Interest u/s 5(21) of IBC does not constitute an operational debt: NCLAT [Read Order]

In a recent ruling , the New Delhi bench of the National Company Law Appellate Tribunal (NCLAT), held that interest under section 5(21) of Insolvency Bankruptcy Code ( IBC ), 2016 does not constitute an operational debt .Section 5(21) of the IBC was referred which defines operational debt in which no interest is included whereas under section 5(8) which defines financial debt, interest is included.

Chemicals to the tune of Rs. 1,82,54,891 were supplied by Khushbu Dye Chem Pvt. Ltd., operational creditor/appellant against which seven invoices were raised for which the payment had to be made within 60 days. Since no payment was made even after multiple reminders, a demand notice was issued to Chemical Suppliers India Pvt. Ltd.(corporate debtor/respondents) in which the aforesaid amount was claimed.

The amount was admitted by the corporate debtor but it denied to make payment on the ground that the same was adjusted in the amount arising from a different transaction thereby creating a bogus dispute to get rid of the IBC. Subsequently, six cheques were issued by the corporate debtor to discharge its liability to the tune of Rs. 2,43,86,959. When these cheques were presented for encashment, they were returned unpaid with remark payment stopped by the borrower. In pursuance of this, a false case of forgery against the operational creditor was filed by the corporate debtor.

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The operational creditor filed a petition under section 9 of the IBC seeking to initiate CIRP against the corporate debtor. The petition was dismissed by the Adjudicating Authority on the ground that the claimed amount did not cross the threshold limit under section 4 of the IBC and there was already a pre-existing dispute with respect to the debt amount of Rs. 1,82,54,891 along with interest of Rs. 42,72,193.

The appellant contended that operational debt is valid and crosses the threshold limit under section 4 of the IBC. It was further argued that admitted liability of outstanding dues cannot be done away with under the IBC through adjustments, set off and issuance of credit notes therefore plea of adjustment of the respondent is liable to be rejected.

Per contra, the respondent contended that the appellant did not disclose the long pending disputes between the parties in the petition. It was further submitted that the claimed amount was adjusted against an obligation related to a transaction involving 450 MT of IPA. The appellant took delivery only of 143.850 MT and paid Rs. 2,36,79,147. Remaining balance for the supply of materials was not paid therefore it is a fit case to adjust the remaining amount in set off with the claimed debt amount. It was submitted that when the claimed amount is set off against the remaining amount, left out amount does not cross the threshold limit therefore the petition is liable to be rejected on this ground.

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It was argued that issued cheques were tampered with for which a criminal complaint was instituted for forgery. It was further contended that unsolved issues and not taking delivery of materials indicate the existence of a pre-existing dispute between the parties which bar the petition under section 9 of the IBC from being admitted.

The NCLAT agreed with the contention of the respondent and observed that interest claimed by the appellant in the petition could not be classified as operational debt within the provisions of the IBC. Section 5(21) of the IBC was referred which defines operational debt in which no interest is included whereas under section 5(8) which defines financial debt, interest is included.

The tribunal came to the conclusion that interest under section 5(21) of the IBC does not constitute an operational debt. The tribunal further noted that when interest is excluded from the claimed amount, it does not cross the threshold limit under section 4 of the IBC.

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The bench comprising Mr. Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member) viewed that there existed pre-existing disputes related to dishonoured cheques, supply of IPA and mutual allegations in the police complaints which are sufficient to dismiss the petition under section 9 of the IBC as the tribunal is not mandated to check the veracity of the dispute being raised between the parties at this stage.

The Tribunal further rejected the arguments of the appellant with respect to set off. The tribunal noted that in the present case the CIRP has not begun yet and set off that is being claimed by the respondent is with respect to the business transactions happened between the parties before the filing of the present petition.

While dismissing the appeal, the NCLAT held that the appeal under section 9 of the IBC is liable to be rejected due to existence of a pre-existing dispute as not meeting the threshold limit under section 4 of the IBC.

To Read the full text of the Order CLICK HERE

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