Pranav B Prem

The Mumbai Bench of the National Company Law Tribunal (NCLT), comprising Justice V. G. Bisht (Retd.), Judicial Member, and Shri Prabhat Kumar, Technical Member, has held that interest claimed under the Micro, Small and Medium Enterprises Development (MSMED) Act cannot be added to the principal amount to meet the threshold of ₹1 crore for filing an application under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016. The Tribunal stated that such interest claims fall outside its jurisdiction under the IBC and must be pursued before the appropriate statutory forum.

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The order was passed in a petition filed by Shree Jajoo Instrument Manufacturing Corporation, a registered micro-enterprise, seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Tapasya Engineering Works Private Limited, the Corporate Debtor. The Operational Creditor claimed a total outstanding amount of ₹1,33,55,290.42, comprising ₹74,68,989 as the principal debt and ₹58,56,301.1 as interest under the MSMED Act for delayed payments.

The Operational Creditor submitted that the supply of machine automation products was made against valid purchase orders and duly accepted invoices, which stipulated payment within 30 days and carried a clause for interest at the rate of 24% per annum for delayed payment. The Operational Creditor argued that, being registered under the MSMED Act, it was statutorily entitled to interest at 18% per annum under Section 16 of the said Act for any delay in payment beyond the prescribed period.

In contrast, the Corporate Debtor challenged the maintainability of the petition, arguing that it was essentially a disguised civil recovery suit. It asserted that there was no written agreement for interest and that no MSME certificate was annexed with the original petition. The Corporate Debtor contended that the MSME status and the corresponding interest claim were introduced later by way of an amendment, and the entire approach was a calculated attempt to inflate the claim to meet the minimum threshold of ₹1 crore under Section 4 of the IBC. It also relied on judgments including Mobilox Innovations v. Kirusa Software [(2018) 1 SCC 353] and Vedic Projects Pvt. Ltd. v. Shri Sutanu Sinha [Company Appeal (AT) (Insolvency) No. 1927 of 2024], to argue that the IBC is not a platform for adjudicating interest claims under other statutes.

The Tribunal noted that while the invoices did mention interest on delayed payments, there was no specific agreement or document indicating that the Corporate Debtor had agreed to such interest terms. Relying on the NCLAT’s decision in Rishabh Infra v. Sadbhav Engineering Ltd., it observed that “invoices which have been sent by the Operational Creditor containing the term of interest cannot be operated against the Corporate Debtor unless there is an agreement for interest or any other document showing that the Corporate Debtor has accepted the obligation for interest.”

The Tribunal also cited the ruling in SNJ Synthetics Ltd. v. Pepsico India Holdings Pvt. Ltd [Company Appeal (AT) (Ins) No. 386 of 2025]., where the NCLAT held that insolvency proceedings cannot be initiated solely on the basis of contested and unsubstantiated interest components. It clarified that the objective of the IBC is resolution and not recovery, and that the adjudicating authority or the appellate tribunal is not the proper forum to determine the validity or quantum of interest under statutes like the MSMED Act or the Interest Act.

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Referring to these precedents, the Tribunal held that “the claim of interest under MSMED Act can not be adjudicated by this Tribunal and accordingly, can not be taken into consideration for determination of total amount in default.” It further held that since the principal amount claimed in the petition was below ₹1 crore, the mandatory threshold under Section 4 of the IBC was not met, rendering the petition non-maintainable. Accordingly, the petition filed under Section 9 of the IBC by Shree Jajoo Instrument Manufacturing Corporation against Tapasya Engineering Works Private Limited was dismissed.

Appearance

For the Operational Creditor: Shadhabh Jain a/w Nidhi Fagoniya, Ld. Counsel

For the Corporate Debtor: Shashwat Parihar a/w Kartik Dabas, Ld. Counsel

Cause Title: Shree Jajoo Instrument Manufacturing Corporation V. Tapasya Engineering Works Private Limited

Case No: CP (IB)/1055 (MB) 2024

Coram: Justice V. G. Bisht (Retd.) [Judicial Member], Sh. Prabhat Kumar [Technical Member]