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Siddharth Enterprises v. Shapoorji Pallonji: A Case Note on MSME Interest Claims in Section 9 Proceedings
This note examines whether statutory interest claimed by an MSME can be relied on under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) to establish an operational debt where the principal dues fall below the ₹1 crore minimum default threshold. The issue arises from a decision of the National Company Law Tribunal, Mumbai Bench, which considered whether interest payable under the MSMED Act can be added to the principal amount in a Section 9 insolvency application.
The Proceedings
Parties. Siddharth Enterprises, an operational creditor, against Shapoorji Pallonji and Company Pvt. Ltd., the corporate debtor.
Forum and date. NCLT, Mumbai Bench; the order is reported as dated 1 April 2024.
Claim. The operational creditor sought initiation of a corporate insolvency resolution process, claiming the principal due on invoices together with interest on delayed payment. The interest was claimed on the strength of the operational creditor’s status as a micro or small enterprise, there being no agreed rate of interest between the parties.
The Tribunal’s Reasoning
Can Unagreed MSME Interest Form Part of Operational Debt?. The Tribunal held that where interest is not agreed between the parties, it cannot form part of “operational debt” within the meaning of Section 5(21) of the IBC. Section 5(21) defines operational debt as a claim in respect of the provision of goods or services, and an unagreed interest claim does not arise from that supply.
The Facilitation Council is the forum for statutory interest. The Tribunal held that the correct forum for a micro or small enterprise to pursue interest under the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”) is the Micro and Small Enterprises Facilitation Council under Section 18 of that Act. It observed that the NCLT is not a forum to resolve disputes about an MSME’s interest claims.
Insolvency is not recovery. Underlying the decision is the principle, established in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353, that Section 9 proceedings are summary in nature and are not a substitute for a recovery suit, particularly where a dispute exists.
How this Fits with Other Decisions?
The position is not that interest can never count. In Prashat Agarwal v. Vikash Parasrampuria (NCLAT, 18 July 2022), interest on delayed payment stipulated in the invoices was held to form part of the debt, so that principal and interest could be aggregated to meet the ₹1 crore threshold under Section 4. The dividing line is agreement: interest that the parties contracted for is part of the debt, while interest asserted only as a statutory entitlement requires adjudication elsewhere.
A later decision of the same Bench, Ovaron Infrastructure & MEP Services v. Shapoorji Pallonji and Company Pvt. Ltd. (NCLT, Mumbai Bench, 10 July 2026), as reported, applied the same approach: with principal below the threshold, the claim crossed ₹1 crore only by adding MSMED Act interest and GST, and the Tribunal held that entitlement to statutory interest itself required adjudication and could not be determined in a summary insolvency proceeding.
Rights under the MSMED Act are Unaffected?
The decision does not deny the statutory entitlement to interest under the MSMED Act. Sections 15 and 16 of the MSMED Act require payment within the agreed period, which cannot exceed forty-five days from acceptance, and provide for compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India where payment is delayed. Section 18 provides for reference to the Facilitation Council, which conducts conciliation and, failing that, arbitration.
Parliament has since passed the Micro, Small and Medium Enterprises Development (Amendment) Act, 2026, which received assent on 13 August 2026. As reported, it provides for time-bound mediation and arbitration before Facilitation Councils, payment of part of an awarded amount where a challenge remains pending, and recovery of awards as arrears of land revenue. As on 16 September 2026 the commencement of those provisions was reported to be awaited, and readers should check the current position.
Points to Note after 26 May 2026
The 2026 IBC amendments also affect the procedural requirements and consequences associated with Section 9 applications:
- Information utility filing. Amended Section 215(3) of the IBC requires an operational creditor to submit financial information to an information utility before filing a Section 9 application.
- Disclosure obligations. New Section 67C provides for a penalty of not less than ₹1 lakh and up to ₹2 crore where an operational creditor conceals, in a Section 9 application, a notified dispute or a full and final payment.
- Frivolous proceedings. New Section 64A provides for a similar penalty for frivolous or vexatious proceedings.
Significance
For suppliers, the practical lesson is that the route to statutory interest lies through the Facilitation Council, and that an award or settlement from that route crystallises the amount in a way an invoice claim does not. For buyers, a claim built substantially on unagreed interest is open to challenge at the admission stage. As a decision of one Bench of the NCLT, the order is persuasive rather than binding, but it is consistent with the appellate approach to summary determination of contested claims.
FAQs
Can MSME interest be added to meet the ₹1 crore Section 9 IBC threshold?
Not where the interest is an unagreed statutory claim requiring adjudication. The NCLT may not determine such interest in summary Section 9 proceedings.
Can agreed interest form part of an operational debt?
Yes. Where interest is contractually agreed, it may form part of the debt for determining the Section 9 threshold.
Where can an MSME claim statutory interest?
An MSME can pursue statutory interest under the MSMED Act through the Micro and Small Enterprises Facilitation Council under Section 18.
Does the NCLT decide MSME interest claims?
An NCLT may decline to determine disputed statutory interest claims where doing so would require adjudication beyond the scope of Section 9 proceedings.
Legal Information Disclaimer
This article provides general information about Indian law as it stood on 16 September 2026. It is not legal advice, and reading it does not create an advocate–client relationship. Statutes, rules and judicial interpretations change, and their application depends on the facts of each matter. Readers should consult the current official text of the laws and judgments cited and should not act on this information without advice specific to their circumstances. This article is published for legal awareness and education and is not intended to advertise or solicit professional work.
Sources / Authorities
- Siddharth Enterprises v. Shapoorji Pallonji and Company Pvt. Ltd., NCLT, Mumbai Bench, 1 April 2024 — summary, IBC Laws
- Insolvency and Bankruptcy Code, 2016 — Sections 4, 5(21), 8, 9, 64A, 67C, 215 (as amended) — IBBI – Legal Framework
- Micro, Small and Medium Enterprises Development Act, 2006 — Sections 15, 16 and 18
- Micro, Small and Medium Enterprises Development (Amendment) Bill, 2026 — Press Information Bureau release — PIB
- Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353, Supreme Court of India
- Prashat Agarwal v. Vikash Parasrampuria, NCLAT, New Delhi, 18 July 2022 — summary, IBC Laws
- Ovaron Infrastructure & MEP Services v. Shapoorji Pallonji and Company Pvt. Ltd., NCLT, Mumbai Bench, 10 July 2026 — report, LiveLaw Business
