Insolvency application can be filed for interest that becomes due without asking for principal amount: NCLAT

The National Company Law Appellate Tribunal (NCLAT) recently held that an application under Section 7 of the Insolvency Bankruptcy Code (IBC) is maintainable for the component of interest that has become due, without asking for the principal amount which has not yet become due [Base Realtors Private Limited v. Grand Realcon Private Limited]..Justice Rakesh Kumar Jain and Technical Member Naresh Salecha made the observation while allowing an appeal against an order of the NCLT which found that a claim of only interest was not covered by the definition of "financial debt" under the IBC.“Application filed under Section 7 of the Code could be maintained in respect of the component of interest which became due and payable, without asking for the principal amount which has not yet become due and payable”, the Appellate Tribunal held..The respondent had allotted debentures of a certain amount to the appellant with rate of 6 per cent per annum interest payable quarterly. The issue arose when the respondent failed to pay interest for three quarters, which amounted to a total debt of ₹ 2,39,80,274..On the three quarters of interest going unpaid, the appellant initiated the corporate insolvency resolution process (CIRP) with respect to the interest becoming payable as debt. However, the application under Section 7 was rejected by the NCLT.The appellant before the NCLAT argued that Section 7 of the Code was maintainable even on the component of interest if it crosses the threshold limit of financial debt. On the other hand, the respondent contended that as per the IBC, financial debt meant debt along with interest and not the interest independently..To answer the question before it, the NCLAT relied on a judgment of the Supreme Court in M/s Orator Marketing Pvt Ltd v. M/s Samtex Desinz Pvt Ltd, wherein it was held that ‘financial debt’ would include interest free loans advanced to finance business operations of a corporate body.Taking a cue from this, the NCLAT found that an application under Section 7 could be filed only for recovery of interest..PCA Abhishek Nahta and Advocates Raveena Paniker and Rishabh Sachdeva appeared for the appellants, while the respondents were represented by Advocates Jeewesh Prakash and Ujjwal Mendiratta..[Read Order]