NCLT Mumbai Rules, Interest Accrued Before MSME Registration Cannot Be Included In Operational Debt For Plea U/S 9 Of IBC
Pranav B Prem
The Mumbai Bench-VI of the National Company Law Tribunal (NCLT), comprising Justice K.R. Saji Kumar (Judicial Member) and Mr. Sanjiv Dutt (Technical Member), has held that interest on delayed payments cannot be included in the computation of operational debt under Section 9 of the Insolvency and Bankruptcy Code, 2016, if such interest pertains to a period before the creditor obtained registration under the MSMED Act, 2006. The Tribunal also held that the MSMED Act cannot override or dilute the threshold requirement of ₹1 crore under Section 4 of the IBC.
The Tribunal rejected the CIRP application filed by Susee Automotive Pvt. Ltd., finding that the claim was barred by limitation and did not meet the statutory threshold, since the overwhelming portion of the claim (₹3.54 crore out of ₹4.52 crore) consisted of interest claimed under the MSMED Act, while the principal amount stood at ₹97.41 lakh.
Background
The case arose out of two dealership agreements entered into between the parties for the districts of Tirunelveli and Tiruchirappalli in Tamil Nadu, executed in 2013. These agreements were terminated in February 2017. Susee Automotive, the operational creditor, alleged that it was owed various amounts by the corporate debtor, Skoda Auto Volkswagen India Pvt. Ltd., for unadjusted corporate discounts, sales promotion schemes, and cash ledger balances. These claims were based on invoices raised between 2013 and 2017.
A demand notice under Section 8 of the IBC was issued by the operational creditor on 14 December 2021, claiming a total of ₹4,52,15,921, which included the principal amount of ₹97.41 lakh and ₹3.54 crore as interest calculated under Section 16 of the MSMED Act at a rate of three times the bank rate. The CIRP application under Section 9 was filed on 9 April 2022, with no specific date of default stated in Part IV of the petition.
Objections by the Corporate Debtor
In the interlocutory application seeking rejection of the CIRP plea, the corporate debtor raised multiple legal objections:
Limitation: The alleged debt arose from agreements executed and terminated between 2013–2017. Since the application was filed in 2022, the claim was clearly barred by limitation under Article 137 of the Limitation Act, 1963, which provides a three-year period.
Threshold under Section 4: The principal claim of ₹97.41 lakh was below the minimum ₹1 crore threshold required under Section 4 of the IBC. The operational creditor inflated the claim by including interest of over ₹3.5 crore under the MSMED Act.
No MSME status during relevant period: The operational creditor only obtained Udyog Aadhaar registration on 31 May 2021, long after the dealership agreements were terminated. Since the MSMED Act requires contemporaneous registration to claim interest, Susee Automotive could not rely on it retrospectively.
No contractual interest: The dealership agreements did not provide for interest to be paid to the operational creditor. On the contrary, Clause III of the agreement permitted Skoda Auto Volkswagen to charge interest at 24% per annum from the dealer for delays.
Alternative forum: Disputes related to MSMED interest claims are required to be first referred to the Micro and Small Enterprises Facilitation Council (MSEFC) under the MSMED Act.
Response by the Operational Creditor
Susee Automotive argued that its MSME status was acquired in June 2016 (as per Udyog Aadhaar records), and even if obtained later, interest claims could still be computed for the total operational debt to meet the ₹1 crore threshold. It also contended that the debtor had acknowledged liability in correspondence, including an email offering ₹50 lakh as settlement during COVID-19, which should be treated as acknowledgment under Section 18 of the Limitation Act, thereby extending the limitation period.
NCLT’s Findings
On MSME Registration and Retrospective Application
The Tribunal clarified that the operational creditor first applied for MSME status on 19 June 2016, and later obtained Udyam Registration only on 31 May 2021. It found that: “The invoices raised by the Respondent/OC between 2013 and 2017 do not carry any mention of MSME status… MSMED Act cannot be applied retrospectively to allow interest claims from a time when the creditor was not registered as an MSME.”
The Bench relied upon the Supreme Court rulings in Silpi Industries v. KSRTC [Civil Appeal Nos. 1570-1578 of 2021] and Gujarat State Civil Supplies Corporation Limited V. Mahakali Foods Private Limited.,[(2023) 6 SCC 401], which have clearly held that MSME registration must exist at the time of supply for interest to be applicable under the MSMED Act.
On Operational Debt Definition and Interest Inclusion
The Tribunal stated that the IBC does not permit inclusion of non-contractual interest as part of operational debt when such interest is not provided for in the agreement. It observed: “The dealership agreements are completely silent on any right of the Respondent/OC to claim interest. The only interest clause favours the Corporate Debtor, who could charge interest at 24% for delayed payments.”
It held that the MSMED Act cannot override or dilute Section 4 of the IBC, and that including interest not due under a contract cannot be permitted simply to cross the ₹1 crore threshold for initiating insolvency.
On Acknowledgment and Limitation
The Tribunal rejected the contention that the settlement email extended limitation. It said: “The communication dated 23.12.2020, proposing ₹50 lakh as full and final settlement, is not an acknowledgment of liability. It was a commercial offer made during the pandemic as a goodwill gesture and cannot be construed as acknowledgment under Section 18 of the Limitation Act.”
It reiterated that limitation begins from the date of termination of the dealership agreement in February 2017, and the application filed in April 2022 was therefore time-barred.
Verdict
The NCLT allowed the interlocutory application filed by Skoda Auto Volkswagen and dismissed the CIRP application under Section 9. It held that the application was:
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Barred by limitation;
Did not meet the operational debt threshold under Section 4; and
Was based on interest not contractually or statutorily valid during the relevant period.
The Tribunal added: “Any observations made in this Order shall not be construed as expressing opinion on merits. The Respondent/OC is at liberty to pursue legal remedies before appropriate fora.”
Appearance
For the Applicant: Sr. Adv. Gaurav Joshi a/w. Adv. Feroze Patel, Adv. Pratik Pawar and Adv. Shanaya Irani i/b. J. Sagar Associates
For the Respondent: Adv. Vinay Kumar Jain a/w. Adv. Pallavi Tikariha & Adv. Mohana Sharda i/b. VKJ Law
Cause Title: Skoda Auto Volkswagen India Private Limited V. Susee Automotive Private Limited
Case No: IA (I.B.C) No. 1116/MB/2024 & CP (IB) No. 1107/MB/2023
Coram: Hon’ble Shri K. R. Saji Kumar [Member (Judicial)], Hon’ble Shri Sanjiv Dutt [Member (Technical)]
[Read/Download order]
