Interest Not Mentioned In Invoices Or Civil Court Decree, Can't Add To Reach Threshold Limit: NCLT
The National Company Law Tribunal New Delhi bench of Bachu Venkat Balaram Das (Judicial Member) and Atul Chaturvedi (Technical Member) has held that claim for interest is not arising out of supplies of goods or services and do not form part of the Operational Debt in terms of Section 5(21) of the Insolvency and Bankruptcy Code, 2016. Therefore, the bench held that the interest awarded...
The National Company Law Tribunal New Delhi bench of Bachu Venkat Balaram Das (Judicial Member) and Atul Chaturvedi (Technical Member) has held that claim for interest is not arising out of supplies of goods or services and do not form part of the Operational Debt in terms of Section 5(21) of the Insolvency and Bankruptcy Code, 2016.
Therefore, the bench held that the interest awarded by the civil court could not be combined with the principal amount to meet the threshold limit of Rs. 1 Crore.
Brief Facts:
M/s. Honey Yarn, the Applicant/Operational Creditor, filed an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC), read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 and sought to initiate the Corporate Insolvency Resolution Process (CIRP) against M/s. Welldone Exim Private Limited, the Respondent/Corporate Debtor. The application was based on the ground that the Corporate Debtor defaulted and failed to pay an outstanding amount of Rs. 1,31,48,053/- along with interest at 9% per annum due to delays.
The Operational Creditor was supplying goods to the Corporate Debtor on credit and received part payments over time. After accounting for these payments, Rs. 68,25,725/- (principal amount) remained due from the Corporate Debtor, according to the Operational Creditor's ledger. Despite repeated requests for payment, the Corporate Debtor postponed settling the balance amount. Consequently, the Operational Creditor filed a civil suit for the recovery of Rs. 68,25,725/- along with interest at 9% per annum in the Civil Judge, Senior Division, Ludhiana. The Additional District Judge decreed in favor of the Operational Creditor for the recovery of Rs. 74,40,040/- along with interest from the date of the suit till realization. The Corporate Debtor did not make any payments post-judgment which lead the Operational Creditor to issue a Demand Notice under Section 8 of the IBC. With no response received within the stipulated period, it approached the NCLT.
The Operational Creditor argued that the debt arose from goods supplied to the Corporate Debtor amounting to Rs. 74,40,040/-. As no appeal was filed against the decree, it attained finality which made the default date the date of the decree. The total debt, including Rs. 63,22,328/- as interest, amounted to Rs. 1,31,48,053/-, exceeding the threshold limit of Rs. 1 crore required under Section 4 of the Code.
Observations by the NCLT:
The NCLT noted that the Respondent argued that the invoices attached to the application did not contain any interest component and thus the inclusion of interest awarded by the decree was not justified. The NCLT examined the invoices and found no indication of interest entitlement in the event of delayed payment. Referring to the NCLAT's decision in Pavan Enterprises vs. Gammon India Ltd., the NCLT held that interest could not be included in the debt unless specified in an agreement between the parties.
Therefore, the NCLT held that the interest awarded by the civil court could not be clubbed with the principal amount to meet the threshold limit of Rs. 1 Crore. The principal amount of Rs. 68,25,725 was below the threshold limit and hence, the bench held that, the application under Section 9 of the IBC should be dismissed.
Case Title: Mr. Pardeep Kumar Vs M/S. Welldone Exim Private Limited
Case Number: RCP 2(ND)/2024 (Old Case No. IB-548(ND)/2023)
Date of Judgment: 26.07.2024
Click Here To Read/Download Order or Judgment