NCLAT Rules Section 9 IBC Petition Not Maintainable Solely for Disputed Interest When Principal Debt Already Paid
- REEDLAW
- Aug 20
- 4 min read
REEDLAW Legal News Network reports: In a significant judgment, the National Company Law Appellate Tribunal (NCLAT) ruled that a Section 9 petition under the Insolvency and Bankruptcy Code, 2016, is not maintainable solely for the recovery of disputed interest when the principal operational debt has already been discharged. The Tribunal clarified that unilateral insertion of interest in invoices cannot create a binding liability on the Corporate Debtor when the written supply agreement does not expressly provide for such interest.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, adjudicated a company appeal and held that once the principal operational debt stands satisfied, an application under Section 9 cannot be pressed merely on account of a disputed claim of interest. The Tribunal further emphasised that unilateral claims raised through invoices cannot override the contractual framework of the supply agreement, and in the absence of an agreed clause for interest, no such liability can be fastened upon the Corporate Debtor under the IBC.
The National Company Law Appellate Tribunal (NCLAT) dealt with an appeal filed under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the order of the Adjudicating Authority, Chandigarh Bench, which had dismissed a Section 9 application filed by an MSME Operational Creditor/Appellant against the Respondent/Corporate Debtor. The Appellant had supplied PET preforms and thermoplastics under a Supply Agreement dated 09.10.2018 and raised invoices between 2018 and 2021. Since payments were delayed, the operational debt was claimed to be Rs. 1.96 crore, comprising Rs. 91.63 lakh as principal and Rs. 1.05 crore as interest at 24% p.a. After reconciliation during proceedings, the principal was revised to Rs. 77.37 lakh, which was subsequently paid by the Respondent on the direction of the Adjudicating Authority. The Appellant, however, continued to press for interest payment, leading to dismissal of the Section 9 petition on the ground that CIRP could not be initiated solely for the interest component once the principal had been cleared.
The Appellant contended that the Adjudicating Authority erred in bifurcating the operational debt into principal and interest, as both must be aggregated under Section 4 of the IBC. It was argued that invoices specifying interest terms, accepted without objection for years, formed a valid contractual basis, further supported by provisions of the MSME Act and the Interest Act. Reliance was placed on earlier NCLAT rulings recognising interest as part of operational debt. Conversely, the Respondent argued that the Supply Agreement contained no clause for interest on delayed payments, making invoices unilateral and unenforceable. It was submitted that once the principal stood paid, a Section 9 petition based solely on disputed interest was not maintainable and amounted to misuse of IBC for debt recovery purposes.
The Tribunal examined the Supply Agreement and found no stipulation for interest on delayed payments. It was observed that unilateral invoices could not override the written agreement absent mutual consent or past practice of interest payments. Reliance was placed on precedents holding that unless a contract expressly provides for interest, only the principal debt can sustain a Section 9 application, while interest claims could be pursued before appropriate civil forums. The Tribunal also noted the Appellant’s failure to adjust the interest amount after reconciliation of the principal, raising doubts on the legitimacy of the claim.
The NCLAT affirmed that IBC is meant for insolvency resolution and not for recovery of contested interest claims. Since the reconciled principal had been paid and no enforceable unpaid operational debt subsisted, initiation of CIRP was unwarranted. The appeal was accordingly dismissed, holding that proceedings under Section 9 could not be invoked solely on the basis of an unsubstantiated and disputed interest demand.
Mr. Anupam Lal Das, Sr. Advocate, with Mr. Nithin Chowdary Pavuluri, Mr. Anirudh Singh and Mr. Subham Saurabh, Advocates, represented the Appellant.
Mr. Krishnendu Dutta and Mr. Abhijeet Sinha, Sr. Advocates with Ms. Avni Sharma and Ms. Simarpreet Kaur N., Advocates, appeared for the Respondent.
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