Tuesday 25 January 2022

CBRE South Asia Private Limited Vs. United Concepts and Solutions Private Limited - That from the above discussion, it can be inferred that the “interest” can be claimed as the Financial Debt, but neither there is any provision nor there is any scope to include the interest to constitute as the Operational Debt.

NCLT New Delhi-II (19.01.2022) in CBRE South Asia Private Limited  Vs. United Concepts and Solutions Private Limited  [(IB)-797(ND)2021] held that; 

  • That from the above discussion, it can be inferred that the “interest” can be claimed as the Financial Debt, but neither there is any provision nor there is any scope to include the interest to constitute as the Operational Debt. 

 

Excerpts of the order;

M/s. CBRE South Asia Pvt. Ltd. (for brevity the ‘Applicant’), has filed the present Application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for brevity the ‘IBC, 2016’) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 with a prayer to initiate the Corporate Insolvency Resolution Process against M/s. United Concepts and Solutions Pvt. Ltd. (for brevity the ‘Corporate Debtor’). 

 

# 2. That the Corporate Debtor namely, M/s. United Concepts And Solutions Pvt. Ltd. is a Company incorporated on 31.05.1999 with CIN U70100DL1999PTC100002 under the provisions of the Companies Act, 2016 having its registered Office at A-1A, 31 B, Janakpuri, New Delhi-110058, which falls within the territorial jurisdiction of this Bench. 

 

# 3. That the Authorized Share Capital of the Corporate Debtor is Rs.1,25,00,000/- and Paid-up Share Capital is Rs.1,01,01,900/- as per the Master Data of the Corporate Debtor. 

 

# 4. That the Part IV of the Application giving particulars of the operational debt claimed by the applicant is reproduced overleaf:

 

# 5. That during the course of preliminary hearing on 03.01.2022, while going through the Part IV of the Application, it was observed by this Bench that the Applicant has claimed a total amount of Rs.1,39,84,400/- as Operational Debt, out of which Rs.88,50,886/- only is the Principal amount and the remaining Rs.51,33,514/- is the interest component. Since the principal outstanding claimed by the Operational Creditor is less than Rs. 1 Crore, a query to the Applicant was raised by this Bench as to whether the Principal and Interest amounts can be clubbed together to reach the minimum threshold of Rs. 1 Crore as stipulated under Section 4 of IBC, 2016. 

 

# 6. That in response, it was submitted by the Ld. Counsel appearing for the Operational Creditor that the invoices raised in support of debt contained the provision of interest and accordingly, the Applicant has claimed the interest as part of the Operational Debt. 

 

# 7. To adjudicate this issue, it is imperative to examine the various related provisions of IBC, 2016. 

 

# 8. That since an Application under Section 9 can only be filed on “occurrence of default”, therefore, we would like to examine the definition of “default” as defined under Section 3(12) of IBC, 2016 - 

  • “(12) “default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not [paid] by the debtor or the corporate debtor, as the case may be;” 

 

# 9. Since the term default refers to the terms like non-payment of debt and debt becoming due and payable, we would like to examine the definition of “debt” as defined under Section 3(11) of IBC, 2016. The contents of the same are 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; 

 

# 10. Since the term debt means a liability or obligation in respect of a claim, we visit the definition of “claim” as defined under Section 3(6)-

  • “(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;” 

 

# 11. Since the definition of claim is common for both the Operational Debt as well as the Financial Debt, we further refer to the definition of “Operational Debt” and “Financial Debt” as defined under section 5(21) and 5(8) of IBC, 2016 respectively. The same are reproduced below – 

  • “(21) “operational debt” means a claim in respect of the provision of goods or services including employment or a debt in respect of the [payment] 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;” 

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

 

# 12. That from the above discussion, it can be inferred that the “interest” can be claimed as the Financial Debt, but neither there is any provision nor there is any scope to include the interest to constitute as the Operational Debt. 

 

# 13. That a similar finding was given by the NCLT Chandigarh Bench in the matter of M/s. Wanbury Ltd. Vs. M/s. Panacea Biotech Ltd. in CP No. 8/2016 dated 18.04.2017. The relevant extracts are given below : 

  • “15. I am, however, of the view that the issue here is to be determined, in view of the provisions of the ‘Code’ which has come into force w.e.f. 01.12.2016. Learned Counsel for parties have not disputed that the term ‘debt’ or operational creditor were not defined in the 1956, Act. This term is now defined in section 3(11) of the ‘Code’ as meaning ‘a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt’. We are presently concerned with the definition of term “operational debt” as defined in section 5(21) of the Code. Section 5(20) defines “operational creditor” as meaning a person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred. Section 5(21) of the Code says that “operational debt” means a claim in respect of the provision of goods and services including employment or a debt in respect of the repayment of the dues arising under any law for the time being in force and payable to the Central Government or State Government or any local authority. 

  • 16. There is a marked difference between the definition of the term ‘financial debt’ and the ‘operational debt’. Under Section 5(8) the term ‘financial debt’ means a debt along with interest, if any, which is disbursed against the consideration for the time value of money and that is an inclusive definition. In the definition of the term ‘operational debt’ under section 5(21) the word ‘interest’ has not been mentioned…” 

 

# 14. That in the light of the above discussion, we are of the view that the Interest amount cannot be clubbed with the Principal amount of debt to arrive at the minimum threshold of Rs.1 Crore for complying with the provision of Section 4 of IBC, 2016. 

 

# 15. That the Ld. Counsel appearing for the Applicant had taken another plea in the hearing that since the date of default is of 2019 hence, the limit of 1 Crore shall not be applicable to it. 

 

# 16. In this context, it is worthwhile to refer to the Judgement of Hon’ble NCLAT in the matter of Jumbo Paper Products Vs Hansraj Agrofresh Pvt. Ltd. Company Appeal (AT) (Ins) No. 813 of 2021 dated 25.10.2021. The relevant extracts are reproduced below : 

  • “10. The other judgments cited by learned Counsel for Appellant broadly lay down that any statute/law can be applied retrospectively only if explicit provision regarding its retrospective application is made in the statute. It is seen that notification dated 24.3.2020 (supra) makes it unambiguously clear that the threshold limit to be considered for section 9 application will be Rs. 1 crore. This threshold limit will be applicable for application filed u/s 7 or 9 on or after 24.3.3020 even if debt is of a date earlier than 24.3.2020. Since the application under section 9 which is the subject matter of this appeal was filed on 13.9.2020, therefore the threshold limit of Rs. 1 crore of debt will be applicable in the present case.”

 

# 17. Since the present application has been filed in the year 2021, therefore, we find no force in the arguments of Ld. Counsel of Operational Creditor that the limit of Rs. 01 Crore is not applicable to its case. 

 

# 18. In view of the above, we conclude that since the Principal amount of operational debt claimed by the Applicant is less than Rs.01 Crore and the Application is filed in the year 2021, the Application is not maintainable under Section 4 of IBC, 2016 and is accordingly, dismissed.

 

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The sole purpose of this post is to create awareness on the "IBC - Case Law" and to provide synopsis of the concerned case law, must not be used as a guide for taking or recommending any action or decision. A reader must refer to the full citation of the order & do one's own research and seek professional advice if he intends to take any action or decision in the matters covered in this post.