No Automatic Right To Interest Under IBC, Regulation 16A(7) Of CIRP Regulations Does Not Mandate Interest On Principal Amount: NCLT Mumbai
The National Company Law Tribunal (NCLT) Mumbai bench of Justice Sushil Mahadeorao Kochey (Judicial Member) and Mr. Charanjeet Singh Gulati (Technical Member) has held that there is no provision in the Insolvency and Bankruptcy Code, 2016 (the Code) for automatic interest on the principal amount. Specifically, Regulation 16A(7) of the CIRP Regulations, 2016 does not provide for...
The National Company Law Tribunal (NCLT) Mumbai bench of Justice Sushil Mahadeorao Kochey (Judicial Member) and Mr. Charanjeet Singh Gulati (Technical Member) has held that there is no provision in the Insolvency and Bankruptcy Code, 2016 (the Code) for automatic interest on the principal amount. Specifically, Regulation 16A(7) of the CIRP Regulations, 2016 does not provide for interest to be charged on the principal. Therefore, such interest cannot be claimed as a matter of right, especially at a belated stage when the Corporate Insolvency Resolution Process is nearing completion.
Brief Facts:
This application I.A. No. 5159 of 2024 has been filed by Klassic Wheels Limited (“Applicant”) under Section 60(5) of the Code, seeking directions against Amit Vijay Karia, Resolution Professional of Siddhi Raj Housing Projects Private Limited (“Respondent”), praying for to consider the entire admitted claim of the Applicant amounting to Rs. 5,06,65,920/- for treatment under the approved Resolution Plan;
Company Petition No. 715 of 2021 was filed under Section 9 of the Code by Operational Creditor Capacite' Infraprojects Limited that was admitted on 02.05.2023 and Respondent No.1 was appointed as the Interim Resolution Professional.
The Applicant, within the timeline specified in the Public Announcement, submitted its claim in FORM CA under Regulation 8A on 13.05.2023, claiming Rs. 3,73,87,355.00 as the principal amount paid to the Corporate Debtor for Flat No. B-3002, 30th Floor, in the 'Altus' Project at Worli.
Contentions:
The Applicant submitted that even though the Applicant did not separately claim interest on the principal amount, the Applicant is entitled to interest of 8 percent per annum in light of Regulation 16A (7) of the said IBBI Regulations.
It was further submitted that as the inclusion of interest on financial debt of creditors belonging to a specific class is mandated by the Code and the Regulations, and the SRA must comply with the same, failing which, such a plan shall not only be in contravention of the provisions of law but shall also be discriminatory to creditor within the same class of creditors and shall be liable to be rejected by this Tribunal.
Per contra, the Respondent submitted that it is an admitted position that it was due to the Applicant's inadvertence and oversight that its claim did not include interest. This error, however regrettable, cannot now be corrected at this belated stage after the CIRP has resulted in a resolution plan.
It was further submitted that no claim can be admitted after the approval of a Resolution Plan by the CoC. The IBC is a strictly time-bound mechanism and permitting claims at this belated stage would disrupt the resolution process which is contrary to the objectives of the Code.
Observations:
The Tribunal at the outset referred to Regulation 16A(7) of the CIRP Regulations and observed that a perusal of the said Regulation makes it clear that it pertains to the allocation or proportion of voting share among creditors in the same class. The Applicant has relied on the Regulation to assert that “it is the mandate of the statute that financial debt of a creditor in a class shall include interest at eight percent per annum unless a different rate has been agreed between the parties.”
Based on the above, the Tribunal held that the reliance on Regulation 16A(7) is misplaced, as it does not require that a Resolution Plan submitted by PRAs must include interest in the claim of a creditor.
It further observed that the said Regulation only prescribes the method for determining the voting share of a creditor in a class and does not confer any automatic entitlement to interest in a resolution plan. Hence, Regulation 16A(7) does not vest any right in the Applicant for enhancement of the claim amount.
The Tribunal further opined that the IBC is a comprehensive and self-contained code. Any automatic entitlement to interest must be expressly provided within its framework. A careful examination of the Code reveals no provision mandating the inclusion of interest in a resolution plan.
The Supreme Court in M/s. RPS Infrastructure Ltd v/s Mukul Kumar & Anr. (2023) held that the mere fact that the Adjudicating Authority has not yet approved the plan does not justify allowing the plan to go back and forth, turning the CIRP into an endless process. Reopening the issue at this stage could set a precedent for others to follow suit, disrupting finality.
Based on the above, the Tribunal held that the mere fact that the e-voting process was not yet completed cannot be interpreted / construed as a way for introducing substantive revisions to previously admitted claims, especially at the eleventh hour when the resolution process is approaching completion.
Accordingly, the present application was dismissed.
Case Title: Klassic Wheels Limited Hirkesh Vs Amit Vijay Karia and Anr.
Case Number: IA/5159/2024 IN C.P. (I.B) No. 715/MB/2021
Judgment Date: 03/04/2025
For the Applicant: Adv. Yash Jariwala (PH)
For the Respondent No. 1: Adv. Amir Arsiwala (PH)
For the Respondent No. 2: Adv. Ankit Lohia (PH)
Click Here To Read/Download The Order