Interest Cannot Be Raised Unilaterally In Insolvency Petition, Without Prior Intimation To Corporate Debtor: NCLT Bengaluru

Brief Facts

The corporate debtor was admitted into insolvency under section 9 of the IBC. The amount to the tune Rs. USD 140,513.09 along with interest of Rs. USD 35,212 was claimed by the operational creditor. However, if the interest is excluded from the claimed amount, the amount to be claimed stood to the tune of Rs. USD 105,300. This petition was filed on July 27, 2023.

Contentions

The operational creditor contended that corporate debtor defaulted in clearing its liabilities to the tune Rs. USD 140,513.09 along with interest of Rs. USD 35,212. This amount exceeded the threshold limit under section 4 of the IBC to initiate CIRP. It was further argued that goods were supplied and mediation was attempted under section 12A of the Commercial Court Act, 2015 still the corporate debtor remained unresponsive and failed to pay the outstanding dues. It was further submitted that the interest amount can be claimed because delayed payment caused financial loss. The operational creditor relied on the Supreme Court judgment in and claimed their petition was within period of limitation.

Per Contra, the corporate debtor contended that the principal debt was only to the tune Rs. USD 105,300 which did not cross the threshold limit under section 4 of the IBC rendering the present petition not maintainable. It was submitted that the interest amount cannot be claimed as there was no agreement to that effect nor was there any such clause in invoice raised. The NCLAT judgment in Mr Prashant Agarwal v. Vikar Parasrampuria 2022 SCC OnLine NCLT 3781,was cited in which it was held that interest can only be claimed when it is substantiated. It was further argued that the operational creditor manipulated the date of default to seek extension of the period of limitation and meet the threshold limit.

Issue Before NCLT

Whether interest amount can be clubbed with the principal when there is no express agreement or clause in the invoice showing the same.

NCLT's Analysis

The NCLT referred to the judgements of the NCLAT in Mr. Prashat Agarwal v. Vikash Parasrampuria & Ors and Krishna Enterprises v. Gammon India Ltd wherein it was established that interest can be claimed along with the principal amount when it has been mentioned in an agreement or invoices issued to the debtor. The Tribunal further observed that no interest was mentioned in the invoices raised by the operational creditor nor was it agreed upon in e-mail communications. It was held as under:

“Keeping in view the decisions laid by the Hon'ble NCLAT in Mr. Prashat Agarwal v. Vikash Parasrampuria & Ors [ vide Order dated: 15/07/2022 Company Appeal (AT) (Ins) No. 690 of 2022] and Krishna Enterprises v/s. Gammon India Ltd. [vide Order dated 27.07.2018 in Company Appeal (AT)(Insolvency) No.144 of 2018] also the principle Case followed by the Co-ordinate benches of Mumbai Bench in Tushar Harshadrai Mehta v. Samarth Softech Solution Pvt Ltd (vide Order dated 22/03/2024, in CP(IB) 311/MB/2023) and Kolkata Bench in Gandhar Oil Refinery (India) Ltd. Vs. City Oil Pvt. Ltd (vide Order dated 10/04/2023, in C.P. (IB) No. 150/KB/2021) , wherein it was explicitly held that for any creditor to claim the interest in the default amount the same should be reflected in either the agreement or the invoices raised against the Corporate Debtor”.

The NCLT further noted that invoice raised on March 3, 2020 had not become due yet as agreement allowed time period of 7 days to make the payment. Consequently, it was held that if this invoice to the tune Rs. 14,064.34 is excluded from the claimed amount, the amount claimed falls way below the threshold limit under section 4 of the IBC. It was observed as under:

“Additionally, on perusal of the Petition it is observed that the last invoice was raised on 15/03/2020 for a payment of USD 14,064.30, which as per the agreement becomes due after 7 days, hence as on the date of default mentioned, the said invoice was not 'due' to be paid, so there is no question of any default for this invoice.Considering the above facts, the said amount of USD 14,064.30 is required to be excluded from the principal amount which would render the impugned amount to be further below the threshold”.

The NCLT further noted that the payment became due on March 3, 2020 for which the limitation period expired on March 14, 2023. The Supreme Court in M. A. Nos.21 of 2022/665 of 2021 in suo motu Writ Petition (c) No.3 of 2020 held that the benefit of extension of limitation period should be given till February 28, 2022. If after this date period of limitation remains, it can only be given upto 90 days. However, if the period remaining is more than 90 days, it can be extended accordingly. The Tribunal observed that the operational creditor was entitled to 379 days as it is the period left in the period of limitation after February 28, 2022. It was held under:

“However, the Operational Creditor has relied upon the judgment of Hon'ble Supreme Court of India dated 10.01.2022 in M. A. Nos.21 of 2022/665 of 2021 in suo motu Writ Petition (c) No.3 of 2020 and claimed that the period between 15.03.2020 to 28.02.2022 should be excluded, thus granting them an exclusion of 715 days from the limitation period. Accordingly, the Operational Creditor has claimed that the limitation period was existing up to 27.02.2025.

This case of the Operational Creditor squarely falls under the scope of the direction of the Hon'ble Apex Court in the above mentioned para III, since, as on 01.03.2022, the balance period of limitation available in the case of the Operational Creditor is 379 days from 01.03.2022 up to 14.03.2023, which is more than 90 days. Accordingly, the actual balance period of limitation of 379 days is the entitlement of the Operational Creditor from 01.03.2022 in accordance with the direction of the Hon'ble Apex Court in the above referred para III of the order dated 10.01.2022. Thus the limitation in this case was available up to on 14.03.2023 only, whereas the Petition is filed on 27.07.2023; hence, the same is barred by limitation”.

Conclusion

The NCLT concluded that the operational creditor was not entitled to claim interest as it was not agreed upon to be paid in the agreement. The Tribunal held that the petition was filed when limitation period had expired therefore the petition was barred by limitation also. Accordingly, the present petition was dismissed.

Case Title: Janus GBAC Ltd. v. Beloorbayir Biotech Ltd.

Court: National Company Law Tribunal, Bengaluru

Case Reference: CP (IB) No.114/BB/2023

Judgment Date: 04/10/2024