Introduction

The case of Prashant Agarwal v. Vikash Parasrampuria & Anr. represents a significant development in the interpretation of operational debt under the Insolvency and Bankruptcy Code, 2016 (IBC). Decided by the National Company Law Appellate Tribunal (NCLAT) on July 15, 2022, this judgment clarifies the inclusion of interest on delayed payments within the operational debt threshold, thereby impacting the maintainability of insolvency proceedings under Section 9 of the IBC.

Parties Involved:

• Appellant: Mr. Prashant Agarwal, Member of the Suspended Board of Bombay Rayon Fashions Limited.
• Respondents:
  1. Vikash Parasrampuria, Sole Proprietor of Chiranjilal Yarns Trading (Operational Creditor).
  2. Mr. Santanu T. Ray, Interim Resolution Professional of Bombay Rayon Fashions Limited.

Background: Chiranjilal Yarns Trading (OC) supplied various yarns to Bombay Rayon Fashions Limited (CD) and raised invoices totaling over INR 2 crores. While some payments were delayed, five invoices remained unpaid, leading the OC to file for insolvency proceedings under Section 9 of the IBC.

Summary of the Judgment

The NCLAT upheld the Adjudicating Authority’s decision to admit the Section 9 application by the Operational Creditor. The primary contention by the Appellant was that the principal operational debt claimed by the OC was below the statutory threshold of INR 1 crore, rendering the application inadmissible. However, the Tribunal concluded that the total debt, including interest on delayed payments, exceeded the threshold, thereby satisfying the maintainability criteria. Consequently, the appeal by Mr. Prashant Agarwal was dismissed.

Analysis

Precedents Cited

The Appellant referenced several judgments to argue that the claim was either below the threshold or time-barred. Notably:

• CBRE South Asia Pvt. Ltd. v. United Concepts and Solutions Pvt. Ltd. – A Delhi NCLT case focusing on interest claims under the Arbitration Act.
• Jumbo Paper Products v. Hansraj Agrofresh Pvt. Ltd. – An NCLAT judgment addressing similar claims.
• Reliance Cellulose Products Ltd. v. Oil and Natural Gas Corporation Ltd. (Supreme Court, 2018) – Pertaining to the Arbitration Act’s Section 29.
• Oriental Structural Engineers Pvt. Ltd. v. State of Kerala (Supreme Court, 2021) – Concerning Sections 31(7), 34 & 37 of the Arbitration and Conciliation Act, 1996.

Furthermore, the Tribunal referenced its own prior judgment in Pavan Enterprises v. Gammon India, which recognized interest on delayed payments as part of the operational debt under IBC.

Legal Reasoning

The crux of the Tribunal’s reasoning lies in the definition of "debt" under Section 3(11) of the IBC, which encompasses both financial and operational debts. The definition of "claim" under Section 3(6) further includes rights to payment, whether disputed or not. The Tribunal analyzed the invoices and confirmed that they explicitly included terms for charging interest on delayed payments. This inclusion solidified the interest amounts as part of the operational debt.

Key Points:

• Threshold Limit: Section 4 of the IBC, as amended by S.O 1205(E) dated March 24, 2020, sets the minimum operational debt at INR 1 crore for maintainability under Section 9.
• Inclusion of Interest: The Tribunal found that the interest stipulated in the invoices—18% per annum plus GST on delayed payments—qualified as operational debt, aggregating the total claim above the one crore threshold.
• Limitation Argument: The Appellant’s claim that the application was time-barred under the Limitation Act was refuted based on the dates of invoice issuance and application submission, which fell within the prescribed limitation period.
• Relevance of Cited Judgments: The Tribunal determined that the Appellant’s reliance on Supreme Court judgments related to arbitration did not directly apply to the present case concerning operational debt under the IBC.

Impact

This judgment reinforces the broad interpretation of "debt" under the IBC, explicitly including interest on delayed payments when such terms are contractually agreed upon. Future operational creditors can rely on this precedent to ensure that interest clauses in their agreements are enforceable and contribute to meeting the maintainability threshold for insolvency proceedings. Additionally, corporate debtors must meticulously review and negotiate payment terms to avoid unintended escalation of debt claims.

Complex Concepts Simplified

Operational Debt

Operational Debt refers to the amount owed by a debtor arising from regular business operations, as opposed to financial debt, which relates to borrowed funds. Under the IBC, operational debt includes unpaid invoices, salaries, and other contractual obligations.

Maintainability Threshold

The Maintainability Threshold is the minimum debt amount required for an operational creditor to file for insolvency proceedings under the IBC. As per the amended Section 4 of the IBC, this threshold is set at INR 1 crore.

Section 9 of the IBC

Section 9 empowers operational creditors to initiate Corporate Insolvency Resolution Process (CIRP) against a defaulting corporate debtor. The process is intended to rehabilitate the debtor or, if not feasible, liquidate the company to satisfy creditors.

Limitation Act, 1963

The Limitation Act, 1963 sets time limits within which legal actions must be initiated. In this case, the Appellant argued that the insolvency application was filed beyond this period, but the Tribunal found the application timely.

Conclusion

The NCLAT’s decision in Prashant Agarwal v. Vikash Parasrampuria & Anr. underscores the comprehensive nature of debt definitions under the IBC, particularly emphasizing the inclusion of contractual interest on delayed payments within operational debt. By affirming that such interest contributes to meeting the maintainability threshold, the Tribunal has provided operational creditors with clearer guidance on structuring their agreements and pursuing insolvency remedies. This judgment not only aligns with the IBC’s objective of efficient insolvency resolution but also ensures that creditors’ rightful claims are adequately recognized and acted upon within the legal framework.