NCLAT Update: Interest on Delayed Payments to form part of Operational Debt

The Hon’ble National Company Law Appellate Tribunal (NCLAT) vide its order dated 15th July 2022 passed in the matter of Prashat Agarwal v. Vikash Parasrampuria, Company Appeal (AT) (Ins) No. 690 of 2022 dismissed a company appeal and held that interest on delayed payment is also a form of debt and therefore, would form part of the operational debt under the Insolvency and Bankruptcy Code, 2016 (“IB Code”).

Brief Facts

As the sole proprietor and supplier of different types of yarns, the Operational Creditor viz. Chiranjal Yarns Trading, had supplied certain goods to the Corporate Debtor viz. Bombay Rayons Fashions Ltd. Towards the same, the Operational Creditor had raised various invoices; only part of which were cleared by the Corporate Debtor. Since payments to the tune of Rs. 1,60,87,838/-, including interest, remained outstanding, the Operational Creditor had preferred an application under Section 9 of the IB Code for initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor (“Application”). The said Application came to be admitted by the Hon’ble National Company Law Tribunal, Mumbai, vide order dated 7th June 2022 (“Impugned Order”). 

Challenging the Impugned Order, the present appeal came to be filed before the NCLAT. The Appellant’s contention therein inter alia was that the Application was non-maintainable as the principal amount outstanding towards the invoices was only Rs. 97,87,220/-, which does not meet the threshold under Section 4 of the IB Code r/w the Ministry of Corporate Affairs notification dated 24th March 2020, of Rs. 1,00,00,000/- (Rupees One Crore Only) for initiation of CIRP (“Notification”).

What the NCLAT held

The issue before the Hon’ble NCLAT inter alia was whether the interest charged on the pending invoices would fall under the definition of “debt” as defined under Section 3(11) of the IB Code, and accordingly, the principle and interest would together be counted to meet the threshold limit under Section 4 of the IB Code i.e. Rs. 1 Crore.  

The Hon’ble NCLAT observed that each invoice raised upon the Corporate Debtor clearly stipulated the interest on delayed payment @ 18% and thus would entitle the Operational Creditor for “right of payment” and therefore would form part of the definition of “debt” as per Section 3(11) of the IB Code.  

The Hon’ble NCLAT accordingly held that the total amount for maintainability of claim would include the principal debt amount as well as the interest on delayed payment, which was also clearly stipulated in the invoice. Thus, as the total debt outstanding in the present case i.e. Rs. 1,60,87,838/- (inclusive of interest on delayed payment) is above Rs. 1 Crore, the same would meet the threshold criteria as per the requirement of Section 4 of the IB Code read with the Notification. Thus, the appeal against the Impugned Order was dismissed.

Lalit Munshi, Senior Associate

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