Mumbai Bench-VI of NCLT Rules Statutory Interest Under MSMED Act Cannot Elevate Debt Above IBC Threshold
In a significant decision, the National Company Law Tribunal (NCLT), Mumbai Bench-VI, has dismissed the insolvency petition filed by Ovaron Infrastructure & MEP Services against Shapoorji Pallonji and Company Private Limited. The petition sought initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code (IBC) 2016, citing an outstanding operational debt of Rs. 1,20,72,652, including the principal amount and statutory interest under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.
The principal amount claimed by the operational creditor was Rs. 96,18,384, below the statutory threshold of Rs. 1 crore required for initiation under the IBC. Ovaron Infrastructure sought to cross this threshold by including statutory interest and GST on interest, arguing that the MSMED Act entitled them to such interest irrespective of contractual agreements.
However, Shapoorji Pallonji contested the claim, highlighting discrepancies in invoice amounts and disputing the applicability of MSME interest, given the registration date of the applicant under the MSMED Act postdated the work order. The tribunal noted that the Information Utility (IU) record reflected the debt status as "disputed," which significantly undermined the operational creditor’s assertion of an undisputed debt.
In its detailed judgment, the tribunal clarified that insolvency proceedings are not meant to adjudicate complex statutory interest disputes and that the interest claimed could not form part of the operational debt unless its entitlement and enforceability were established. The NCLT emphasized the need for undisputed debt exceeding the threshold and pointed out that the discrepancies in invoices and IU records further complicated the petition's maintainability.
The decision aligns with previous judgments that emphasize the necessity for clear and undisputed operational debts for the admission of Section 9 applications under the IBC. The tribunal reiterated that insolvency processes are not recovery mechanisms, especially when the claimed debt is primarily based on contested interest calculations.
Bottom line:-
Insolvency and Bankruptcy Code, 2016 - Application under Section 9 dismissed - Disputed claim of statutory interest under the MSMED Act, 2006 cannot form part of operational debt to meet the threshold under Section 4 of IBC.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 4, 8, 9, MSMED Act, 2006 Sections 15, 16, 17, Central Goods and Services Tax Act, 2017 Section 15(2)(d)
