) dated March 24, 2020 issued by the Ministry of Corporate Affairs whereby the threshold limit was increased from Rs. 1 lakh to Rs. 1 crore for the purpose of Section 4 of the IBC. The NCLAT also analysed various judgments passed by the NCLT, NCLAT and the Supreme Court which were cited by the parties before it.
The NCLAT observed that divergent views were taken by various NCLTs with respect to treatment of interest on delayed payment as operational debt.
The NCLAT held that, since interest on delayed payment was clearly stipulated in the invoices, it will entitle the Operational Creditor for “right to payment” (Section 3(6) IBC) and therefore will form part of “debt” (Section 3(11) IBC).
In light of the above and after considering the provisions under the IBC, the NCLAT held that the total amount for maintainability of claim will include both principal debt amount as well as interest on delayed payment.
Thus, the NCLAT dismissed the appeal and held that the total principal debt amount of Rs. 97,87,220/- along with interest makes the total debt outstanding as Rs. 1,60,87,838/- viz. above Rs. 1 crore as per requirement of Section 4 IBC read with notification No. S.O 1205 (E) dated March 24, 2020 and therefore, the application under Section 9 of the IBC was maintainable.
Please find attached a copy of the order.
This update has been contributed by Aashdin Chivalwala (Principal Associate).
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