IBC 2016: Section 4 & Threshold limit u/s 9 filed
by Operational Creditor
The
Insolvency & Bankruptcy Code (IBC) 2016 and is referred to as “Code” in
short) was enacted with a view to accord a comprehensive legal framework for
matters relating to affairs of company, its probable rehabilitation or for dissolution
of the corporate debtor company, as the case may be for overall good. The
underlying object of the Code is to accord viability and fillip to a company
which is otherwise sick and only in case a company is found to be unviable,
then, the process of dissolution as per the scheme of the Code may begin. The Rule 6 of the I & B (Application to
Adjudicating Authority) Rules 2016 relates inter
alia to initiate Corporate Insolvency
Resolution Process (CIRP) against a Corporate Debtor (CD) company, on the
ground that the Corporate Debtor has committed a default for admitted outstanding
amount of more than 1,00,00,000/- ( Rupees, One Crore Only) or more, since the
said amount is fixed as a threshold for preferring application before the
National Company Law Tribunal (NCLT) by the Operational Creditor (OC) under the
aforesaid provisions. Whether the threshold limit of Rs 1,00,00,000/- shall
comprise of principal or shall include interest in it or not shall be yet
another dimension The NCLT, Bengaluru in a matter captioned as M/s J.R Metal Chennai Ltd Versus M/s NUDPL Ventures Pvt Ltd bearing no. CP (IB)
No.32/BB/2022 has dealt with it.
The
gravamen of dispute in M/s J.R Metal Chennai Ltd (Supra) is not
being deliberated herein, since, the purpose of the present write up herein, is
only to deliberate, on the issue raised above i.e whether for computing a
threshold limit of Rs 1 Crore under the IBC by Operational Creditor (OC),
whether a sum of Rs 1 Crore shall be arrived at after including interest.
To reiterate, for an application to be filed under Section 9 of IBC, the minimum threshold limits should
be Rupees one crore of the Principal amount vide Notification No. 1076 dated
24.03.2020, to trigger Corporate Insolvency Resolution Process under Section 4
of the Insolvency and Bankruptcy Code, 2016. In order to satisfy the minimum
threshold of Rs One Crore, the applicant cannot club interest amount to the
Principal Amount, and thereby, reach the alleged due amount of rupees one crore
only with a view to trigger Corporate Insolvency Resolution Process (CIRP) application
as per section 4 of IBC.
The
National Company Law Appellate Tribunal (NCLAT) in the matter of Amsons Communication Pvt Ltd Vs. ATS Estates Pvt Ltd, Company Appeal
(AT) (Insolvency) No. 540 of 2020, vide order dated 17.01.2022 wherein it is
held that claim of interest being a disputed fact by the Corporate Debtor, can
be adjudicated only by the court of competent jurisdiction and that the
provision of IBC cannot be used for recovery of claim.
The
various provisions of the IBC may be deliberated and certain principals laid
down by the Hon’ble Supreme Court and NCLAT in this regard needs perusal.
(I) The definition for “Financial Debt” and “Operational Debt” as enumerated in the
IBC is as follows:
a. Sec 5 (8) “financial debt” means a debt along with interest, if
any, which is disbursed against the consideration for time value of money and
includes […]
b. Sec 8 (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.
Thus, financial and
operational debt has been defined differently under IBC. It may be noted that
definition of operational debt does not deal with interest, whereas financial
debt includes interest as well.
(II) It is pertinent to note that the distinction in the
treatment of “financial debt” and operational debt has been dealt in detail in
the case of “ Swiss Ribbons(p) Ltd. V. Union of India” AIR 2019 Supreme Court 739, but the component of “ interest”
is not explicitly dealt with.
(III) It is relevant to point out that, there is no concept of
“time value of money” for a debt to qualify as an “operational debt”. Interest
is not necessary for an operational debt, as there, the consideration is the
value of the goods or services availed by the corporate debtor from the
operational creditor. The interest that is charged for the delayed payment is
in the form of penalty and not a return on investment.
Since
under the IBC only admitted claim shall form part of the application, hence, if
in purchase order or agreement, there is no provision of interest and its rate
is not specified as admitted in case of default, no interest probably could be
included by the Operational Creditor (OC) for initiating CIRP. Therefore,
solely, for the purpose of meeting the requirement of section 4 of the Code, sums
relating to interest cannot be clubbed with the principal, if the same is not
provided for in the Agreement between the two parties. Therefore, with a view
to meet the requirement of section 4 of the Code, the interest, which is otherwise
not provided for in the Agreement between the two parties cannot be integrated
in the claim and that too, only with a
view to meet the threshold limit stipulated under section 4 of the Code.
To conclude,
“operational debt” and “financial debt” are treated differently in the IBC
(Code). Whereas, in “financial debt” the component of interest is inbuilt, but
the same is not so, in case of “operational debt”. Thus, merely with a view to
meet the threshold of Rs 1 Crore, in order to be enable operational creditor to
prefer a case before NCLT, under the IBC 2016 as Operational Creditor, the
component of interest cannot form part of it, if the threshold is otherwise not
reached. As the disputed claim cannot be adjudicated by the NCLT and the same
shall have to be adjudicated by civil courts only, therefore, only, if the
claim of interest is inbuilt in agreement and/or purchase order and in case of
default, the interest is found to be payable as per the written understanding
and no dispute is raised in this regard, only then, probably the component of
interest may form part of the “operational debt” and not otherwise. Thus,
generally speaking, in operational debt, in case of application preferred by
operational creditor, before the NCLT under the Code, the claim of interest
shall not form part of operational debt
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Anil
K Khaware
Founder
& Senior Associate
Societylawandjustice.com
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