The National Company Law Appellate Tribunal has clarified a critical threshold issue under the Insolvency and Bankruptcy Code: interest stipulated in invoices cannot be aggregated with principal debt to meet the statutory minimum default amount unless backed by a mutual contractual agreement or established practice. This ruling reinforces the requirement of enforceable consent in operational creditor claims.
Background & Facts
The Dispute
The Appellant, M/s Shivani Enterprises, an operational creditor supplying goods to the Corporate Debtor, M/s S Square Cargo Movers Private Limited, raised invoices totaling Rs. 1,52,02,816 for goods delivered. The Corporate Debtor made partial payments of Rs. 48,58,837, leaving a principal outstanding of Rs. 70,54,167. The invoices included a clause imposing compounded interest at 3% per annum on delayed payments. The Appellant issued a Section 8 demand notice on 03.03.2025, demanding payment of the principal plus accrued interest, totaling Rs. 1,06,09,920. As no payment was made, the Appellant filed a Section 9 application before the National Company Law Tribunal, Cuttack Bench, on the ground that the total claim exceeded the Rs. 1 crore threshold under Section 4 of the IBC.
Key Facts
- Goods supplied between 2024 and early 2025, with invoices issued progressively
- Total invoice value: Rs. 1,52,02,816
- Partial payment received: Rs. 48,58,837 on or before 28.02.2025
- Principal outstanding: Rs. 70,54,167
- Interest claimed at 3% p.a. compounded: Rs. 35,55,753
- Total claim in Section 9 application: Rs. 1,06,09,920
- No written contract governing the supply relationship was produced
- No prior instances of interest payment by the Corporate Debtor were demonstrated
- Corporate Debtor’s reply to Section 8 notice dated 13.03.2025 and 18.03.2025 disputed the interest component
Procedural History
- 03.03.2025: Section 8 demand notice issued by Appellant
- 13.03.2025 & 18.03.2025: Corporate Debtor responded, disputing interest liability
- 16.01.2026: Adjudicating Authority dismissed Section 9 application, holding operational debt below Rs. 1 crore threshold after excluding interest
- 17.03.2026: Appeal filed before NCLAT under Section 61 of IBC
Relief Sought
The Appellant sought setting aside of the Adjudicating Authority’s order dated 16.01.2026 and restoration of the Section 9 application on the ground that the total operational debt, inclusive of interest, exceeded Rs. 1 crore, thereby satisfying the threshold under Section 4 of the IBC.
The Legal Issue
Can interest stipulated unilaterally in invoices, without a formal contractual agreement or established practice of payment, be included in the calculation of operational debt to meet the Rs. 1 crore threshold under Section 4 of the Insolvency and Bankruptcy Code?
Arguments Presented
For the Appellant
The Appellant contended that the invoices, being accepted and acted upon by the Corporate Debtor, constituted binding terms of the transaction. Reliance was placed on Prashat Agarwal v. Vikash Parasrampuria (CA(AT)(Ins) No. 690 of 2022), where NCLAT held that interest stipulated in invoices forms part of operational debt under Section 3(11) of the IBC. It was argued that the Corporate Debtor’s silence and acceptance of goods without objection amounted to implied consent to the interest clause. Further, Descent Buildwell LLP v. Reliance Communications Infrastructure Ltd. (CA(AT)(Ins) No. 871 of 2025) was cited to assert that invoices themselves can constitute enforceable contracts.
For the Respondent
The Corporate Debtor did not appear or file a written submission. However, its reply to the Section 8 notice dated 13.03.2025 and 18.03.2025 explicitly disputed the interest component, thereby raising a pre-existing dispute under Section 8(2) of the IBC. The Respondent’s position, as reflected in the Adjudicating Authority’s order and upheld by NCLAT, was that without a mutual agreement or past conduct of interest payment, the interest clause in invoices is unenforceable and cannot be aggregated with principal debt.
The Court's Analysis
The NCLAT undertook a detailed review of its own precedents and statutory interpretation under the IBC. It emphasized that Section 3(11) defines debt as a liability arising from a transaction involving the supply of goods, but does not automatically extend to unilaterally imposed interest. The Bench noted that while invoices may reflect terms of supply, they are not inherently contractual unless mutually accepted.
"Invoices with interest clauses which were not part of the formal agreement are unenforceable."
The Court distinguished Prashat Agarwal on the ground that in that case, the interest clause was part of a documented contractual arrangement, whereas here, no such agreement existed. The Appellant admitted there was no written contract and no prior payment of interest by the Corporate Debtor. The Bench further relied on Shri Durga Scaffolding Noida Pvt Ltd v. Kanwar Enterprises Pvt Ltd (CA(AT)(Ins) No. 1666 of 2025) and SNJ Synthetics Ltd v. Pepsico India Holdings Pvt Ltd (CA(AT)(Ins) No. 386 of 2025), both of which held that interest cannot be included unless mutual consent is demonstrated through contract or consistent conduct.
The Court also referenced Krishna Enterprises v. Gammon India Limited (CA(AT)(Ins) No. 144 of 2018), which affirmed that only the principal amount constitutes debt in the absence of an agreement for interest. The Appellant’s reliance on Descent Buildwell was rejected because that case involved actual payment of interest under similar invoices, establishing a course of conduct - a factor absent here.
The NCLAT concluded that the Corporate Debtor’s explicit dispute of the interest component in its reply to the Section 8 notice constituted a pre-existing dispute under Section 8(2), further disqualifying the application from proceeding under Section 9. The Adjudicating Authority’s exclusion of interest from the operational debt calculation was therefore legally sound.
The Verdict
The appeal was dismissed. The NCLAT upheld the Adjudicating Authority’s order dated 16.01.2026, holding that the operational debt, excluding interest, amounted to Rs. 70,54,167, which is below the Rs. 1 crore threshold under Section 4 of the IBC. The Section 9 application was rightly dismissed. No costs were awarded. The Appellant is not precluded from pursuing the interest claim in a civil court.
What This Means For Similar Cases
Operational Debt Must Be Contractually Grounded
- Practitioners must ensure that interest claims under Section 9 are supported by a written agreement or documented course of conduct
- Invoices alone, without mutual assent, are insufficient to establish enforceable interest liability
- Always attach contractual terms or prior payment records when filing Section 9 applications involving interest
Pre-Existing Dispute Includes Interest Disputes
- A Corporate Debtor’s objection to interest in a Section 8 reply constitutes a valid pre-existing dispute under Section 8(2)
- This triggers the bar to admission of Section 9 applications, even if principal debt exceeds threshold
- Avoid filing Section 9 applications where interest is contested - pursue civil remedies instead
Threshold Calculations Require Precision
- Always calculate operational debt strictly on admitted principal amounts unless interest is contractually enforceable
- Do not assume interest will be included - NCLAT has set a high bar for inclusion
- Document all communications and conduct that demonstrate mutual acceptance of interest terms
