Status as on- 25/05/2022
Applicants, M/s Saraf Chits Private Limited and M/s. VKSS International Private Limited being Financial Creditors filed the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Applicants prayed before the bench to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor namely; against KAD Housing Private Limited.
The application was filed for unpaid financial debt in the amount of Rs.1,76,04,484/-. However, the Applicants submitted before the bench that the principal amount of Rs.1.5 Crore has already been paid by the Corporate Debtor, and only an amount of Rs.64 lakh is left to be paid towards the interest component. Respondent confirmed the same before the bench.
Since the principal amount in default does not surpass the threshold of Rs.1 Crore, the Bench directed the Applicants to convince the Bench of the maintainability of the application.
“Whether the CIRP can be initiated/triggered solely based on the unpaid amount of interest when the entire principal amount of debt has been discharged by the Corporate Debtor”.
The Applicants submitted before the bench that the Respondent discharged the liability towards the principal amount during the pendency of the application. Thus, the application was maintainable. It was also submitted that the term “financial debt” as defined under Section 5(8) of IBC, 2016 includes the interest component.
The Bench observed that the interest is not included in the term “debt” per se. Rather, the “interest” can be claimed as “financial debt” only if such debt exists.
The Bench referred to the case of S. S. Polymers v. Kanodia Technoplast Ltd. in Company Appeal (AT) (Insolvency) No. 1227 of 2019, dated 13.11.2019 in which the court observed 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 realization 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 realize only Interest) for any purpose other than for the Resolution of Insolvency, or Liquidation of the ‘Corporate Debtor’ and which is barred given Section 65 of the I&B Code.”
Therefore, NCLT held that the “interest” component alone cannot be claimed or pursued, in absence of the debt, to trigger a CIRP against the corporate Debtor. Further, the application pursued realization of the interest amount alone is against the intent of the IBC, 2016.
The CIRP against a Corporate Debtor cannot be initiated/triggered solely based on the unpaid amount of interest where the entire principal amount has already been discharged by the Corporate Debtor.
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