Saraf Chits Private Limited vs KAD Housing Private Limited

L. N. Gupta, Member (T)

The Applicants M/s Saraf Chits Private Limited and M/s. VKSS International Private Limited (for brevity, the ‘Financial Creditors’) have filed the present application under the Section 7 of the Insolvency and Bankruptcy Code, 2016 (for brevity, the ‘IBC, 2016’) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 with a prayer to initiate the Corporate Insolvency process against KAD Housing Private Limited (for brevity, the ‘Corporate Debtor’).

The Corporate Debtor namely, KAD Housing Private Limited is a Company incorporated on 24.11.2004 under the provisions of the erstwhile Companies Act, 1956 with CIN U55101DL2004PTC130776, having its registered office at 151, Savita Vihar, New Delhi-110092, which falls within the territorial jurisdiction of this Tribunal.

The Authorized Share Capital of the Corporate Debtor Company is Rs.25,00,00,000/- and the Paid-up Share Capital is Rs.14,14,59,000/-as per the Master Data annexed with the Application.

That the detailed particulars of the un-paid financial debt and the date of default as mentioned by the Applicants in the Part IV of their application are reproduced overleaf :

That from perusal of the Part IV of the Application, it is observed that the total unpaid Financial Debt claimed by the Applicants amounts to Rs.1,76,04,484/- and the date of default is in July, 2019.

That during the course of hearing on 08.12.2021, it was submitted by the Ld. Counsel for the Applicants that the principal amount of Rs 1.5 Crore has already been paid by the Corporate Debtor and only an amount of Rs. 64 lakh is left to be paid towards the interest component. Accordingly, the Applicants were directed to convince the Bench on the maintainability of the application since, the defaulted amount subsisting has been less than Rs.01 (one) crore.

Accordingly,  the  Applicants  during  their  submissions  on 19.04.2022, have stated that since the liability towards the principal amount was discharged during the pendency of the present application, therefore, the petition is maintainable. It was further added that the term “financial debt” as defined under Section 5(8) of IBC, 2016 includes the interest component. The scanned copy of the order dated 19.04.2022 is reproduced overleaf :

That the Corporate Debtor has neither filed its reply nor its written submissions. However, the Ld. Counsel appearing for the Corporate Debtor stated that since the principal amount has been paid by the Corporate Debtor, therefore, the petition needs to be dismissed.

After hearing submission of both the parties and taking note of the fact that the principal amount of debt has already been discharged, the issue which emerges for our adjudication is “Whether the CIRP can be initiated / triggered solely on the basis of the un-paid amount of interest when the entire principal amount of debt has been discharged by the Corporate Debtor”.

At this juncture, we refer to the definition of term “financial debt” as defined under Section 5(8) of IBC, 2016, which is reproduced below :

(8) “financial debt” means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes –

……………..

…………….”

Further, we refer to the definition of term “debt” as defined under Section 3(11) of IBC, 2016, which is reproduced below :

(11) “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;

Since the term debt means a liability or obligation in respect of a claim therefore, we would like to refer to the definition of the term “claim” as defined under Section 3(6) of IBC, 2016, which is reproduced below :

“(6) “claim” means –

(a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured, or unsecured;

(b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured..”

That from the perusal of the aforesaid definitions, it is observed that the interest is not included in the term “debt” per se. Rather, the “interest” can be claimed as “financial debt” only if such debt exists.

At this juncture, we consider it relevant to refer to the Judgment of Hon’ble NCLAT in the matter of S. S. Polymers v. Kanodia Technoplast Ltd. in Company Appeal (AT) (Insolvency) No. 1227 of 2019, dated 13.11.2019. The relevant extracts are given below :

“5. Admittedly, before the admission of an application under Section 9 of the I&B Code, the ‘Corporate Debtor’ paid the total debt. The application was pursued for realisation of the interest amount, which, according to us is against the principle of the I&B Code, as it should be treated to be an application pursued by the Applicant with malicious intent (to realise only Interest) for any purpose other than for the Resolution of Insolvency, or Liquidation of the ‘Corporate Debtor’ and which is barred in view of Section 65 of the I&B Code..”

In view of the aforesaid discussion, it can be inferred that the “interest” component alone cannot be claimed or pursued, in absence of the debt, to trigger a CIR process against the corporate Debtor. Further, the application pursued for realization of the interest amount alone is against the intent of the IBC, 2016.

Hence, we conclude that the CIRP against a Corporate Debtor cannot be initiated/triggered solely on the basis of the un-paid amount of interest where the entire principal amount has already been discharged by the Corporate Debtor.

The Petition is accordingly Dismissed.