2022 (5) TMI 1476 - Tri - Insolvency and Bankruptcy

Maintainability of petition - initiation of CIRP only in the case of defaulted amount of interest, without adding the principal amount? - HELD THAT - Mere perusal of the definition of debt shows that debt means a liability or obligation in respect of claim, which is due from any person and includes a financial debt and operational debt. Admittedly, the definition of debt is very wide. It includes the liability or obligation in respect of a claim as well as financial debt and operational debt. So far initiation of CIR Process Under Section 7 of the IBC, 2016 is concerned, the application is maintainable only when the debt is a financial debt. On perusal of Section 5(8) of the IBC, it is seen that a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money comes under the definition of financial debt and includes clause a to i. Thus, in order to initiate a CIR Process u/s 7 of the IBC, the prime consideration is that there must be existence of debt and only thereafter interest shall be added in the principal debt amount. As it is observed that the principal amount has not become due and payable as yet, therefore, there is no debt which is due and payable. Accordingly, there is no default in making the payment of the amount. Therefore, the only interest amount claimed by the applicant, does not come under the definition of financial debt. Since the present application is filed only on the interest accrued on principal amount which is not due and payable as yet, therefore, the present petition filed under Section 7 of the IBC is not maintainable. Application dismissed.

Summary

Issues:
1. Can CIR Process be initiated only on the defaulted amount of interest without adding the principal amount?

Analysis:
The main issue in this case is whether the Corporate Insolvency Resolution (CIR) Process can be initiated solely based on the defaulted interest amount without including the principal amount. The Applicant filed a petition for the interest amount due on a debenture certificate issued by the Corporate Debtor, which was payable at a rate of 6% per annum on face value plus security premium on quarterly rests. The Respondent argued that the debt claimed was only the interest amount and not the principal amount, which was not yet due according to the terms of the Debenture Certificate.

Upon examining the terms and conditions of the debenture certificate, the Tribunal noted that the principal amount was not yet due and payable, as it could only be redeemed after one year from the date of issuance. The Tribunal emphasized that for the CIR Process to be initiated under Section 7 of the Insolvency and Bankruptcy Code (IBC), there must be a financial debt. According to the definition in Section 5(8) of the IBC, a financial debt includes the principal amount along with interest disbursed against the consideration for the time value of money.

The Tribunal concluded that since the principal amount was not yet due and payable, there was no debt in default, and therefore, the interest amount claimed did not fall under the definition of financial debt. As a result, the Tribunal held that the petition filed under Section 7 of the IBC based solely on the interest accrued on the principal amount, which was not yet due, was not maintainable. Consequently, the application was dismissed by the Tribunal.

In summary, the judgment clarifies that for the initiation of the CIR Process under the IBC, there must be a default in the payment of a financial debt, which includes the principal amount along with interest. In this case, since the principal amount was not yet due and payable, the interest amount alone did not constitute a financial debt, leading to the dismissal of the application under Section 7 of the IBC.