Rulings on clubbing concept in IBC to meet the minimum threshold amount of default to initiate CIRP

Decoding the Code

Rulings on clubbing concept in IBC for calculation of default threshold amount to initiate CIRP

1. Filing of jointly application to meet the minimum amount of the default

1.1 Filing of joint application by Operation Creditors to meet the minimum amount of the default

  • Mr. Suresh Narayan Singh Vs. Tayo Rolls Ltd. (2018) 86 NCLAT: If the application is maintainable by one of the workmen, in that capacity, it should have been treated to be an application of Operational Creditor and others could have been asked to file their respective claim before the Resolution Professional. Only if in an individual claim of Operational Creditor the amount of debt is less than one lakh rupees, it can be rejected being not maintainable.
  • Sadashiv Nomaya Nayak & Ors. Vs. Gammon Engineers & Contractors Pvt. Ltd. (2023) 455 NCLAT: Referred Mr. Suresh Narayan Singh (supra) and upheld decision of the AA in which AA rejected the application filed under Section 9  that the Appellants have not individually crossed the threshold of Rs. 1 Crore as provided under Section 4 of the Code. Hon’ble Supreme Court has also dismissed the appeal against the NCLAT’s order.
  • Mr. Shailesh S Shenoy Vs. Gammon Engineers and Contractors Pvt. Ltd. (2023) 350 NCLT: The claims of the Operational Creditor if considered individually in the above Company Petition do not meet the threshold limit and the Company Petition deserves to be dismissed on this ground alone.

1.2 Filing of joint application by Financial Creditors to meet the minimum amount of the default

  • Vishnu Oil Mill Pvt. Ltd. Vs. Union of India (2022) 166 HC, High Court of Rajasthan: Section 7 of the IBC as amended vide Gazette Notification dated 05.06.2020, admits no other interpretation except that a group of financial creditors can converge and join hands to touch the financial limit of Rs.1 crore stipulated under Section 7 so as to initiate a CIRP under the IBC.
  • Hi-Tech Designs Pvt. Ltd. Vs. Sri Sai Car Sales Pvt. Ltd. (2023) 338 NCLT: NCLT relied on the judgment laid down in the case of Vishnu Oil Mill Pvt. Ltd. (supra) and admitted the CIRP application filed under Section 7 of the IBC, 2016 jointly Financial Creditors.
  • Hon’ble Supreme Court in Manish Kumar Vs. Union of India and Another (2021) 16 SC held that:
    • It is indisputable that in order to successfully move an application under Section 7 that there must be a default which must be in a sum of Rs.1 crore. It is equally clear that the amount of Rs.1 crore need not be owed by the corporate debtor in favour of the applicant. It must be noted that the Explanation existed even prior to the provisos being inserted. It is open to a financial creditor, to move an application in the company of another financial creditor or more than one other financial creditor.
    • Thus, dehors the impugned provisos in terms of the Explanation in sub-Section 7(1), a financial debt need not be owed to the applicant and as joint application by more than one applicant was and is contemplated, the resultant position would be that any number of applicants, without any amount being due to them, could move an application under Section 7, provided that they are financial creditors and there is a default in a sum of Rs.1 crore even if the said amount is owed to none of the applicants but to any another financial creditor. This position has not undergone any change even with the insertion of the provisos. In other words, even though the provisos require that in the case of a real estate project, being conducted by a corporate debtor, an application can be filed by either one hundred allottees or allottees constituting one-tenth of the allottees, whichever is less, if they are able to establish a default in regard to a financial creditor and it is not necessary that there must be default qua any of the applicants.(p135)
    • In other words, if a law contemplates that the default in a sum of Rs.1 crore can be towards any financial creditor, even if he is not an applicant, the fact that the debt is barred as against some of the financial creditors, who are applicants, whereas, the application by some others, or even one who have moved jointly, fulfill the requirement of default, both in terms of the sum and it not being barred, the application would still lie.(138)

2. Clubbing of Interest in Principal amount to meet the minimum amount of the default

2.1 Clubbing of interest in case of Operational Debt

  • Wanbury Ltd. Vs. Panacea Biotech Ltd. (2017) 66 NCLT: In the definition of the term Operational Debt under 5(21) the word interest has not been mentioned. An appeal filed against this order was dismissed due to settlement, (2017) 135 NCLAT.
  • Krishna Enterprises Vs. Gammon India Ltd. (2018) 46 NCLAT: If the principle amount has already been paid and as per agreement no interest was payable, the applications under Section 9 on the basis of claims for entitlement of interest, were not maintainable. If for delayed payment Appellant(s) claim any interest, it will be open to them to move before a court of competent jurisdiction, but initiation of Corporate Insolvency Resolution Process is not the answer.
  • Mr. Prashat Agarwal Vs. Vikash Parasrampuria (2022) 509 NCLAT: Since, interest on delayed payment was clearly stipulated in invoice and therefore, this will entitle for “right to payment” (Section 3(6) IBC) and therefore will form part of “debt” (Section 3(11) IBC). The total amount for maintainability of claim will include both principal debt amount as well as interest on delayed payment which was clearly stipulated in the invoice itself.
  • CBRE South Asia Pvt. Ltd. Vs. United Concepts and Solutions Pvt. Ltd. (2022) 636 NCLAT: Referred Mr. Prashat Agarwal (supra) judgment and set aside NCLT judgment were NCLT rejected the application filed u/s 9 of IBC.
  • Bhotika Trade & Services Pvt. Ltd. Vs. Avinash EM Projects Pvt. Ltd. (2023) 264 NCLAT: NCLAT set aside the order in which CIRP application u/s 9 was rejected on ground that interest cannot be included in the claim and the principal amount being less than 1 crore since no agreement for the interest amount.
  • Mr. Anuj Sharma Vs. Rustagi Projects Pvt. Ltd. (2023) 421 NCLAT: For calculating the amount for threshold purpose u/s 4 of IBC, both principal amount and interest has to be calculated when the interest is stipulated between the parties.
  • M/s Plastofab Vs. Electroteknica Switchgears Pvt. Ltd. (2022) 358 NCLT:  In case of Operational Debts, the interest component cannot be clubbed with the Principal Debt to arrive at the minimum pecuniary threshold of Rs. 1 Crore.
  • M/s. Ingram Micro India Pvt. Ltd. Vs. M/s. Fbonline Trading Pvt. Ltd. (2022) 679 NCLT: The interest can be claimed as the Financial Debt, but neither there is any provision nor there is any scope to include the interest to constitute as the Operational Debt or part of it.
  • Khatunaresh Impex Pvt. Ltd. Vs. Jindal (India) Ltd. (2022) 950 NCLT: In absence of any contract/agreement for payment of interest between the Operational Creditor and Corporate Debtor, interest amount cannot be added to only to cross the threshold limit.
  • Gandhar Oil Refinery (India) Ltd. Vs. City Oil Pvt. Ltd. (2023) 168 NCLT: Levying of interest being neither mentioned in any agreement entered into by the parties, nor being specifically admitted by the Corporate Debtor, in absence of any promise of the Corporate Debtor to pay such interest, could not be clubbed with the principal amount due to hold the interest as a ‘debt’ so as crossover the threshold amount of 1 Crore.
  • North West Carrying Company, LLP Vs. Metro Cash and Carry India Pvt. Ltd. (2023) 237 NCLT: In order to club other charges such as interest, legal charges, balance cost of amortization and/or notice period rent with principal amount to meet threshold limit u/s 4 of IBC express stipulation has to be incorporated specifically in the agreement, the purchase order or the invoice and in the absence of the same, neither interest nor any other charges can be clubbed with the principal amount.
  • M/s. Rashtriya Polymers & Solvents Vs. M/s. Kanodia Technoplast Ltd. (2023) 334 NCLT

2.2 Clubbing of interest in case of Financial Debt

  • Netafirm Agricultural Financing Agency Pvt. Ltd. Vs. Baliraja Sakhar Karkhana Ltd. (2023) 288 NCLAT: For finding out threshold limit under Section 4 of IBC both amount Principal and Interest has to be computed.
  • M/s. Ingram Micro India Pvt. Ltd. Vs. M/s. Fbonline Trading Pvt. Ltd. (2022) 679 NCLT: The interest can be claimed as the Financial Debt, but neither there is any provision nor there is any scope to include the interest to constitute as the Operational Debt or part of it.

3. Clubbing of the two difference work orders/invoices/separate debt

  • Wam India Pvt. Ltd. Vs. SN Engineering Services Pvt. Ltd. (2023) 128 NCLT: The Adjudicating Authority found that in case of M/s. A2 Interiors Products Pvt. Ltd. Vs. M/s. Ahluwalia Contracts (India) Ltd. (2021) 214 NCLT, the Principal Bench had allowed the petition holding that debts arising from different work order(s) can be clubbed to satisfy the minimum threshold limit.
  • A J Buildcon Pvt. Ltd. Vs. Patel Engineering Ltd. (2023) 58 NCLT: Debts arising from different work order(s) can be clubbed to satisfy the minimum threshold limit.
  • M/s. Sree Vinayaka Buildwell Projects Pvt. Ltd. Vs. M/s. NEL Holdings Ltd. (2022) 323 NCLTNCLT admitted the CIRP application u/s 9 of IBC clubbing of two separate Operational Debts.
  • G4S Secure Solutions (India) Pvt. Ltd. Vs. Heavy Engineering Corporation Pvt. Ltd. (2022) 126 NCLT: With regard to the contention raised by the Corporate Debtor, whether the Operational Creditor can file a single application for various claims arising out of separate work orders. The Hon’ble Supreme Court and the Hon’ble NCLAT on various occasions have affirmatively decided that separate claims can be a part of single application. The judgments have been relied on by the Operational Creditor. The Order has also upheld by NCLAT in G4S Secure Solutions (India) Pvt. Ltd. Vs. Heavy Engineering Corporation Pvt. Ltd. (2022) 771 NCLAT.




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