NCLAT Rules Interest on Lease Rent Not Recoverable as CIRP Cost Absent Contractual Clause Under IBC
- REEDLAW
- Aug 20
- 3 min read
REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal (NCLAT) clarified that interest on lease rent cannot be recovered as part of the Corporate Insolvency Resolution Process (CIRP) costs under the Insolvency and Bankruptcy Code, 2016, when the written lease deed does not expressly provide for such payment. The Tribunal categorically held that a unilateral insertion of interest in invoices by the lessor did not constitute a binding contractual obligation on the Corporate Debtor.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), adjudicated a company appeal and ruled that in the absence of an express clause in the lease deed providing for interest, the lessor’s claim for interest on unpaid lease rent was unsustainable. The Tribunal further emphasised that only contractual obligations specifically recognised in the lease arrangement could be admitted as CIRP costs, and unilateral claims by way of invoices carried no enforceable weight under the IBC.
The Appellant had entered into a lease deed dated 16 March 2016 with the Corporate Debtor for letting out godown space at a monthly rent of Rs. 1,25,000/- plus GST. The Corporate Insolvency Resolution Process (CIRP) commenced against the Corporate Debtor on 25 September 2019, and a Resolution Professional was appointed. The Appellant filed a claim for lease rent from the commencement of CIRP till approval of the resolution plan on 19 December 2023. The Resolution Plan was approved by the CoC on 5 August 2021 and by the Adjudicating Authority on 19 December 2023, with a Monitoring Committee constituted for its implementation. The Appellant sought payment of lease rent with 18% interest for the CIRP and post-CIRP periods, along with electricity charges, by way of an application before the Adjudicating Authority.
The Adjudicating Authority partly allowed the application and held that the lease rent from 25 September 2019 was to be treated as CIRP cost and electricity charges were payable, but it rejected the claim of 18% interest on delayed payments. Aggrieved, the Appellant preferred an appeal before the NCLAT, contending that since invoices raised during the CIRP period included interest, the Adjudicating Authority erred in rejecting the claim. The Appellant relied on earlier NCLAT and Bombay High Court judgments to argue that invoices, though not signed by both parties, constituted binding contracts, and that interest on delayed payments was recoverable.
The Respondents resisted the appeal, contending that the lease deed of 2016 contained no provision for payment of interest on lease rent, and therefore, the Appellant could not unilaterally impose such liability through invoices. The NCLAT considered the rival submissions and examined precedents, including Prashat Agarwal v. Vikash Parasrampuria and Another, REEDLAW 2022 NCLAT Del 07546, SNJ Synthetics Limited, v. PepsiCo India Holdings Private Limited, REEDLAW 2025 NCLAT Del 05523, and S.S. Polymers v. Kanodia Technoplast Ltd. The Tribunal reiterated that while invoices may form the basis of claims in certain situations, unilateral imposition of interest terms absent in the written agreement could not bind the Corporate Debtor.
The NCLAT held that the lease deed did not provide for payment of interest, and no conduct or evidence showed acceptance of such a condition by the Corporate Debtor. The acceptance of pre-CIRP claims, which included interest, did not establish entitlement to interest during the CIRP as a CIRP cost. Accordingly, the Tribunal found no merit in the appeal, upheld the order of the Adjudicating Authority, and dismissed the appeal without costs.
Mr. Abhijeet Sinha, Sr. Advocate, with Mr. Ajay Gaggar and Mr. Shreedhar Gagga, Advocates, represented the Appellant.
Mr. Vaijayant Paliwal, Ms. Mohana Nijhawan, and Ms. Tanya Chib, Advocates, appeared for the Resolution Professional (RP).
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