In a decision that finely calibrates the contours of the Insolvency and Bankruptcy Code, 2016 (IBC), the National Company Law Tribunal (NCLT), Mumbai Bench, in Shree Jajoo Instrument Manufacturing Corporation vs. Tapasya Engineering Works Pvt. Ltd. (2025 ibclaw.in 929 NCLT), has reaffirmed the fundamental principle that the IBC is not a recovery forum, even when overlaid with statutory rights under other enactments such as the MSMED Act.
This ruling, delivered by Hon’ble Justice (Retd.) Virendrasingh Gyansingh Bisht and Mr. Prabhat Kumar, Technical Member, reflect judicial restraint and doctrinal clarity.
The Crux: Can Interest under MSMED Act Cross the Threshold of Insolvency Default?
The petitioner, Shree Jajoo Instrument Manufacturing Corporation, invoked Section 9 of the IBC, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Tapasya Engineering Works Pvt. Ltd., the Corporate Debtor. The total claimed default was ₹1.33 crore, out of which ₹74.68 lakh was the principal amount, and ₹58.56 lakh was interest under the MSMED Act at 18% p.a..
The issue arose: Could the interest component under the MSMED Act be considered part of “operational debt” for meeting the threshold of ₹1 crore under Section 4 of the IBC?
Precedential Landscape: The Doctrine of Commercial Certainty
The NCLT placed heavy reliance on the NCLAT’s decision in Rishabh Infra v. Sadbhav Engineering Ltd. [(2024) ibclaw.in 707 NCLAT], which held that invoices containing interest clauses are not enforceable unless backed by a mutually accepted agreement. The Tribunal reasoned that unless there is unambiguous acceptance of interest liability by the corporate debtor, no such claim—statutory or contractual—can be included to meet the default threshold under the Code.
Further reliance was placed on the NCLAT’s decision in SNJ Synthetics Ltd. v. PepsiCo India Holdings Pvt. Ltd. [(2025) ibclaw.in 342 NCLAT], which made it unequivocally clear:
“The IBC cannot be turned into a debt-recovery proceeding. The Adjudicating Authority is not the proper forum to adjudicate contested or unsubstantiated interest claims under the MSMED Act or Interest Act.”
Thus, statutory rights for interest, however valid in isolation, are not justiciable under IBC proceedings unless forming part of an undisputed and crystallized debt.
Judicial Ruling: Decoding the Ratio
In a well-reasoned judgment, the NCLT held:
- Interest under the MSMED Act cannot be included to determine the threshold limit of default under Section 4 of the Code unless there is an unequivocal agreement or acceptance.
- Since the principal operational debt was less than ₹1 crore, and the interest component could not be adjudicated or included, the petition was dismissed as not maintainable.
Commentary: Balancing Multiplicity and Forum Discipline
This decision has far-reaching implications for MSMEs and operational creditors. While the MSMED Act provides for automatic accrual of interest, invocation under the IBC requires more than statutory existence—it requires commercial clarity and mutual acceptance.
To permit otherwise would blur the distinction between insolvency and recovery, between dispute resolution and corporate death, and would result in judicial overreach by insolvency forums.
Takeaway: Forum Shopping Is No Cure for Forum Incompatibility
Creditors must be cautious: The MSME Samadhan portal or civil remedies under the MSMED Act remain the proper avenue for interest-related disputes. Dragging such matters to the insolvency arena—without meeting the default threshold purely through principal debt—invites dismissal and judicial disapproval.
Concluding Thoughts
This judgment strengthens the foundational philosophy of the IBC—that it is a resolution mechanism, not a recovery tool. Statutory entitlements like interest, though legitimate, cannot be used to camouflage inadequacies in principal debt to gain entry into the CIRP gateway. The doors of insolvency must not be forced open by statutory crowbars of unrelated legislation.
Brief Disclaimer
This blog is intended for academic and informational purposes only. While efforts have been made to ensure accuracy, the content should not be construed as a legal opinion. For legal interpretation, readers are advised to refer to the original judgment and relevant statutory provisions.