NCLAT upholds order dismissing insolvency proceedings against PepsiCo India

The National Company Law Appellate Tribunal (NCLAT) has dismissed an appeal filed by SNJ Synthetics Limited against an order by the National Company Law Tribunal (NCLT), Chandigarh Bench-I, in a case involving PepsiCo India Holdings Private Limited. The appeal challenged the NCLT’s decision to dismiss SNJ Synthetics’ application to initiate the Corporate Insolvency Resolution Process (CIRP) against PepsiCo.  

SNJ Synthetics, an MSME engaged in manufacturing PET preforms and thermoplastics, had a business relationship with PepsiCo, formalized through a Supply Agreement dated October 9, 2018. Disputes arose over unpaid dues, which SNJ Synthetics claimed amounted to ₹1,96,80,953 as of February 28, 2021. SNJ Synthetics served a demand notice to PepsiCo under Section 8 of the Insolvency and Bankruptcy Code (IBC) but received no payment.  

Subsequently, SNJ Synthetics filed a Section 9 petition seeking to initiate CIRP against PepsiCo for the unpaid operational debt, comprising ₹91,63,886 in principal and ₹1,05,17,067 in interest. During the proceedings, the principal amount was revised to ₹77,37,886, which PepsiCo paid on the Adjudicating Authority’s direction. However, SNJ Synthetics continued to pursue the unpaid interest of ₹1,05,17,067.  

The NCLT dismissed SNJ Synthetics’ petition, stating that CIRP could not be initiated against PepsiCo for the interest component alone since the principal amount had been paid. SNJ Synthetics appealed this decision, arguing that the Adjudicating Authority erred in not considering the total operational debt, including interest, for determining the threshold under the IBC.  

The NCLAT upheld the Adjudicating Authority’s decision, emphasizing that the Supply Agreement between the two parties did not include any clause for interest on delayed payments. The tribunal concluded that initiating CIRP solely for recovering a disputed interest claim was not in line with the IBC’s intent.  

Key Arguments

SNJ Synthetics (Appellant):

• Operational debt under IBC includes interest, which must be aggregated with principal to meet the ₹1 crore threshold.
• Invoices stipulated 24% interest, implying mutual consent. MSME Act mandates interest for delayed payments.
• Cited precedents (Prashat Agarwal v. Vikas Parasrampuria) where tribunals recognized invoice-based interest as part of debt.

PepsiCo India (Respondent):

• Supply Agreement (2018) lacked an interest clause; unilateral invoices cannot override contractual terms.
• Principal repaid; interest claim is disputed and unfit for IBC’s summary jurisdiction.
• IBC misuse alleged, as proceedings sought only for recovery, not insolvency resolution.

Tribunal’s Analysis

1. Contractual Terms Prevail:
   The Supply Agreement’s payment clauses (Clause 9, Schedule D) did not mandate interest. Unilateral invoices, unsigned by PepsiCo, couldn’t modify the contract without mutual consent.
2. Interest Claims Require Contractual Basis:
   NCLAT cited Krishna Enterprises v. Gammon India and S.S. Polymers v. Kanodia Technoplast, stressing that absent a contractual interest clause, CIRP cannot proceed for interest-only claims post-principal repayment.
3. Threshold Not Met:
   Post-reconciliation, the principal (₹77.37 lakh) fell below ₹1 crore. SNJ’s insistence on unchanged interest (₹1.05 crore) lacked transparency and appeared aimed at crossing the threshold artificially.
4. IBC’s Objective:
   The tribunal echoed Supreme Court precedents, underscoring IBC’s role in resolution, not recovery. “Pushing Corporate Debtor into insolvency for contested interest undermines IBC’s ethos,” the order stated.

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