Introduction: Scrutinizing Interest Claims in IBC
The NCLT Mumbai Bench’s decision in *Siddharth Enterprises Vs. Shapoorji Pallonji and Company Pvt. Ltd.*, dated 12 March 2024, casts a significant light on the contours of operational debt and interest claims within the framework of the Insolvency and Bankruptcy Code, 2016 (IBC), especially concerning Micro, Small, and Medium Enterprises (MSMEs). This case scrutinizes the operational creditor’s claim for interest in the absence of an explicit agreement, juxtaposed against the backdrop of the MSME Development Act’s stipulations.
The Dispute’s Background
*Siddharth Enterprises, an operational creditor, initiated the Corporate Insolvency Resolution Process (CIRP) against **Shapoorji Pallonji and Company Private Limited*, the corporate debtor, under Section 9 of the IBC. The bone of contention was the claim for interest on delayed payments, notwithstanding the absence of a specific clause in the purchase orders or invoices.
Operational Creditor’s Claim
The operational creditor’s application articulated a dual-fold claim comprising the principal amount and interest purportedly accruing on delayed payments. Despite partial payments by the corporate debtor, a contention arose over the remaining amount, primarily the interest component claimed by Siddharth Enterprises based on its MSME status.
“Besides the Operational Creditor has claimed Rs.1025953.94/- towards interest on the overdue amount of invoices in the Application.”
Judicial Deliberation and Findings
Analyzing ‘Operational Debt’ under Section 5(21) of IBC
The NCLT meticulously examined whether the claimed interest constitutes ‘operational debt’ under Section 5(21) of the IBC. It was concluded that the absence of an agreed-upon interest rate between the parties negates the inclusion of such interest within the ambit of ‘operational debt’.
“It is now settled in the context of the Code that if interest is not agreed upon between the parties, it cannot form a part of ‘operational debt’ within the meaning of Section 5(21) of the Code…”
MSME Act vs. IBC: The Jurisdiction for Interest Claims in IBC
The judgment highlighted that the MSME Development Act indeed mandates interest on delayed payments to MSME entities. However, it posited that the IBC is not the forum for adjudicating disputes over interest claims, especially when the principal debt is not contested.
“The correct forum for such claims is the MSEFC. It is settled that NCLT is not a forum to resolve the disputes pertaining to interest claims of a MSME entity.”
Implications of Interest Claims in IBC
Clarifying the Scope of Operational Debt
This ruling significantly clarifies the scope of ‘operational debt’ under the IBC, delineating that interest claims, in the absence of mutual agreement, fall outside this scope. This interpretation underscores the necessity for explicit contractual agreements regarding interest on delayed payments.
MSMEs and the IBC Framework
For MSMEs, this judgment delineates the procedural pathway for interest claims on delayed payments, redirecting them to the MSEFC rather than the insolvency courts. It preserves the IBC’s essence as a mechanism for insolvency resolution, not debt recovery.
A Caution against Forum Shopping
By highlighting that the NCLT is not the appropriate forum for interest disputes, especially for MSMEs, the judgment aims to prevent forum shopping, ensuring that entities utilize the correct legal avenues for their claims.
Conclusion: Balancing Interest Claim within the IBC Framework
*Siddharth Enterprises Vs. Shapoorji Pallonji* stands as a critical precedent in interpreting ‘operational debt’ under the IBC, especially concerning interest claims by MSMEs. It emphasizes the IBC’s role in insolvency resolution, safeguarding its mechanisms from becoming de facto debt recovery platforms. This judgment not only offers clarity to operational creditors, particularly MSMEs, regarding their recourse for interest claims but also reinforces the sanctity of contractual agreements in dictating the terms of debt under the IBC framework. By delineating the jurisdictional boundaries for interest claims, the NCLT Mumbai Bench ensures that the resolution process remains streamlined, equitable, and within the intended purview of the IBC.
