Interest Alone Insufficient: NCLAT Rejects Insolvency Plea Against PepsiCo
Interest Alone Insufficient: NCLAT Rejects Insolvency Plea Against PepsiCo
Introduction
The NCLAT has dismissed an appeal filed by SNJ Synthetics Limited, seeking initiation of corporate insolvency resolution proceedings against PepsiCo India Holdings Private Limited. The tribunal held that an insolvency petition is not maintainable when the principal amount has been paid and only a disputed claim for interest remains.
Factual Background
SNJ Synthetics, a micro, small, and medium enterprise (MSME), supplied PET preforms and thermoplastics to PepsiCo under a Supply Agreement dated October 9, 2018. SNJ claimed that PepsiCo owed it an operational debt of ₹1.96 crore, including ₹91.63 lakh towards the principal amount and ₹1.05 crore as interest at 24% per annum for delayed payments. During the pendency of NCLT proceedings, the principal amount was revised to ₹77.37 lakh, which PepsiCo paid on February 10, 2023.
Issues Involved
1. Maintainability of Insolvency Petition: Whether the insolvency petition is maintainable when the principal amount has been paid and only a disputed claim for interest remains.
2. Entitlement to Interest: Whether SNJ is entitled to interest on delayed payments in the absence of a specific clause in the Supply Agreement.
Submissions of the Parties
Appellant's Contentions: SNJ argued that the interest was part of the operational debt and was clearly stipulated in invoices issued under a long-standing commercial relationship between the parties. SNJ also contended that PepsiCo's failure to object to interest over the years amounted to acquiescence.
Respondent's Contentions: PepsiCo argued that the Supply Agreement did not contain any clause for interest on delayed payments, and unilateral invoices generated by SNJ were insufficient to override the contract.
Reasoning and Analysis
The NCLAT held that the IBC cannot be invoked for the recovery of interest alone, especially when the underlying contract does not provide for such interest. The tribunal observed that unilateral invoices signed by only one party cannot create binding obligations on the other party to pay interest. The NCLAT also noted that SNJ failed to revise its interest claim even after the principal amount was scaled down, lending credence to PepsiCo's contention that the interest claim was being artificially inflated.
Final Decision
The NCLAT dismissed the appeal, holding that there was no legally enforceable unpaid operational debt and that the Section 9 petition had been rightly dismissed by the NCLT.
Law Settled
This judgment reinforces the principle that the IBC is not a debt recovery mechanism and that insolvency proceedings cannot be initiated solely for disputed claims. The tribunal's decision emphasizes the importance of contractual agreements and the need for clear provisions regarding interest on delayed payments.
In this case the appellant was represented by Mr. Anupam Lal Das, Sr. Advocate with Mr. Nithin Chowdary Pavuluri, Mr. Anirudh Singh and Mr. Subham Saurabh, Advocates.
