NCLT Delhi Rules, Operational Creditor Not Entitled To Interest Under MSME Act When Contract Prohibits It
Pranav B Prem
The National Company Law Tribunal (NCLT), New Delhi Bench comprising Shri Manni Sankariah Shanmuga Sundaram (Judicial Member) and Dr. Sanjeev Ranjan (Technical Member), has rejected a Section 9 petition filed by the operational creditor seeking initiation of insolvency proceedings against NBCC (India) Pvt. Ltd. The Tribunal held that when the contractual terms explicitly bar the charging of interest, an operational creditor cannot claim such interest under the MSME Act, 2006 to satisfy the threshold for admission under the Insolvency and Bankruptcy Code, 2016 (IBC).
The petition was filed by M/s Kuldeep Kumar Contractors, a registered partnership firm engaged in government construction projects. The firm had executed a contract awarded by NBCC (India) Pvt. Ltd., a government enterprise, for the construction of various residential quarters at the CISF Group Headquarters in Allahabad, pursuant to a tender issued in 2016. According to the operational creditor, the construction work was completed by October 31, 2018, and invoices were duly raised, with the total dues amounting to ₹1,69,90,395, including retention money.
Alleging non-payment despite repeated demands, the operational creditor issued a demand notice and subsequently filed a petition under Section 9 of the IBC, claiming an amount of ₹4,29,98,630. This included the principal claim and interest allegedly due under the MSME Act, as the operational creditor is registered under the said Act and claimed entitlement to interest at three times the bank rate.
The corporate debtor opposed the petition, asserting that the claimed debt was artificially inflated by including an interest component barred by the terms of the General Conditions of Contract (GCC). Clause 23 of the contract, as highlighted by NBCC, specifically prohibited the charging of interest for any delay in payment. NBCC argued that if interest was excluded, the outstanding principal debt amounted to ₹91,87,179.90, which falls below the ₹1 crore threshold required under Section 4 of the IBC for initiating a Corporate Insolvency Resolution Process (CIRP).
Further, the corporate debtor contended that the petition was barred by limitation and that there existed a pre-existing dispute, including allegations of incomplete work and construction defects. Correspondence from CISF was also cited to show ongoing issues with the project, and NBCC emphasized that payment was contractually contingent upon receipt from the end client, CISF, which had not yet been made. It also pointed out that the same claims were simultaneously pending before various forums, including the Delhi High Court and an MSME arbitration forum, amounting to forum shopping.
The Tribunal analyzed the maintainability of the claim, focusing on whether interest due under the MSME Act could be claimed when the contract expressly barred such interest. It relied on the NCLAT's rulings in Krishna Enterprises v. Gammon India Ltd [2018 SCC OnLine NCLAT 360] and SS Polymers v. Kanodia Technoplast Ltd [[2019] ibclaw.in 193 NCLAT], where it was held that interest can only be considered a component of operational debt if it is contractually stipulated or clearly documented. In the present case, the Tribunal found no such agreement or stipulation allowing interest and held that the contractual bar in Clause 23 of the GCC would override any general entitlement under the MSME Act.
The Tribunal further referred to the judgment in Govind Sales v. Gammon India (NCLT, Mumbai), which had similarly held that an operational creditor cannot invoke the MSME Act to claim interest where the contract prohibits it. The NCLT emphasized that the IBC cannot be used as a substitute for recovery mechanisms, particularly where pre-existing disputes or contractual limitations exist.
Consequently, the Tribunal held that the operational creditor’s claim could not cross the statutory threshold under Section 4 of the Code in the absence of a valid and enforceable interest component. It also noted the presence of a pre-existing dispute and the pendency of related proceedings before other forums, which further barred the petition’s admission under Section 9. Accordingly, the Tribunal rejected the petition filed by M/s Kuldeep Kumar Contractors as not maintainable.
Appearance
For the Applicant: Mr. Kamal Kumar, Mr. Vidit Garg, Advs.
For the Respondent: Mr. Amish Chawla, Mr. Sirish Gupta, Advs.
Cause Title: Kuldeep Kumar Contractors V. M/s NBCC (India) Pvt. Ltd.
Case No: CP (IB) No. 63 (ND)/ 2025
Coram: Sh. Manni Sankariah Shanmuga Sundaram [Hon’ble Member (Judicial)], Dr. Sanjeev Ranjan [Hon’ble Member (Technical)]
[Read/Download order]
