Every ‘interest’ on principal amount is not included in ‘debt’; application under Section 9 I&B Code rejected: NCLAT

National Company Law Appellate Tribunal (NCLAT): A two-member bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice Bansi Lal Bhat, Member (Judicial), dismissed an appeal filed by the Operational Creditor against the judgment of the National Company Law Tribunal, Mumbai whereby appellant’s application under Section 9 I&B Code was dismissed.

The appellant had filed an application for initiation of Insolvency Resolution Process against the Corporate Debtor. Before the NCLT, the respondent submitted that the principal amount of debt due was already paid. The NCLT dismissed the application of the appellant. Aggrieved thus, the present appeal was filed. The appellant, placing reliance on Section 3(11) of the Code which defines debt, contended that debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt. It was submitted that the debt as defined in the Code, includes the interest due on the principal amount as well.

The Appellate Tribunal was of the view that such submission was untenable. It is NCLT, not every interest that can be treated as a debt. If in terms of the agreement, interest is payable to the Operational or Financial Creditor, then the debt will include interest; otherwise, the principal amount is to be treated as debt which is the liability in respect of the claim that can be made from the Corporate Debtor. The Court noted that in the present matter, the principal amount had already been paid, and as per the agreement, no interest was payable. As such, the application under Section 9 on the basis of entitlement of payment of interest was not maintainable. The appeal was accordingly dismissed. [Krishna Enterprises v. Gammon India Ltd.,2018 SCC OnLine NCLAT 360, dated 27-07-2018]

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