Interest Claims Under MSMED Act Cannot Be Counted Toward Threshold for IBC Petitions: NCLT Mumbai

Interest Claims Under MSMED Act Cannot Be Counted Toward Threshold for IBC Petitions: NCLT Mumbai

Introduction

The National Company Law Tribunal (NCLT), Mumbai Bench, has ruled that interest claims under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, cannot be added to the principal amount to meet the threshold limit required for initiating insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC). This decision reinforces that the NCLT does not have jurisdiction to adjudicate such interest claims under the IBC framework.

Factual Background

The Operational Creditor, a registered MSME entity, filed a petition under Section 9 of the IBC seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The creditor claimed an interest of 18% per annum on outstanding dues due to delayed payment by the Corporate Debtor beyond the agreed credit period.

Procedural History and Legal Submissions

The bench comprising Justice V. G. Bisht (Retd.) (Judicial Member) and Sh. Prabhat Kumar (Technical Member) evaluated the maintainability of the petition.

Operational Creditor’s Arguments

The Operational Creditor argued that being a registered MSME entity, it is entitled to claim interest under Section 16 of the MSMED Act, and that this claim should be added to the principal to satisfy the minimum threshold of ₹1 crore required under the IBC for initiating CIRP.

Corporate Debtor’s Response

The Corporate Debtor countered that the petition was essentially a money recovery suit, not an insolvency matter, and thus not maintainable before the NCLT. It also noted that the Operational Creditor failed to mention its MSME status in the original petition, and its later attempt to invoke the MSMED Act was an afterthought and mala fide, aimed solely at inflating the claim to cross the IBC’s threshold.

Tribunal’s Reasoning and Observations

The Tribunal referred to previous decisions, including:

• Rishabh Infra v. Sadbhav Engineering Ltd., where the NCLAT held that invoices mentioning interest terms cannot be enforced unless the Corporate Debtor has explicitly agreed to pay interest.
• SNJ Synthetics Ltd. v. Pepsico India Holdings Pvt. Ltd., in which the NCLAT reiterated that the IBC is not a recovery forum, and interest claims under the MSMED Act cannot be the sole basis for insolvency proceedings.

The Tribunal emphasized that the objective of the IBC is resolution, not recovery, and that interest under the MSMED Act cannot be adjudicated by the NCLT under the IBC. As the principal amount claimed was below ₹1 crore, and the additional interest was not within the Tribunal’s adjudicatory scope, the petition was held non-maintainable.

Legal Implications

This ruling sets a precedent that:

• MSME entities must meet the IBC threshold without relying on MSMED interest claims.
• The NCLT’s jurisdiction under the IBC is limited, and does not extend to adjudicating statutory interest claims under other legislations.
• It reinforces the distinction between recovery suits and genuine insolvency proceedings.

Outcome

The petition was dismissed as non-maintainable. The Tribunal clarified that unless the principal amount alone satisfies the threshold requirement, the inclusion of MSMED interest will not be entertained under IBC proceedings.

Representation

• For the Operational Creditor: Ms. Shadhabh Jain, Advocate, with Ms. Nidhi Fagoniya, Advocate.
• For the Corporate Debtor: Mr. Shashwat Parihar, Advocate, with Mr. Kartik Dabas, Advocate.