NCLT Upholds Rs. 1.03 Crore Operational Debt Despite 24% Interest Challenge, Initiates CIRP u/s 9 [Read Order]

The Ahmedabad bench of the National Company Law Tribunal (NCLT) held that under Section 9(5) of the IBC, 2016, a dispute limited to interest does not amount to a pre-existing dispute and therefore does not bar initiation of the Corporate Insolvency Resolution Process.

The present application was filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) by the operational creditor, Mr Mukeshkumar Shah, Proprietor of M/s Radhey Traders, against the corporate debtor, Synergy Food and Agro Processors Pvt. Ltd., seeking initiation of the Corporate Insolvency Resolution Process (CIRP).

The operational creditor is engaged in the trading of agricultural products in the District of Aravalli and has supplied wheat to the corporate debtor regularly. Against these supplies, various invoices were raised between 30.07.2024 and 10.08.2024, amounting to a principal sum of Rs. 1,03,01,385/-, with an additional interest claim of Rs. 3,46,076/- at the rate of 24% per annum, as stipulated in the invoices.

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While the corporate debtor made partial payments, a substantial amount remained unpaid. The applicant contended that the corporate debtor had defaulted on its payment obligations, and the first default occurred on 30.07.2024, the date of the first unpaid invoice. Consequently, the operational creditor issued a demand notice in Form 3 dated 26.09.2024 under Section 8 of the IBC, demanding payment of the outstanding dues of Rs. 1,06,47,461/-, inclusive of interest.

In response, the corporate debtor acknowledged receipt of the demand notice and admitted its liability towards the principal amount but sought additional time of 3 to 6 months to clear the dues, citing financial distress and liquidity issues. The debtor, however, disputed the interest claim of 24%, asserting that it was excessive.

The applicant submitted that the supply of goods and corresponding invoices were duly acknowledged by the corporate debtor, thereby establishing the existence of an operational debt within the meaning of Section 5(21) of the Code. The debtor’s acknowledgement of liability in response to the demand notice, without raising any pre-existing dispute about the quality or quantity of goods supplied, confirmed the default.

It was argued that the debtor’s reply, citing financial constraints, cannot be construed as a “dispute” under the IBC. The operational creditor maintained that the entire principal amount remained unpaid despite repeated demands and that the debt was above the statutory threshold of Rs. 1 crore under Section 4 of the IBC. Accordingly, all conditions for admission under Section 9(5) were satisfied.

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The corporate debtor admitted the supply of goods and the principal debt but contended that it was facing severe liquidity issues as its State Bank of India account had turned into a Non-Performing Asset (NPA) and SARFAESI proceedings had been initiated against it. The debtor requested further time—ranging from 24 to 36 months—to settle the outstanding dues. It also disputed the interest component, arguing that the 24% interest claimed by the creditor was arbitrary and excessive.

The debtor urged that its financial condition and ongoing recovery actions under SARFAESI be considered mitigating factors, and sought dismissal of the petition or deferment of insolvency proceedings.

After hearing both parties and perusing the documentary record, the NCLT Ahmedabad Bench noted that the invoices were duly acknowledged by the corporate debtor, and no evidence of a pre-existing dispute had been brought on record. The tribunal observed that the debtor had unequivocally admitted the principal outstanding of Rs. 1,03,01,385/- in both its reply to the demand notice and its response to the petition. The only objection raised pertained to the rate of interest.

The Tribunal held that a dispute confined merely to the interest component does not amount to a “dispute” within the meaning of Section 5(6) of the IBC and cannot bar admission under Section 9(5) when the principal debt is undisputed and the default exceeds the statutory threshold. The plea of financial hardship, NPA status, and ongoing SARFAESI actions were found irrelevant to the determination of default under the IBC.

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Accordingly, the two-member bench of Dr VG Venkata Chalapthy (Technical member) and Chithra Hankare (Judicial Member) admitted the petition and initiated the Corporate Insolvency Resolution Process (CIRP) against Synergy Food and Agro Processors Pvt. Ltd. under Section 9(5). A moratorium under Section 14 was imposed, prohibiting the institution of suits or continuation of proceedings against the debtor and protecting its assets during the CIRP. The Tribunal also directed that essential supplies and services to the corporate debtor should not be disrupted during the moratorium.

Further, the NCLT appointed Mr Keshav Khaneja, Insolvency Professional, as the Interim Resolution Professional (IRP) under Section 13(1)(c) to take control of the corporate debtor’s management, issue public announcements, and invite claims from creditors. The operational creditor was directed to advance Rs. 2,00,000 towards the IRP’s initial expenses pending CoC determination of remuneration.

The Tribunal concluded that since the debt was admitted, undisputed, and above the threshold limit, the petition deserved to be allowed, and CIRP proceedings were accordingly commenced against the corporate debtor.

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