National Company Law Appellate Tribunal | Upholding the maintainability of an application filed under S. 7 IBC, a bench comprising of Rakesh Kumar Jain*, J. (Judicial Member) and Naresh Salecha (Technical Member) held that an application filed under S. 7 IBC could be maintained in respect of the component of interest which became due and payable, without asking for the principal amount which has not yet become due and payable.
An application under S. 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) was filed by the appellant in respect of interest of three quarters which accrued and became payable as debt. The application was dismissed by the Adjudicating Authority on the ground that only the interest amount would not fall within the definition of financial debt until and unless principal amount has also become due and payable.
The appellant preferred an appeal before this Tribunal challenging the impugned order passed by the Adjudicating Authority.
Whether an application under S. 7 IBC can be filed and maintained in respect of the component of interest which became due and payable without asking for the principal amount which has not yet become due and payable?
Contention of the Parties
The appellant contended that an application under S. 7 IBC is maintainable even if it only relates to interest if the interest crosses the threshold limit of the financial debt. The appellant further submitted that the financial debt is a debt with interest if any, disbursed against the consideration for the time value of money and includes debentures.
Relying on Orator Marketing (P) Ltd. v. Samtex Desinz (P) Ltd., 2021 SCC OnLine SC 513, where an application under S. 7 was held maintainable and interest free loan was regarded as a financial debt, the appellant contended that on the same analogy the interest which became due and payable would attract the provisions of Section 7 of the Code.
The respondent contended that the Adjudicating Authority had made no error while passing the impugned order. Negating the application of Orator Marketing (P) Ltd. (Supra) in the present case, the respondent submitted that debt and interest together constitute financial debt and the interest independently does not constitute financial debt.
Tribunal’s Observation and Decision
After carefully examining S. 7 IBC, the Tribunal observed that application under S. 7 IBC is maintainable if the financial creditor shows the default as a condition precedent and according to S. 3(12) default means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid. The Tribunal also observed that there is no dispute that the amount of interest became due and payable by the Corporate Debtor to the Appellant.
Relying on Innovative Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 and Orator Marketing (P) Ltd. (Supra), the Tribunal held that an application filed under S. 7 IBC could be maintained in respect of the component of interest which became due and payable, without asking for the principal amount which has not yet become due and payable.
[Base Realtors (P) Ltd. v. Grand Realcon (P) Ltd., 2022 SCC OnLine NCLAT 1603, decided on 15-11-2022]
Advocates who appeared in this case :
PCA Abhishek Nahta, Raveena Paniker and Rishabh Sachdeva, Counsel for the Appellant;
Jeewesh Prakash and Ujjwal Mendiratta, Counsel for the Respondents.
*Ritu Singh, Editorial Assistant has put this report together