MSME Interest Cannot Be Claimed To Meet IBC Threshold Post-Appointed Date NCLT Mumbai

MSME Interest Cannot Be Claimed To Meet IBC Threshold Post-Appointed Date: NCLT Mumbai

The Mumbai Bench of the National Company Law Tribunal (NCLT) has delivered a significant ruling concerning the applicability of interest under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) in the context of the Insolvency and Bankruptcy Code, 2016 (IBC).
 
The NCLT, comprising Justice Reeta Kohli and Madhu Sinha, has held that an Operational Creditor cannot combine the interest under the MSMED Act with the principal amount to meet the threshold limit under Section 4 of the IBC if the MSME certificate was obtained post the appointed date as per Section 16 read with Section 2(b) of the MSMED Act.
 
The case in question involved SHAARC Projects Limited (Operational Creditor) and Hindustan Construction Company (Corporate Debtor).
 
The Operational Creditor had supplied goods and rendered construction-related services to the Corporate Debtor between 2012 and 2015, raising various sales bills during this period.

Subsequently, the Operational Creditor filed an application under Section 9 of the IBC to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.

The claimed Operational Debt amounted to Rs 1,15,95,819, which included the principal amount and interest under the MSMED Act.
 
The Operational Creditor argued that MSME interest could be claimed even if not included in the invoices, citing provisions of the MSMED Act, including Sections 15, 16, and 17, and a Notification issued by the Ministry of Corporate Affairs in 2018.
 
However, the Corporate Debtor contended that the application was not maintainable, as the Operational Creditor had incorrectly combined the MSMED interest with the principal amount to meet the IBC threshold.
 
It further argued that the Operational Creditor was registered as an MSME only in 2017, while the appointed date fell between 2013 and 2014. Consequently, the Corporate Debtor could not be charged MSMED interest for a period when the Operational Creditor was not registered as an MSME.
 
After considering the arguments, the NCLT ruled that an Operational Creditor cannot combine interest under the MSMED Act to the principal amount to meet the IBC threshold if the MSME certificate was obtained post the appointed date under Section 16 read with Section 2(b) of the MSMED Act.
 
This ruling clarifies the application of MSMED interest in the context of the IBC and highlights the importance of timely MSME registration for enterprises seeking to benefit from the provisions of the MSMED Act in insolvency proceedings.