Interest as part of Operational Debt: A conundrum
By Aishwarya Narasimhan
While the inclusion of interest amounts in ‘financial debt’, for the purposes of the Insolvency and Bankruptcy Code, 2016, is clearly provided for, the interest component in the case of ‘operational debt’ has always been a point of contention. Pointing out that there appears to be a deliberate difference in the language used for both terms – ‘financial debt’ and ‘operational debt’, the article also discusses many specific judgments of NCLT and NCLAT, delivered on the aforesaid quandary. It points out that the lack of an agreement amongst the parties for the liability of interest is an important reason for not awarding the interest amount as claimed by the operational creditor under a Section 9 application. Observing that an application only for recovery of an interest amount shall negate the intention of the lawmakers of the IBC and so it is not desired, the author notes that hence the interest amount alone cannot be claimed as a right, even when the documentation/ agreement between the parties with respect to liability of interest is proper and clear. According to her, this also seems to be so even when statutory interest is imposable, such as under the Micro Small and Medium Enterprises Development Act, 2006.
Notifications and Circulars
- Authorised Dealers Category II – Online submission of Form A2
- Framework for acceptance of Green Deposits notified
- Services engaged in the Iron Ore Mining to be public utility services
- Norms for Scheme of Arrangement by unlisted Stock Exchanges, Clearing Corporations and Depositories notified
- Extension in compliance period of fund raising by large corporates through issuance of debt securities notified
- Guidelines with respect to excusing or excluding an investor from an investment of AIF notified
- Framework for contribution by eligible issuers of debt securities to the Settlement Guarantee Fund of the Limited Purpose Clearing Corporation for repo transactions in debt securities notified
Ratio decidendi
- No bar under IBC against continuation of Section 138 proceedings under Negotiable Instruments Act, 1881 parallel to CIRP proceedings – Supreme Court
- Once a resolution plan is approved by the Committee of Creditors, no modifications are permissible – Supreme Court
- MSMED Act being a special legislation would have precedence over general law, but it would not eclipse and nullify the jurisdiction clause agreed upon between the parties – Delhi High Court
News Nuggets
- Insolvency – Minimum threshold limit of default – Date of filing and not date of registration of petition is important
- Insolvency – No scope of condonation of delay beyond 15 days under Section 61 of IBC
- Arbitration – Limitation period starts once there is failure in amicable settlement of the dispute
- Arbitration – Arbitral Tribunal’s order rejecting the application for impleadment of a party is not an ‘interim award’ and cannot be challenged u/s. 34 of the Act
