MSME interest cannot be claimed to trigger the threshold limit under IBC since then it has not registered as an MSME during the relevant periods.
The National Company Law Tribunal (NCLT), Mumbai Bench of Reeta Kohli (Judicial Member) and Madhu Sinha (Technical Member) was hearing the admission of Section 9 application under the Insolvency and Bankruptcy Code and held that the MSME interest cannot be claimed without a valid agreement stipulating such interest. Furthermore, the petitioner's registration status as an MSME was crucial, and since it was not registered during the relevant periods, the claim for MSME interest was unsustainable.
The Company Petition was filed by SHAARC Projects Limited, referred to as the Operational Creditor, to initiate Corporate Insolvency Resolution Process (CIRP) against Hindustan Construction Company Limited, termed as the Corporate Debtor. The petition invoked Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) based on an Operational Debt of Rs. 1,15,95,819, including principal and MSME interest.
SHAARC Projects Ltd. supplied goods and services for two projects to Hindustan Construction Company, raising sales bills between 2012 and 2015. Completion Certificates for these projects were issued in 2013 and 2014. Despite completion, an amount of Rs. 1,15,95,819 remained unpaid by the Corporate Debtor.
The Operational Creditor claimed MSME interest and justified its classification as an MSME, citing relevant provisions of the MSMED Act. However, the Corporate Debtor contested this, arguing that the Operational Creditor was not registered as an MSME during the relevant periods.
The Respondent also challenged the date of default and raised technical deficiencies in the Operational Creditor's application under the IBC.
The NCLT noted that the Applicant was registered as an MSME only on February 11, 2017. Consequently, the assertion that the Petitioner has charged MSME interest during a period when the Petitioner was not officially registered as an MSME is significant. The above actions undertaken by the Petitioner are considered untenable, impermissible, and in contradiction to the directives issued by the Hon'ble Supreme Court in Silpi Industries Etc. v. Kerala State Road Transport Corporation and Another, REEDLAW 2021 SC 06039, wherein the Supreme Court was tasked with deciding whether benefits of the MSME Act could be granted to a party who was not registered as an MSME when it entered into a contract. A similar course of action which is synonymous with the course of action adopted by the present Petitioner was adopted by the Appellant. In the case of Silpi Industries Etc. v. Kerala State Road Transport Corporation and Another, REEDLAW 2021 SC 06039, the Supreme Court opined that:
“…….to seek the benefit of provisions under the MSMED Act, the seller should have registered under the provisions of the Act, as on the date of entering into the contract. In any event, for the supplies pursuant to the contract made before the registration of the unit under provisions of the MSMED Act, no benefit can be sought by such entity, as contemplated under the MSMED Act.”
After thorough consideration, the Tribunal rejected the Operational Creditor's application under Section 9 of the IBC, based on various grounds, including the disputed claim of MSME interest, lack of proper documentation, and the existence of a pre-existing dispute between the parties.
Consequently, the petition was dismissed, and CIRP initiation against Hindustan Construction Company Limited was rejected.
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