Operational Creditor Not Entitled To Interest Under MSME Act When Contract Prohibits It : NCLT Delhi
The National Company Law Tribunal (NCLT), New Delhi bench of Shri Manni Sankariah Shanmuga Sundaram (Judicial Member) and Dr. Sanjeev Ranjan (Technical Member), rejected a section 9 Petition filed by the operational creditor under the Insolvency & Bankruptcy Code, 2016 (the code). The Tribunal held that when the terms of contract prohibits the charging of interest, the...
The National Company Law Tribunal (NCLT), New Delhi bench of Shri Manni Sankariah Shanmuga Sundaram (Judicial Member) and Dr. Sanjeev Ranjan (Technical Member), rejected a section 9 Petition filed by the operational creditor under the Insolvency & Bankruptcy Code, 2016 (the code). The Tribunal held that when the terms of contract prohibits the charging of interest, the Operational Creditor cannot claim such interest on the amount due even if entitled under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSME Act”).
Background Facts:
Kuldeep Kumar (“Operational Creditor”) is a government contractor engaged in building construction works. On the other hand, M/s NBCC (India) Pvt. Ltd. (“Corporate Debtor”) is a government owned entity that is involved in various construction activities, including Project Management Consultancy and Real Estate Development.
In 2016, the Corporate Debtor had announced a tender for construction of residential quarters at CISF Group Head Quarter at Allahabad. Pursuant to which the Operational Creditor applied for the tender bid and was given the tender for construction.
Thereafter, the Operational Creditor had completed the work in 2018 and the Corporate Debtor had made part payment for the work completed and an amount of Rs.1,68,90,395/- was still to be paid.
The Operational Creditor issued a demand notice to the Corporate Debtor for the unpaid amount. However, there was no payment still made, Section 9 petition was filed by the Operational Creditor for initiation of insolvency proceedings against the Corporate Debtor for an amount of Rs. 4,29,98,630/- which included the interest allegedly due under the MSME Act. The Operational Creditor submitted that, being an MSME-registered contractor, he was entitled to interest at three times the bank rate as notified by the Reserve Bank of India.
Contentions of the corporate debtor:
The Corporate Debtor submitted that the interest claimed by the operational creditor is arbitrary, as the contract between the parties explicitly prohibited the charge of any interest from the Corporate Debtor.
It further contended that without the interest amount the alleged debt Rs.91,87,179.90/- and it falls below the pecuniary 'threshold' of Rs.1,00,00,000/- as per Section 4 of the Code, which states that for initiating a Corporate Insolvency Resolution Process, the minimum amount of default has to be Rs.1,00,00,000/-
Findings:
The tribunal remarked that when there is a contractual bar on charging of interest, the amount claimed as interest can't be considered a valid component of the debt even if the Operational Creditor is an MSME registered contractor and is entitled to interest under the MSME Act.
The NCLAT in SS Polymers v. Kanodia Technoplast Limited 2019 held that when there is no agreement between the parties, interest cannot be sought as a matter of right.
Hence, the Tribunal held that an operational creditor can't claim interest on the amount due under the MSME Act when there is no valid agreement stipulating such an interest liability.
Thus, the Tribunal held that excluding the interest amount claim of the Operational Creditor is Rs.91,87,179.90/- which is less than the threshold limit as per Section 4 of the Code. Consequently, the Tribunal rejected the section 9 petition filed by the Operational Creditor as not maintainable.
Case Title: Kuldeep Kumar Contractors V/s M/s NBCC (India) Pvt. Ltd.
Case Number: CP (IB) No. 63 (ND)/ 2025
Judgement Date: 09.05.2025
For the Applicant : Mr. Kamal Kumar, Mr. Vidit Garg, Advs.
For the Respondent : Mr. Amish Chawla, Mr. Sirish Gupta, Advs.