Interest On Operational Debt Cannot Be Claimed Unless There Is An Express Agreement: NCLAT

The NCLAT New Delhi bench of Justice Ashok Bhushan (Judicial Member), Mr. Barun Mitra (Technical Member) and Mr. Arun Baroka (Technical Member) has held that as per section 5(21) of the Insolvency and Bankruptcy Code, interest on invoices cannot be claimed by the operational creditor in the absence of any stipulations in the agreement to this effect. Brief Facts This appeal has been filed under section 61 of the code against an order passed by the Adjudicating Authority by which a petition under section 9 of the code was dismissed on the ground that the debt amount did not meet the required threshold limit under section 4 of the code. Contentions: The appellant submitted that the Corporate Debtor had paid a certain amount to the Appellant but failed to perform its duty by paying all invoices in a timely manner. Thereby, the Corporate Debtor defaulted in making the payment to the Appellant. The appellant filed an application under section 9 of the code after the corporate debtor defaulted in making payment. The application was dismissed by the NCLT on the ground that the claimed debt did not meet the required threshold as stipulated under section 4 of the code and the interest amount is disputed. It was stated that the NCLT has erred in not considering the interest amount on the delayed payment which is clearly mentioned in the invoices that interest will be charged on the delayed payment at the interest rate of 24%. Refuting the submissions, the respondent submitted that the Purchase Orders did not contain any provision for charging interest on delayed payments. The Appellant did not charge any interest for delayed payments between 2018 and 2020, and no agreement was made between the parties to include such a clause. The Appellant, however, unilaterally added a 24% interest rate on the invoices. This was not mutually agreed upon by the parties and is therefore illegal. It was also argued that the Appellant is attempting to inflate the amount of the claim by adding interest, which was never part of the original agreement. Section 5(21) of IBC only allows claims towards goods and services and does not include interest unless there is an express agreement between the parties. It was further contended that the Appellant cannot file a separate Insolvency Application under Section 9 while a commercial suit is pending on the same subject matter. Lastly, it was submitted that even after excluding the default amount related to the invoices during the 10 A period, the total outstanding dues worth Rs 23,98,600 (rupees twenty-three lakhs, ninety eight thousand and six hundred only) still do not meet the threshold required for initiating insolvency proceedings. Observations: The tribunal observed that section 5 (21) of the IBC restricts claims to those arising from goods or services, and interest is recoverable only when expressly agreed upon by the parties. In the absence of such agreement, the interest component cannot be considered part of the operational debt. It further observed that consequently, without interest the outstanding principal amount alone is Rs 60,44,800/- (rupees sixty lakhs, forty-four thousand and eight hundred only) and is well below the threshold of Rs 1 crore specified under Section 4 of the IBC. In Rishabh Infra Through Hari Mohan Gupta vs Versus Sadbhav Engineering Ltd (2024) the NCLAT held that wherein it has been held that invoices with interest clauses, which were not part of the formal agreement, are unenforceable. It said that “it is to be noted that even if the dispute relating to invoices falling within 10 A period is not raised by the Respondent, as is being argued by the Appellant, it is not a bar as it is the duty of the Adjudicating Authority to scrutinise whether the invoices are barred by law or not.” The tribunal further noted that The Appellant filed a Commercial Suit for the same claim on 01.05.2023, prior to issuing the Demand Notice on 23.08.2023. The Corporate Debtor had in his reply to the demand notice had clearly brought out the existence of pre-existing dispute as well as the pendency of this suit. Due to a pre-existing dispute between the parties, such a petition cannot be entertained under Section 8 of the Code. Therefore, the Appeal is not maintainable on this count as well. Accordingly, the present appeal was dismissed. Case Title: Comet Performance Chemicals Private Limited Versus Aarvee Denims and Exports Limited Case Number:Company Appeal (AT) (Insolvency) No. 1878 of 2024 Judgment Date: 13/01/2025 For Appellant : Mr. Arjun Sheth, Mr. Aalay Shah, Ms. Kriti Kothari, Ms. Henna George, Advocates For Respondent : Mr. Palash S. Singhai, Mr. Harshal Sareen, Advocates Click Here To Read/Download The Order

Interest On Operational Debt Cannot Be Claimed Unless There Is An Express Agreement: NCLAT

Mohd Malik Chauhan

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