Interest Accrued Before MSME Registration Cannot Be Included In Operational Debt For Plea U/S 9 Of IBC: NCLT Mumbai

The National Company Law Tribunal (NCLT) Mumbai bench of K. R. Saji Kumar (Judicial Member) and Sanjiv Dutt (Technical Member) has held that the provisions of the Micro, Small and Medium Enterprises Development Act (MSMED Act) cannot override the threshold limit prescribed under Section 4 of the Insolvency and Bankruptcy Code, 2016 (the Code). Therefore, interest accrued on the delayed payment to an MSME prior to its registration under the MSMED Act cannot be included as part of the operational debt while filing an application under Section 9 of the Code. Brief Facts: Following the execution of the Dealership Agreements, Susee Automotive Private Limited (Respondent/Operational Creditor) fulfilled its obligations and raised invoices from 2013 to 2021. Due to non-payment by Skoda Auto Volkswagen India Private Limited (Applicant/Corporate Debtor) towards cash discounts, corporate discounts, etc., an outstanding amount of ₹97,41,134.39/- remained due. As the dues were not cleared, the Respondent issued a demand notice dated 14.12.2021 under Section 8 of the IBC, claiming ₹4,52,15,921/- including interest under Section 16 of the MSMED Act. In response, the Applicant, by reply dated 31.01.2022, denied liability on grounds of limitation and non-fulfilment of the threshold under Section 4 of the IBC. The Respondent/OC countered these objections on 26.02.2022. With no payment received, the Respondent/OC filed the Main Application on 09.04.2022 seeking initiation of the Corporate Insolvency Resolution Process (CIRP) under section 9 of the Code. Contentions: The Applicant submitted that since the Respondent was not a registered MSME during the period of the Dealership Agreements (2013–2017), it cannot claim interest under the MSMED Act, which does not apply retrospectively. It was further submitted that the claim for interest cannot be treated as 'operational debt' as there was no agreement between the parties regarding interest, nor any such provision in the Dealership Agreements. Disputes related to MSME interest claims fall within the jurisdiction of the Micro and Small Enterprises Facilitation Council (MSEFC), not the National Company Law Tribunal (NCLT). It was also argued that It is evident that the Main Application would have been clearly barred under Section 4 of the Code had the Respondent been seeking only the principal amount based on invoices and other documents. The inclusion of interest in its claims under the garb of MSMED Act in Part-IV of the Main Application cannot be admitted. Per contra, the Respondent submitted that the amount of Rs.3,54,74,787/-, based on the interest under the MSMED Act, is only a part of the alleged operational debt and it can include both the principal debt and the interest on any delayed payment for meeting the threshold limit of Rs.1,00,00,000/- under Section 4 of the IBC. Lastly, it was submitted that the existence of arbitration clause in the Dealership Agreements does not oust the jurisdiction of the NCLT to exercise its residuary powers under Section 60(5)(c) of the Code to adjudicate disputes relating to the insolvency of the Corporate Debtor. Observations: The Tribunal at the outset noted that upon perusal of the available documents, it is noted that the Respondent/Operational Creditor applied for MSME status on 19.06.2016, as per the Registration Certificate, while the claims pertain to invoices from 2013 to 2017. It further added that the Respondent further obtained UDYAM registration on 31.05.2021 to avail benefits under the MSME scheme. However, none of the invoices filed in the Main Application indicate MSME status during the period of the Dealership Agreements, nor do they mention any agreed interest for delayed payments. Based on the above, it held that the Dealership Agreements are silent on any obligation of the Applicant/Corporate Debtor to pay interest. In fact, under the clause "III. Terms of Payment," it is the Applicant who is entitled to interest at 24% per annum for delayed payments from the Respondent. Therefore, the Respondent's claim for interest lacks contractual and legal basis. It further said that interest not contractually agreed upon by the parties cannot be treated as part of the operational debt under the MSMED Act.The MSMED Act does not operate retrospectively to allow claims of interest for periods prior to MSME registration. The provisions of the MSMED Act do not override the threshold limit prescribed under Section 4 of the Code. Accordingly, the present application was allowed. Case Title: Skoda Auto Volkswagen India Private Limited Versus Susee Automotive Private Limited Case Number: IA (I.B.C) No. 1116/MB/2024 AND CP (IB) No. 1107/MB/2023 Order Date: 04/04/2025 Applicant: Sr. Adv. Gaurav Joshi a/w. Adv. Feroze Patel, Adv. Pratik Pawar and Adv. Shanaya Irani i/b. J. Sagar Associates Respondent: Adv. ...

Interest Accrued Before MSME Registration Cannot Be Included In Operational Debt For Plea U/S 9 Of IBC: NCLT Mumbai

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Interest Accrued Before MSME Registration Cannot Be Included In Operational Debt For Plea U/S 9 Of IBC: NCLT Mumbai

Mohd Malik Chauhan

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