CIRP can't be triggered solely on basis of unpaid interest when principal debt has been discharged: NCLT

The National Company Law Tribunal (NCLT), Delhi on Monday held that the Corporate Insolvency Resolution Process (CIRP) cannot be initiated solely on the basis of unpaid interest when the corporate debtor has discharged the principal amount [Saraf Chits Private Limited v. VKSS International Private Limited]..While dismissing a petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 for realization of interest amount on the debt, the Tribunal held,“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 applicant sought to initiate the CIRP claiming an unpaid financial debt of ₹1.76 crore. The principal amount of ₹1.5 crore was already paid by the corporate debtor and only an amount of ₹64 lakh was left to be paid towards the interest component.In order to convince the Bench that the application was maintainable even though the default amount was less than ₹1 crore, the applicants submitted that the principal amount was paid during the course of the proceedings. In addition, the applicants submitted that as per Section 5(8) of the Code, the word ‘financial debt’ comprises both the principal amount as well as the interest..After hearing the arguments and going through the provisions of the Code, the Bench of Justice Abni Ranjan Kumar Sinha and LN Gupta noted that interest is not included in the term “debt” per se. Rather, the “interest” can be claimed as “financial debt” only if such debt exists.Relying on the ruling of the National Company Law Appellate Tribunal in SS Polymers v. Kanodia Technoplast Ltd, the Tribunal held, “...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 the for realization of the interest amount alone is against the intent of the IBC, 2016."Hence, the appeal stood dismissed..Advocates Rakesh Kumar, Preeti Kashyap and Ankit Sharma appeared for the applicant. Advocates Anil Kher, Kunal Kher and Aishwarya Kumar represented the respondent..[Read the order]