The NCLAT affirmed that interest cannot be considered part of operational debt under the Insolvency and Bankruptcy Code.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra and Mr. Arun Baroka (Technical Members) reviewed an appeal and observed that the interest claims could not be included as part of operational debt under the IBC, reinforcing that such claims must be supported by a valid agreement between the parties. Additionally, it emphasized the importance of establishing pre-existing disputes to invalidate the operational creditor's application.
The present appeal was initiated under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the order dated January 17, 2024, by the Adjudicating Authority in the matter of Khushbu Dye Chem Private Limited vs. Chemical Suppliers India Private Limited. The Adjudicating Authority dismissed the Company Petition under Section 9, concluding that the claimed debt of ₹1,82,54,891 plus interest of ₹42,72,193 was below the statutory threshold of ₹1,00,00,000 and identified pre-existing disputes regarding the amount owed.
The facts revealed that in January 2021, the Respondent’s Director approached the Appellant for the supply of chemicals, which the Appellant subsequently fulfilled through multiple purchase orders and invoices. Despite these efforts, payments were not received, prompting the Appellant to issue a demand notice on June 24, 2022. The Respondent acknowledged the debt but raised disputes concerning adjustments from a separate transaction. This led to the issuance of cheques by the Respondent that were returned unpaid, alongside a police complaint filed against the Appellant for alleged forgery.
Upon filing the Company Petition, the Appellant argued that the Respondent admitted liability but sought to offset the claimed amount with debts related to Isopropyl Alcohol (IPA), which the Respondent alleged were owed to them. The Adjudicating Authority, however, misinterpreted the debts and concluded incorrectly that they were below the threshold, relying heavily on the Respondent’s claims of set-off and the dishonoured cheques without adequately addressing the nature of the Appellant's operational debt.
The appeal contended that the Respondent failed to demonstrate any valid pre-existing disputes, asserting that the dismissal was based on unrelated claims. The NCLAT found that the Adjudicating Authority had erred in its conclusions regarding the existence and legitimacy of the debt, prompting a re-evaluation of the evidence presented. In its analysis, the NCLAT referred to precedent, determining that the interest claimed on an unsigned invoice was invalid as it constituted a unilateral document. It further clarified the definitions of 'operational debt' and 'financial debt,' affirming that interest could not be considered part of the operational debt under the IBC.
Ultimately, the NCLAT upheld the Adjudicating Authority's order, affirming the dismissal of the appeal. The court emphasized that substantial evidence of pre-existing disputes existed, thus validating the lower authority's decision. Consequently, both parties were directed to bear their own costs.
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