NCLAT Rules No Interest on Principal in Absence of Contractual Provision

ENA MSME 2024-11-18 17:01:14 New Delhi, Nov 18 (KNN) In a significant judgment, the National Company Law Appellate Tribunal (NCLAT) New Delhi has ruled that interest on the principal amount cannot be claimed unless explicitly provided for in the agreement. The decision was delivered by Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) in the case of M/s Vedic Projects Pvt. Ltd. vs. Shri Sutanu Sinha. The tribunal emphasised that contractual terms take precedence, and in the absence of an interest clause, claims for delayed payment interest cannot be entertained. The bench also clarified that issues arising under Section 16 of the MSMED Act, which allows for interest on delayed payments to MSMEs, cannot be adjudicated by the National Company Law Tribunal (NCLT) or NCLAT, as these tribunals are not the appropriate forums for such matters. The dispute arose during the Corporate Insolvency Resolution Process (CIRP) against M/s Simplex Projects Ltd., initiated on April 27, 2022, following an application by the State Bank of India. The appellant, M/s Vedic Projects Pvt. Ltd., an operational creditor, claimed Rs 23.42 crore, which included the principal amount and interest accrued as per the MSMED Act. The claim stemmed from a sub-contract agreement dated June 16, 2010, for construction work related to the Kabrai Feeder Channel in Uttar Pradesh. Bills totalling Rs 41.54 crore were raised between 2010 and 2014, with Rs 10.36 crore remaining unpaid. While the Resolution Professional (RP) admitted the principal claim of Rs 10.36 crore, the demand for interest was rejected due to the absence of an interest clause in the agreement. The appellant argued that as a registered MSME, it was entitled to interest on delayed payments under Section 16 of the MSMED Act. They contended that the Corporate Debtor had delayed payment since 2016, warranting additional interest. The tribunal reviewed the sub-contract agreement and found no provision for interest on delayed payments. It upheld the RP's stance and ruled that the principal amount alone could be admitted. It also underscored that the MSMED Act claims for interest are outside the purview of insolvency tribunals. This judgment serves as a precedent for operational creditors, stressing the necessity of incorporating clear contractual terms regarding interest in agreements. (KNN Bureau) 39954 https://knnindia.co.in/news/newsdetails/msme/nclat-rules-no-interest-on-principal-in-absence-of-contractual-provision 2024-11-18 17:01:14 knnindia.co.in NCLAT Rules No Interest on Principal in Absence of Contractual Provision