IBC: Banks Can Be Operational Creditors Too
Banking services can now be brought under the purview of operational debt, according to an NCLT order.
In a first, the Allahabad bench of the National Company Law Tribunal has granted a bank's plea to be recognised as the operational creditor of an insolvent company.
By admitting the claim, the tribunal has also clarified the treatment of an 'overdrawn' account. An overdrawn account, as well as any interest arising out of it, would be considered an operational debt, according to the NCLT.
The order is unusual since banks are typically recognised as financial creditors due to the nature of debt, while operational creditors have a debt arising from the provision of goods and services.
In this case, Garvit Innovative Promoters Ltd., a company engaged in real estate and rental businesses, had a current account with Noble Co-operative Bank Ltd. According to the agreement, the company was required to maintain a minimum balance in the account.
The agreement also stipulated that any failure to maintain the amount could lead to an annual charge of 19% and a monthly penal interest of 2.5% on such an overdrawn account.
The company failed to maintain the minimum balance on several occasions. It also overdrew its account multiple times and, as a result, several high-value checks were returned due to insufficient funds.
As of January 2020, Garvit Innovative's continued failure to keep an adequate balance in the account led to an operational debt of Rs 4.9 crore.
Despite numerous communications, the company continued to fail in its obligations. As a result, the bank sent a notice in January 2021, demanding complete payment of the pending amount. In its reply, the company expressed its inability to pay the dues, citing financial issues that led to the bank filing an insolvency application.
It said that the claim arises out of the operational activities of the business, and is an unpaid operational debt and must be treated as such. While admitting its debt in its reply to the demand notice, Garvit Innovative failed to present its case before the tribunal.
Therefore, the tribunal proceeded to decide the case ex parte and admitted the bank's plea that any pending dues between both parties amounted to operational debt as it arose during the course of the bank providing service to the company.
The matter will be next heard on March 28.
