Treatment of interest levied as per MSMED Act, 2006 on arbitral award amount passed by Arbitral Tribunal in favour of Operational Creditor, in Resolution Plan under IBC – Proton Steels Ltd. v. Anuj Jain, RP of McNally Bharat Engineering Company Ltd. – NCLT Kolkata Bench
In this case, award is under challenged under Sec. 34 of Arbitration Act, RP has admitted the claim of award amount, however, the interest was not admitted as an application challenging the arbitral award was still pending before the Calcutta High Court. Therefore, the interest amount has been admitted as a contingent claim with a notional value of Rs.1/-.
NCLT Kolkata Bench held that the amount claimed has been categorised as a contingent liability, pending the final decision in the matter of challenge. The acceptance of the principal as a contingent liability is therefore merely for the accounting purpose following the principle of Complete disclosure. By the very definition of the contingent liability, if the condition precedent for confirming the entry as an expense is fulfilled, a reverse entry is made to treat the liability as an expense, otherwise the same is reversed. Thus, making a mere accounting entry, which is not irreversible, of the principal claim as a liability does not mean the acceptance of the claim. Since the matter is receiving consideration of the Hon’ble High court, it would be premature to make a confirmed entry towards the claim or reverse it, as the case may be.
