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Introduction:

A notification from the Ministry of Corporate Affairs in the year 2020 just as the pandemic hit, changed the litigation regime under the National Company Law Tribunal thereafter. The notification increased the threshold limit of default from 1 lakh rupees to 1 crore rupees for filing applications under Part II of the Insolvency and Bankruptcy Code,2016. Since then, there has been a plethora of cases before the NCLT benches dealing with the pecuniary jurisdiction arising from the payment default of the debtor pre and post covid.

Default Prior to Notification: Pre-Covid Scenario:

In the case of Madhusudan Tantia vs Amit Choraria, Company Appeal (AT) (Insolvency) No. 557 of 2020, held and clarified that the notification dated 24.03.2020is prospective in nature, which means any default that occurred before the notification would not fall within the new pecuniary limits. 

However, in the case of Pankaj Agarwal vs Union of India,W.P.(C) 3685/2020 & CM APPLs. 13194/2020, 13195/2020, 13196/2020, the Delhi High Court passed an interim stay on the order of NCLT accepting an application for a default of less than 1 crore where default occurred prior to the date of Notification. The Delhi High Court noted that there was an error by the NCLT in accepting the application, as the Notification was clearly applicable.

In Hari Singh vs Dynamic Aura LLP, Company Petition Nos. (IB)-30(PB)/2021 and (IB)-38(PB)/2021, Delhi High Court in this case  directed the parties back to the NCLT to have this issue of admissibility of claims prior to the date of Notification resolved. In the same matter, the NCLT took a divergent approach as even after agreeing that the Notification has a prospective application, the NCLT went on to dismiss the application for which the date of default was prior to the date of Notification.

Default Occurring After Notification: Post Covid Scenario

At this juncture, the threshold limit for initiating the CIRP Process remains at Rs.1 crore. This may have an effect on the creditors, as only a default by debtor which is more than a crore, could be filed under the CIRP Process.  

In the matter of Metal’s & Metal Electric Pvt. Ltd. Vs. Goms Electricals Pvt. Ltd.,(2022) ibclaw.in 196 NCLAT that mere running of the eye of the ingredients of Section 9 of the Code makes it lucidly clear that the date of initiation of CIRP shall be on the date on which an application is made.

In the other case of Tharakan Web Innovations Pvt. Ltd. Vs. National Company Law Tribunal,  (2022) ibclaw.in 28 HC, the Hon’ble High Court held that the government had fixed the minimum threshold limit statutorily and therefore the new reading of the section is to be done accordingly replacing the words “one lakh rupees” by “rupees one crore”. Therefore, no application where the debt is less than a crore rupees can be filed after 24.03.2020

In the case of Jumbo Paper Products Vs. Hansraj Agrofresh Pvt. Ltd., (2021) ibclaw.in 497 NCLAT, the NCLAT upheld that the new threshold limit would be applicable for application filed u/s 7 or 9 on or after 24.3.2020 even if debt is of a date earlier than 24.3.2020.

Whether “interest” can be clubbed with principal debt to cross-over the threshold limit of 1 crore

Post the notification of 24.03.2020, the courts are only entertaining the matters only where the   debt exceeds the threshold limits of Rupees One Crore. This relief by the government was given to the debtors in case of small defaults but the parties have been clubbing the principal and interest together to reach the threshold limit. However the question still remains whether can principal and interest be clubbed together to cross the threshold limit? Also, an interesting issue which emerges is whether alone interest can be claimed under section 9 application to that effect?

In the case of Prashant Agarwal vs. Vikash Parasrampuria & Ors., the NCLAT bench decided on the appeal arising out of order passed by the NCLT, Mumbai Bench and held that first, since the interest on delayed payment was clearly stipulated in invoice and therefore, this will entitle for ‘right to payment’ (Section 3(6) IBC) and therefore will form part of “debt” (Section 3(11) IBC). Secondly, it is noted that the total principal debt amount of Rs. 97,87,220/- along with interest the total debt makes total outstanding as Rs. 1,60,87,838/-.Thus, the total debt outstanding of OC is above Rs. 1 crore as per requirement of Section 4 IBC read with notification No. S.O 1205 (E) dated 24.3.2020 (Supra), and meets the criteria of Rs. 1crore as per Section 4 of IBC and application is therefore maintainable in present case. 

In another case, Mobilox and Swiss Ribbons Pvt.Ltd., held that “ in any proceedings for the recovery of any debt or damage or in any proceedings in which a claim for interest in respect of any debt or damages already paid is made, the court may, if it thinks fit, allow interest to the person making such claim, as the case may be, at a rate not exceeding the current rate of interest, for the whole or part of the following period ”.

However, in the case of SS Polymers vs. Kanodia Technoplast Limited  in Company Petition Number-IB-121/ND/2019, the court held that not every interest can be treated as a debt. If in terms of the agreement, interest is payable to the operational and financial creditor; then the debt will include interest; otherwise the principal amount is to be treated as a debt which is the liability in respect of the claim that can be made from the corporate debtor.

Therefore, these cases represent that the interest can alone be claimed as a debt irrespective of the principal amount reaching the threshold limit or not. Also, that interest and principal can be clubbed together to reach a threshold. However, there is lack of certainty amongst the different benches and hence this question of law requires interference from the Higher Court for the final conclusion. 

Conclusion:

For the future litigation it is to be seen how different courts like NCLAT and Supreme Court deal with the issue in the coming time. However, to prevent divergent views, it will be beneficial for the litigants as well as the courts if the issues are settled through an authoritative judgment from the Supreme Court in order to avoid congestion before NCLT on Section  9 petitions.

Reference:

1. https://www.scconline.com/blog/post/2022/03/21/interest-a-legal-quandary-under-ibc/

2. https://ibclaw.in/important-judgments-on-threshold-limit-increased-from-1-lakh-to-1-crore-for-filing-cirp-application-under-section-7-or-9-of-insolvency-and-bankruptcy-code-2016-ibc/

3. https://www.lexology.com/commentary/litigation/india/clasis-law/nclt-permits-prospective-application-of-raised-threshold-limit-in-cases-filed-under-insolvency-and-bankruptcy-code

4. http://www.lawstreetindia.com/experts/column?sid=509

5. https://cbcl.nliu.ac.in/insolvency-law/prospective-application-of-the-notification-increasing-ibc-threshold-nclts-new-approach/