NCLT Mumbai Rejects Johnson Screens' Insolvency Plea Against Shapoorji Pallonji

The Mumbai bench of the National Company Law Tribunal on Tuesday dismissed a plea by Johnson Screens (India) Pvt Ltd to initiate corporate insolvency resolution process against construction major Shapoorji Pallonji and Company Pvt Ltd over an alleged operational debt of Rs 1.05 crore.

Relying on a recent three-member NCLAT ruling in Ajay Rana (Director of Erstwhile Sarika Industries Pvt. Ltd.) v Sanjay Kumar Goel and Ors., which held that a unilateral interest clause in invoices cannot be enforced without an agreement or other evidence showing the corporate debtor accepted the obligation to pay interest, the bench of Judicial Member Nilesh Sharma and Technical Member Sameer Kakar held:

“Applying the ratio of the above judgment, the interest claimed by the Applicant on the basis of unilateral entries in the invoices, not being grounded in any contractual clause in the Purchase Orders and not supported by any other evidence on record suggesting that the parties had agreed to pay interest, is legally unsustainable. Such unilateral imposition cannot be enforced against the CD and cannot be treated as part of operational debt for the purposes of Section 9 proceedings.”

Johnson Screens had supplied screening and auxiliary solutions to Shapoorji Pallonji for its Lucknow project under purchase orders issued on December 17, 2019 and revised on March 8, 2022.

It raised three invoices dated November 18, 2022 aggregating Rs 1.16 crore. Shapoorji Pallonji made part-payment of Rs 24.85 lakh, leaving a principal outstanding of Rs 91.48 lakh.

Johnson Screens claimed that interest at 12% per annum, as mentioned in its invoices, took the total claimed default to Rs 1.05 crore. It issued a demand notice on May 5, 2024 seeking payment of that amount.

Shapoorji Pallonji, in its June 4, 2024 reply, said the principal operational debt was below the Rs 1 crore threshold needed to trigger CIRP. It also maintained that the purchase orders did not provide for interest, meaning Johnson Screens could not add that liability later through a unilateral clause in its invoices.

Johnson Screens took the opposite stand. It argued that the interest term printed on the invoices formed part of the debt calculation and pointed to earlier NCLAT rulings to say interest mentioned in invoices, if not disputed at the time, could be included as operational debt.

The tribunal noted that certain facts were undisputed. Johnson Screens had supplied the goods. Shapoorji Pallonji had made part-payment. The principal outstanding amount stood at Rs 91.48 lakh. The purchase orders governing the contractual relationship did not contain any clause providing for interest on delayed payments.

The bench said the maintainability of the petition depended entirely on whether the interest component could legally be included within operational debt.

It found that invoices were unilateral documents raised by the supplier and could not impose additional financial obligations in the absence of mutual agreement or any contractual or statutory basis.

"In the present case, there is no material to demonstrate that the CD had agreed to the payment of such interest. Mere acceptance of goods or part payment of invoices cannot be construed as acceptance of a unilateral stipulation regarding interest, particularly when the governing Purchase Orders are silent on this aspect."

The tribunal also noted that Johnson Screens had failed to establish any prior course of dealing showing that Shapoorji Pallonji had previously paid interest for delayed payments.

It held that once the interest component of Rs 13.97 lakh was excluded, the admitted operational debt fell below the statutory threshold of Rs 1 crore. The Section 9 petition was therefore not maintainable.

The tribunal also agreed with Shapoorji Pallonji's contention that the insolvency proceedings were effectively being used as a recovery mechanism.

“We also find merit in the contention of the CD that the present proceedings are in the nature of a recovery action rather than a genuine insolvency resolution process. The scheme of the IBC does not permit its use as a substitute for recovery proceedings or as a tool for coercive payment, particularly where the claim itself is sought to be artificially inflated through components that are not legally sustainable.”

Dismissing the petition as not maintainable, the tribunal clarified that Johnson Screens remained free to pursue other remedies available in law.