While the inclusion of interest amounts in ‘financial debt’, for the purposes of the Insolvency and Bankruptcy Code, 2016 (‘IBC’), is clearly provided for in the IBC, the interest component in the case of operational debt has always been a point of contention.

Definition of the term ‘financial debt’under Section 5(8) of the IBC expressly includes the term ‘interest’ to be a part of the debt that can form a part of the claim against the corporate debtor. However, the definition of the term ‘operational debt’ under Section 5(21) of the IBC does not specifically mention the term ‘interest’ to be included as a part of the debt. There appears to be a deliberate difference in the language used for both terms. Accordingly, the understanding between the parties over levy of interest plays a key role while computing the amount of ‘operational debt’.

Link: Interest as part of Operational Debt: A conundrum | Lakshmikumaran & Sridharan Attorneys (lakshmisri.com)

Audio Source:  An article published on the LKS website in April 2023.

Authors: Noorul Hassan Aishwarya Narasimhan