The National Company Law Tribunal, New Delhi Bench held that the Corporate Insolvency Resolution Process ("CIRP") cannot be initiated against a Corporate Debtor solely on the basis of the unpaid amount of interest, where the entire principal amount has already been discharged by the Corporate Debtor.
In the instant case titled Saraf Chits Private Limited & Anr v KAD Housing Private Limited the issue raised before NCLT was:
When the entire principal amount of the debt has been discharged by the Corporate Debtor, can the CIRP be commenced simply on the basis of the unpaid amount of interest?
The Bench said, CIRP cannot be instituted against a corporate debtor based solely on the amount of interest that remains to be paid after the entire principal amount has already been discharged.
It was observed that interest is not included in the definition of "debt" under the IBC. Rather, "interest" may only be claimed as "financial debt" if there is one.
The Bench categorically held that:
“ Admittedly, before the admission of an application under Section 9 of the I&B Code, the 'Corporate Debtor' paid the total debt. The application was pursued realisation of the interest amount, which, according to us is against the principle of the I&B Code, as it should be treated to be an application pursued by the Applicant with malicious intent (to realise only Interest) for any purpose other than for the Resolution of Insolvency, or Liquidation of the 'Corporate Debtor' and which is barred in view of Section 65 of the I&B Code.."
In the absence of a debt, the "interest" component cannot be claimed or pursued for purposes of instituting CIRP against the Corporate Debtor. An application pursued solely for the purpose of realising the interest amount is contrary to the IBC's intent.
Hence, the application was denied by the Bench, who stated that CIRP cannot be brought against a Corporate Debtor simply on the basis of unpaid interest when the Corporate Debtor has previously paid off the entire principal amount.