Interest Cannot Be Claimed Solely On Parity With Other Creditors Without Contractual Proof: NCLT Indore

The National Company Law Tribunal (NCLT) at Indore has recently ruled that interest on an unsecured financial claim cannot be allowed merely because interest has been admitted in the claim of another unsecured creditor.

The tribunal held that interest can be admitted only where there is a clear contractual or documentary basis reflected in the corporate debtor's records.

A coram of Judicial Member Brajendra Mani Tripathi and Technical Member Man Mohan Gupta observed that, “the claim of interest is a contractual obligation and can't be claimed on the ground that it is being paid to someone else.”

The tribunal added that equity among creditors cannot override the statutory requirement of proof under the Insolvency and Bankruptcy Code.

The ruling arose from the Corporate Insolvency Resolution Process of Pushp Ratna Realty Pvt. Ltd, which was admitted into insolvency on October 16, 2024. The plea was filed by Socrus Bio Sciences Ltd. and Socrus Pharmaceutical Ltd. both claiming to be unsecured financial creditors of the real estate company.

The Socrus companies submitted claims seeking admission of both principal and interest. Socrus Bio Sciences claimed Rs 4.97 crore, including Rs 4.48 crore as interest, while Socrus Pharmaceutical claimed Rs 12.53 crore, including Rs 11.29 crore as interest.

The Resolution Professional, however, admitted only the principal amounts reflected in the corporate debtor's books and rejected the interest component.

Challenging this decision, the applicants alleged discriminatory treatment. They argued that the RP had admitted interest in the unsecured loan of another creditor, Ashok Kumar Jain, and contended that the Supreme Court's decision in Swiss Ribbons Pvt. Ltd. v. Union of India recognized the principle of equity among creditors.

According to them, interest forms an integral part of “financial debt” and could not be denied selectively.

The Resolution Professional opposed the plea, stating that the creditor companies had failed to produce any loan agreement, balance sheet entry, or other document showing a contractual entitlement to interest.

He pointed out that even prior to the insolvency process, the creditors were never paid interest and that the 2009 memorandum relied upon by them did not provide for interest.

After going through the records, the tribunal held that the applicants' reliance on parity was misplaced. It noted that no agreement had been produced showing that the applicants were entitled to interest at 18 percent or at any rate at all.

Referring again to Swiss Ribbons, the tribunal clarified that the judgment explains the distinction between financial and operational creditors but does not mandate equal treatment of all unsecured financial creditors. It held that “there is no universal mandate under the doctrine of intelligible differentia requiring equal treatment of all unsecured financial creditors, as priority is determined by the security status and not by the principle of equitable parity.”

The tribunal further held that financial debt under the Code includes interest only if it is contractually agreed or evidenced in the records of the corporate debtor. It concluded that “unilateral claims fail without corroboration.”

In the absence of any contractual or documentary proof that proves payment of interest, the tribunal upheld the RP's decision to admit only the principal amounts and rejected the application seeking admission of interest and revision of the resolution plan. 

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