The National Company Law Appellate Tribunal (NCLAT) has rejected an effort to initiate insolvency proceedings against PepsiCo India, siding with the food and beverage conglomerate in a dispute centered on contested interest payments.
In a ruling issued Wednesday, the NCLAT dismissed an appeal by SNJ Synthetics Ltd., a supplier of PET preforms and thermoplastics, which had sought to trigger corporate insolvency resolution against PepsiCo under the bankruptcy code. The case was reported on the Bar & Bench.
The three-judge bench found that the debt claim against PepsiCo had been largely settled, with the principal amount already paid. What remained, a Rs1.05 crore claim for interest, was deemed insufficient to support a bankruptcy proceeding.
“The IBC is not a forum for recovering interest alone, particularly where the underlying contract is silent on such provisions,” the tribunal wrote, as the report, highlighting that the Insolvency and Bankruptcy Code is not designed to function as a debt recovery mechanism.
The case stemmed from a 2018 supply agreement under which SNJ, classified as a micro, small, and medium enterprise, provided materials to PepsiCo. The company alleged that it was owed Rs1.96 crore, including Rs91.63 lakh in principal and substantial interest at an annual rate of 24 percent due to payment delays.
After a reconciliation of accounts, PepsiCo paid a reduced principal sum of Rs77.37 lakh in February 2023. SNJ accepted the payment but continued to pursue the interest component, arguing that the total debt, with interest, exceeded the Rs1 crore threshold required to initiate insolvency proceedings under Section 9 of the bankruptcy code.
That position was rejected earlier this year by the National Company Law Tribunal in Chandigarh, and again by the appellate panel this week. The NCLAT found that SNJ’s interest demand was not supported by a written agreement, and that invoices generated unilaterally by the supplier did not create enforceable obligations on PepsiCo’s part.
The tribunal also cast doubt on SNJ’s motivations, noting that its failure to revise the interest figure after the principal amount was reduced gave weight to PepsiCo’s assertion that the interest demand was inflated merely to satisfy the jurisdictional threshold for insolvency proceedings.
Efforts by SNJ to invoke protections under the MSME Act and the Interest Act of 1978 were similarly rebuffed. The tribunal said such claims fall outside the purview of insolvency proceedings and must be pursued through appropriate civil remedies.