NCLT Mumbai: Interim Finance Is Financial Debt, Can Be Raised Only With 66% CoC Approval; Tribunal Cannot Compel Contribution
Pranav B Prem
The National Company Law Tribunal (NCLT), Mumbai Bench, has held that interim finance constitutes financial debt under the Insolvency and Bankruptcy Code, 2016 (IBC), and can only be raised with the approval of at least 66% of the Committee of Creditors (CoC). The Bench comprising Prabhat Kumar (Technical Member) and Sushil Mahadeorao Kochey (Judicial Member) observed that the term “contribution” is not defined in the Code, and therefore, any contribution by creditors towards the insolvency process must be treated as interim finance, which can only be raised in compliance with Section 28(1)(a) of the IBC.
Background
The application was filed by Mr. Ravi Sethia, Resolution Professional (RP) of Morarjee Textiles Limited, under Section 60(5) of the IBC and Rule 11 of the NCLT Rules, 2016, seeking directions to the CoC members to contribute Rs. 15 crore as interim finance for meeting urgent operational costs, including insurance renewals and electricity dues. It was submitted that the company’s insurance policies for key assets had expired and could not be renewed due to the lack of funds. The RP argued that it was critical to secure insurance coverage to safeguard the corporate debtor’s assets, pay wages to labourers, and clear electricity dues to avoid disconnection by MSEDCL.
However, despite several requests in CoC meetings, the proposal for interim finance was repeatedly rejected by the CoC members. The RP therefore approached the tribunal seeking directions to compel the CoC members to contribute proportionately according to their voting shares.
Tribunal’s Observations
The bench noted that the issue had been recently addressed by the National Company Law Appellate Tribunal (NCLAT) in ODAT GmbH v. CA Santanu Brahma (IRP) & Ors., (2025) ibclaw.in 581 NCLAT, which held that any CIRP cost or fee incurred under Regulation 34B must be raised as interim finance, requiring approval by 66% of the CoC. Referring to that decision, the NCLT observed: “The term contribution is not defined in the Code; hence, the contribution is nothing else but interim finance, which can be raised only with 66% voting by the CoC in compliance with the provisions of Section 28 of the Code.”
The Tribunal emphasized that Regulations 33 and 34 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, only refer to costs of the Interim Resolution Professional and the Resolution Professional, but do not include the term “contribution.” It further explained that Section 5(13) of the IBC defines Insolvency Resolution Process Costs (IRPC) to include interim finance, and Section 5(15) defines interim finance as “any financial debt raised by the resolution professional during the insolvency resolution process.” Thus, interim finance is a form of financial debt that can be incurred only after obtaining requisite approval from the CoC under Section 28(3).
The bench clarified that even in cases where CoC members fail or refuse to contribute, their claims cannot automatically be extinguished, but the tribunal has no authority to compel contribution in the absence of statutory approval. It observed: “The idea that if they don’t contribute, their claim will not be considered is more extreme, and we do not find a clear precedent confirming disqualification of a claim for non-contribution. Non-payment or refusal to contribute may have other consequences, but extinguishment of a claim would require specific CoC resolution or judicial basis.”
Reliance on NCLAT Precedent
The bench extensively relied on ODAT GmbH v. CA Santanu Brahma (IRP) & Ors., wherein the NCLAT held that any CIRP cost, including interim finance, must be approved by 66% of the CoC’s voting share, and if such approval is not obtained, no contribution can be compelled. Quoting paragraph 27 of the NCLAT judgment, the tribunal noted:“If the CIRP cost is to be incurred or even the fee as provided in Regulation 34(B), it has to be by way of interim finance for which the resolution has to be voted by 66% voting share of the CoC.” Therefore, without the approval of the requisite majority, any direction compelling financial contribution would be contrary to the Code.
The tribunal held that the RP’s prayer to direct CoC members to contribute Rs. 15 crore as interim finance lacked legal foundation, since interim finance can be raised only with the approval of 66% of the CoC. It thus concluded that the RP’s application had no merit.Accordingly, the Interlocutory Application (IA No. 12 of 2025) was dismissed, with no order as to costs.
Cause Title: Axis Bank Limited V/S Morarjee Textiles Limited
Case No: IA 12/2025 IA(IBC)(PLAN) 45(MB)2025 IA 552/2025 IA(I.B.C)/2316(MB)2025 IA(I.B.C)/3762(MB)2025 IN C.P. (IB)/1318(MB)2022
Coram: Prabhat Kumar (Technical Member), Sushil Mahadeorao Kochey (Judicial Member)
