The National Company Law Appellate Tribunal, Principal Bench, New Delhi, has firmly rejected a plea for the payment of interest on delayed dues arising from the Corporate Insolvency Resolution Process (CIRP) of a textile manufacturing company. The appellate body, led by Justice Mohd. Faiz Alam Khan and technical member Indevar Pandey, affirmed that without explicit contractual terms or statutory backing, an operational creditor cannot unilaterally demand interest on payments delayed during insolvency proceedings. The ruling effectively upholds a prior order from the National Company Law Tribunal, Chandigarh Bench, which had characterized the appellant’s interest claim as infructuous following a final audit-based settlement.

Parkash Cotton Pressing Factory, the appellant, had supplied essential cotton raw materials to the Corporate Debtor before and during the CIRP period. While the supplier’s principal claim was eventually verified and paid, the dispute centered on an additional claim of approximately ₹2.29 crore, representing interest calculated over a five-year delay. The supplier grounded its claim in a circular issued by the Indian Cotton Association, which suggests a monthly interest rate for delayed cotton supply payments. However, the appellate tribunal scrutinized the legal weight of this circular and found it entirely insufficient to bind the insolvency process.

Audit-Driven Settlement Forecloses Further Claims

The procedural journey of this dispute involved multiple applications before the adjudicating authority, eventually resulting in the appointment of an independent auditor to reconcile CIRP and liquidation costs. Following a verification of financial records, the auditor certified the outstanding dues payable to the appellant at ₹6,95,24,683.35. The liquidator subsequently placed this report before the financial creditors, who ratified the figures, and the National Company Law Tribunal approved the distribution of these funds.

Upon receiving the payment, the appellant provided a signed undertaking stating that the amount settled the debt in full and that no further legal proceedings would be pursued. When the appellant later attempted to press for interest, the appellate tribunal observed that the auditor’s determination was based significantly on data and invoices provided by the creditors themselves. By accepting the full and final settlement, the appellant effectively waived the right to seek further compensation. The tribunal noted that the appellant's attempt to later classify the undertaking as a product of "financial duress" lacked evidentiary support and did not hold up under judicial scrutiny.

Circular Lacks Mandatory Statutory Authority

A significant portion of the hearing was dedicated to the appellant’s reliance on the circular issued by the Indian Cotton Association. The NCLAT examined the document and found it devoid of any regulatory standing. Specifically, the court highlighted that the document failed to bear any reference number, date, or authorizing signature. More importantly, the bench emphasized the lack of recognition for such associations under the Insolvency and Bankruptcy Code, 2016.

Addressing the reliance on this circular, the court stated, "The appellant cannot take any benefit of this circular, in absence of any Statutory authority conferred on the Association to issue a circular of this nature." The bench further clarified that the appellant failed to demonstrate how the Indian Cotton Association could function as a legislation-making body or why its internal policies would override the waterfall mechanism prescribed under Section 53 of the Insolvency and Bankruptcy Code. The tribunal’s finding confirms that private industry circulars, regardless of their widespread use in commercial trade, cannot modify the structured distribution protocols established by insolvency law without a clear nexus to the governing statute or regulatory oversight by the Insolvency and Bankruptcy Board of India .

Undertaking Serves as Estoppel Against Interest Claim

The tribunal also addressed the appellant's argument regarding financial duress. The appellant contended that the undertaking provided to the liquidator was signed under coercive circumstances necessitated by the prolonged delay in receiving payments. However, the bench remained unconvinced, noting that the undertaking was a clear expression of intent to conclude the liability dispute. The tribunal concluded that such an instrument operates as an estoppel, preventing the creditor from returning to the forum to request additional funds once the distribution mechanism has been finalized and executed.

Regarding the allegations of duress, the court observed, "We do not find any merit in the submissions of Learned Counsel for the appellant that this undertaking has been given either in financial duress or under any compulsion." This indicates a stringent judicial approach toward finality in insolvency distributions. The bench reasoned that if creditors were permitted to retract settlements based on subjective claims of duress after accepting payments, the stability of the entire liquidation process would be compromised.

The judgment clarifies that in the absence of pre-existing, clearly defined contractual interest clauses in the original invoices or supply agreements, the Corporate Debtor is not obligated to pay interest for the period during which the CIRP or liquidation process is underway. The court found that the operational creditor failed to provide any document, such as a formal purchase order or agreement, that included a stipulation for interest on delayed payments.

With this decision, the National Company Law Appellate Tribunal has reinforced the principle that CIRP costs must be determined through rigorous, evidence-based auditing, and that creditors are bound by the settlements they sign. The appeal, having failed to identify any procedural or legal error in the adjudicating authority’s handling of the claims, was dismissed. The liquidator may now proceed without the burden of these contested interest claims, providing much-needed closure to the liquidation of the Corporate Debtor. No further orders were issued regarding costs, and all pending applications associated with the appeal were simultaneously disposed of by the bench.