INTRODUCTION

One of the biggest changes brought in by the Insolvency and Bankruptcy Code, 2016 (“Code”) was the demarcation between treatment of interest vis-à-vis financial debt and operational debt. Over time, Courts have interpreted the Code with the aim to strengthen the foundation and resolve uncertainties. One such exercise, which has greatly impacted the insolvency regime, is the inclusion of interest in operational debt.

PHASE 1 – EXCLUSION OF INTEREST

The Supreme Court of India (‘Supreme Court’) in the case of Kotak Mahindra Bank Limited vs. Girnar Corrugators Pvt. Ltd. and Ors. has held that the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI Act’) for recovery of dues payable to a secured creditor will prevail over the provisions of the Micro, Small and Medium Enterprises Development Act, 2006 (‘MSMED Act’).

Brief Facts