NCLT Allahabad Says It Cannot Determine Unadjudicated MSMED Interest Claims During CIRP

The Allahabad Bench of the National Company Law Tribunal (NCLT) has recently held that it cannot determine an unadjudicated claim for interest under the Micro, Small, and Medium Enterprises Development (MSMED) Act during the corporate insolvency resolution process if the interest liability had not been adjudicated by a competent forum before the insolvency proceedings commenced.

The tribunal made the observation while dismissing an operational creditor's plea seeking to enhance its admitted claim and challenge an approved resolution plan.

The bench of Judicial Member Praveen Gupta and Technical Member Ashish Verma observed,

“We are also of the considered view that this Tribunal, while exercising jurisdiction under the Code, cannot adjudicate upon the applicability, computation, or entitlement of interest under the MSME Act. Such issues fall within the domain of the competent forum empowered under the relevant statute.”

The corporate insolvency resolution process against Hind Agro Industries Ltd. commenced on March 3, 2023. Modern Overseas Pvt. Ltd. filed a claim of Rs 29.21 crore, which the Resolution Professional (RP) admitted.

Nearly two years later, the company sought to raise its claim to Rs 241.29 crore by adding interest under the MSMED Act. The RP did not admit the revised claim and advised the company to approach the tribunal.

Modern Overseas also attacked the resolution process. It alleged that successful resolution applicant GSW Enterprises Pvt. Ltd. did not meet the minimum net worth requirement of Rs 25 crore and was therefore ineligible to submit a resolution plan. It also claimed the plan had been designed to take over the corporate debtor and defraud its creditors.

It also alleged that the RP had engaged in unfair trade practices, was not acting in the best interests of the corporate debtor, and was taking advantage of the trust reposed in him by the Committee of Creditors (CoC).

The RP denied the allegations. He argued that Modern Overseas had no locus to challenge a resolution plan approved by creditors holding 87.54% of the voting share. He also submitted that the revised claim could not be admitted because the company had failed to furnish the additional information, clarifications, and supporting documents required under the insolvency regulations. According to the RP, the entire insolvency process was conducted transparently and in compliance with the Code and the regulations framed under it.

The tribunal noted that the revised claim had been submitted after a substantial delay, long after the claim verification process had concluded. Entertaining such a claim at that stage, it observed, would defeat the Code's objective of ensuring a time-bound insolvency resolution process.

The tribunal further noted that the additional amount claimed represented interest under the MSMED Act. That interest had neither been adjudicated nor crystallised by a competent forum before the insolvency process commenced.

The tribunal observed, “The RP, while performing his statutory duties under the Code, is only required to receive, verify and collate claims. The Resolution Professional is not vested with adjudicatory powers to determine disputed liabilities or to quantify claims requiring adjudication. Therefore, the Resolution Professional could not have mechanically admitted the enhanced claim merely because the Applicant asserted entitlement to interest under the MSME Act.”

The tribunal further held that Modern Overseas lacked the locus to challenge the approved resolution plan. It noted that the plan had been approved by the requisite majority of the CoC after due consideration.

Accordingly, the tribunal dismissed the application.