Interest On Operational Debt Cannot Be Claimed If There Is No Clause In Agreement For Payment Of Interest: NCLAT

The NLCAT New Delhi bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) held that no interest on principal amount can be claimed if there is no clause to this effect in the agreement executed between the parties. In this case, operational creditor while claiming its operational due also demanded payment of interest since it was an MSME and as per section 16 of the MSME Act, it was entitled to claim interest on the delayed payment. However, the RP rejected this demand and admitted only the principal amount.

Brief Facts

The Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor – M/s Simplex Projects Ltd. commenced by order dated 27.04.2022, on an application filed by the State Bank of India. The Interim Resolution Professional (“IRP”) made a public announcement on 29.04.2022. The Appellant filed its claim before the RP to the tune of Rs.23,42,42,554/-.

The case of the Appellant was that the Appellant and Corporate Debtor had entered into a Sub-contract Agreement dated 16.06.2010 whereby the Corporate Debtor assigned the Applicant for the construction work of Kabrai Feeder Channel starting from Arjun Reservoir, which the Corporate Debtor availed from the Irrigation Department, Govt. of U.P.

The Appellant claimed to have raised bill from 30.06.2010 to 27.09.2014 for an amount of Rs.41,53,95,348/-, against which an amount of Rs.10,36,47,148/- was yet to be paid by the Corporate Debtor to the Appellant. The RP initially admitted claim of only Rs.2,76,67,940/-

The IRP filed a supplementary affidavit, whereby IRP stated that claim of the Appellant has been admitted to the tune of Rs.10,36,30,064/-. The IRP rejected the entire amount due and payable with respect to interest. .

The Appellant filed IA No.1033/KB/2023, where the Appellant has prayed for a direction to learned RP to admit the claim of the Appellant to the tune of Rs.23,42,42,554/-. The RP has filed affidavit in reply opposing the same. The RP has also filed reply to the Supplementary Affidavit, which was filed by the Appellant, with regard to interest, it was pleaded in the reply that there is no clause of payment of interest on delayed payment in the Sub-contract Agreement entered in 16.06.2010.

The Adjudicating Authority by the impugned order rejected IA 1033/KB/2023. Aggrieved by which order, this Appeal has been filed.

Contentions

The appellant submitted that Adjudicating Authority failed to consider the fact that Appellant is a MSME, to whom money was due and payable by the Corporate Debtor (“CD”) since 2016, which was withheld by the CD. The Adjudicating Authority failed to consider the fact that Section 16 of the MSMED Act specifically provides interest to the MSME unit for any outstanding amount.

Per contra, the respondent submitted that in the Sub-contract Agreement entered between Corporate Debtor and the Appellant, there was no Clause for any payment of interest. The sub-contractor was only entitled for payment of his bills and sub-contractor was not entitled for any interest on the amount of the invoice. It is submitted that RP, who only exercise administrative functions, as a facilitator, could not have admitted the claim of interest as filed by the Operational Creditor.

NCLAT's Analysis

The tribunal while perusing the relevant clauses of the agreement noted that the Sub-contract Agreement does not contemplate payment of any interest to the Subcontractor in event of any delayed payment.

The tribunal further observed that the Sub-contract Agreement and other materials, which have been submitted by Appellant, were examined and RP could admit the claim only to the principal amount. There being no clause in the Agreement to include the interest on the delayed payment, no error was committed by the Adjudicating Authority, refusing to accept the claim of the Appellant towards interest on the operational debt, which was claimed by the Appellant.

The tribunal while agreeing with the findings of the NCLT observed that with regard to claim under the MSME, the Adjudicating Authority has observed that NCLT is not appropriate Forum to consider the issue pertaining to the interest, claimed by the Appellant under Section 16 of the MSMED Act therefore the interest under this section cannot be claimed before the NCLT.

Accordingly, the present appeal was dismissed.

Case Title: M/s Vedic Projects Pvt. Ltd. Versus Shri Sutanu Sinha

Case Reference: Company Appeal (AT) (Insolvency) No.1927 of 2024

Judgment Date: 12/11/2024

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