TMI Blog2022 (4) TMI 1302X X X X Extracts X X X X X X X X Extracts X X X X ..... not decide the amount that is due to the Operational Creditor. The only test to admit an application under section 7 IBC is whether a debt above the threshold limit is due and whether the Corporate Debtor has defaulted in repayment. When by the date of admission the operational debt in terms of Section 5 (21), which does not include interest, stands discharged, the interest alone which remains under the claim amount, does not qualify for an operational debt, for the default of which alone CIRP can be ordered. NCLT is not a forum for recovery so as to decide the due amount. When admittedly the principal amount is paid, operational debt ceases to be in existence and consequently application under section 9 becomes invalid. Recently NCLAT while adjudicating an appeal filed in the matter of RAJESH KEDIA EX-DIRECTOR OF AJANTA PAPER AND GENERAL PRODUCTS LTD. VERSUS PHOENIX ARC PRIVATE LIMITED, MR. RAJESH KUMAR MITTAL, IRP FOR AJANTA PAPER AND GENERAL PRODUCTS LTD. [ 2022 (4) TMI 528 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH , NEW DELHI ], has held that the quantum of debt is not to be considered at the stage of admission of a petition under Section 7 of the Insolvenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate Debtor stated that it would verify the amounts due. Thereafter, the Operational Creditor again requested the Corporate Debtor through a letter dated 18.08.2018 to release the outstanding amounts. Thereafter both the parties had a meeting on 19.09.2018, to amicably resolve the issue of outstanding payment and release of Bank Guarantees. In the said meeting, the Corporate Debtor accepted its liability and agreed to release the amount of ₹ 9.8 Crores in three instalments. As per the terms of the MoM, the Corporate Debtor released all the Bank Guarantees but failed to comply with the time schedule for payments. By October, 2019 the Corporate Debtor made a payment of ₹ 6.30 Crores in 12 instalments, at its convenience, which is not in accordance with the terms of MoM. Still an amount of ₹ 3,50,00,000/- was due. The Operational Creditor sent several letters and E-mails. But the Corporate Debtor did not make any payment. A demand notice was issued on 25.10.2019, calling upon the Corporate Debtor to pay the principal due amount and the interest. No reply was issued. However, subsequent to receiving the demand notice, the Corporate Debtor, through telephonic convers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be decided is; Whether the Application under Section 9 of IBC can be continued for mere claim of interest. The definition of the operational debt is as under; Section 5 (21) of IBC: operational debt means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority; The financial debt is defined as under; Section 5 (8) of IBC: financial debt means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and includes- There is a clear difference between the financial debt and operational debt. While the Financial Debt includes interest, the Operational Debt does not include interest. The question of awarding interest under Interest Act or other enactments would arise only when there is an Operational Debt. When admittedly there is no Operational Debt, whether the claim Petition filed for both the Operational debt and the interest can be allowed to be continued inspite of the operational debt being d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Krishna Enterprises and others Vs. Gammon India Limited MANU/NL/0359/2018 held that when principal amount is already paid and as per the agreement no interest was payable, the applications under Section 9, on the basis of claims for entitlement of interest, are not maintainable. It also held that if for delayed payment the appellant claims any interest it will be open for it to move a court of competent jurisdiction, but initiation of CIRP is not answer. A judgment of a Bench of NCLT Hyderabad between Vattam Steels Vs. Lahari Infra Projects (India) Private Limited was relied upon wherein it was held that the application under I B Code is not a tool for recovery and with regard to the claim of the Operational Creditor to interest which is not even quantified, the Petitioner should seek its remedy before competent court of law. With regard to the judgment that was relied upon by the Operational Creditor's Counsel rendered by NCLAT in Narendrabhai Shah, Director Pioneer Globex Private Limited Vs. Lim Fa Pte Limited in MANU/NL/0399/2021, wherein the NCLAT did not intend to interfere with the order of the Adjudicating Authority therein and which held that since there was nothing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T, Ahmedabad in Lint Fa Pie Ltd. VS Pioneer Globex Pvt. Ltd. (CP (LB) No. 82/NCLT/AHM/2018) and the judgement of NCLT, Hyderabad in CP (IB) No. 305/9/HDB/2017 in Shri Shri Krishna Rail Engineers Pvt. Ltd. VS Madhucon Projects Limited. Though the common practice is that the amount paid towards discharge of a debt would be appropriated towards interest first, in the written arguments of the Operational Creditor it is clearly admitted that the Corporate Debtor had paid the principal amount and that he did not pay the interest, which would show that the amount paid was consciously appropriated towards the principal. Moreover, when there is no agreement for interest and when interest is not quantified by any court or other forum, appropriation cannot be done towards interest. The Counsel for the Operational Creditor however seeks this Tribunal only to invoke the provisions of Interest Act to grant interest even in the absence of any agreement between him and the Corporate Debtor. It can be seen that an application under Section 9 of IBC is principally for taking the Corporate Debtor into CIRP which has become an insolvent. Failure of the Corporate Debtor discharging the debt is a ..... 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