Interest On Unilateral Invoices For Delayed Payment Doesn't Constitute Operational Debt In Absence Of Contractual Clause: NCLAT New Delhi

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Ashok Bhushan (Chairperson), Barun Mitra (Member-Technical), and Arun Baroka (Member-Technical), has dismissed an appeal arising out of a decision by the NCLT, Chandigarh Bench-I. The bench held that in the absence of any contractual clause, interest on the unilateral invoices for the delayed payment cannot form part of the operational debt. The bench also ruled that the interest based on one-sided invoices cannot be the basis of a Section 9 application. Background M/s SNJ Synthetics Limited (Financial Creditor) entered into a supply agreement with M/s PepsiCo India Holding Private Ltd. (Corporate Debtor). The Operational Creditor continued fulfilling its obligation under the agreement and raised invoices between the years 2018 and 2021. Since the dues remain unpaid, the Operational Creditor served the demand notice under Section 8 of the IBC to the Corporate Debtor. The Corporate Debtor acknowledged the notice but didn't make any payment in furtherance to it, which led the Operational Creditor to file the Section 9 application before the Adjudicating Authority, seeking the CIRP of the Corporate Debtor. The applicant claimed Rs 91.63 lakhs as the principal amount and Rs 1.05 Cr. as interest at the rate of 24% p.a., due to delayed payment. The parties took the reconciliation, which revised the principal amount to Rs. 77.37 lakhs. On the direction of the Adjudicating Authority, the respondent paid the revised amount, and the applicant accepted that without any prejudice, but it continued to claim the interest amount. After hearing the matter, the Adjudicating Authority dismissed the Section 9 petition and held that CIRP cannot be initiated as the principal amount is already paid. Aggrieved by the decision, the Operational Creditor has preferred the appeal before the NCLAT. Contention of the Parties The appellant contended that the Adjudicating Authority had erred in its observation and didn't consider the principle that operational debt and interest both should be considered in totality for the purpose of determining the threshold limit under the IBC. The appellant relied on the judgments of Prashat Agarwal v. Vikas Parasrampuria in CA(AT)(Ins.) No. 690 of 2022 and Anuj Sharma v. Rustagi Projects Pvt. Ltd. in CA(AT)(Ins) No. 550 of 2023 and argued that the interest stipulated in the invoice forms part of the operational debt and must be considered with the principal amount in order to calculate the threshold limit. The appellant highlighted that it issued invoices bearing interest terms regularly, and the respondent didn't protest against it; hence, this constitutes a valid contract under Regulation 7(2)(b)(ii) of the CIRP Regulations. While placing reliance on the Bombay High Court's judgment in the case of Jatin Koticha v. VFC Industries Pvt. Ltd. 2007 SCC Online Bom 1092, the appellant submitted that the unsigned invoices accepted through conduct amount to enforceable contracts. It also submitted that the appellant is an MSME entity, and by virtue of Sections 15 & 16 of the MSME Act, the interest is payable on the delayed payment. And, even if the MSME Act is not applicable, the appellant is entitled to interest under the Interest Act. Per contra, the respondent contended that there was no clause with regard to the interest on the delayed payments in the supply agreement entered into between the parties. And the interest cannot be claimed unless it is based on the provisions of the agreement. The respondent also highlighted that IBC cannot be used as the recovery proceedings, and it is a settled principle of law that once the principal amount is paid, a Section 9 application cannot be sustained solely for the purpose of contested claims. Judgment of the NCLAT The NCLAT observed that the supply agreement entered into by the parties prevails over the unilateral invoices, and here, in this case, the agreement does not provide for the interest on the delayed payment. The stipulation of interest on the invoices will prevail over the written contract only in the presence of mutual consent, which is not present here. Hence, the tribunal observed that the unilaterally generated invoices, which have only been signed by the appellant, cannot override the bi-partite agreements. The bench relied on the judgment of Krishna Enterprises vs. Gammon India Limited CA (AT) (Ins) No. 144 of 2018 and held that if no interest was payable as per the contract, then only the principal amount would constitute the claim. The NCLAT observed that the appellant failed to provide any credible explanation to the Adjudicating Authority as to why the claim of interest amount remained unchanged in spite of scaling down of the principal amount post reconciliation. And the appellant added the interest amount only for the purpose of...

Interest On Unilateral Invoices For Delayed Payment Doesn't Constitute Operational Debt In Absence Of Contractual Clause: NCLAT New Delhi

Mohd.Rehan Ali

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