Interest Cannot Be Clubbed With Operational Debt for CIRP

If you supplied goods or services and were not paid, you cannot always drag the buyer into insolvency. To start a Corporate Insolvency Resolution Process (CIRP), the default must be at least Rs 1 crore, and interest cannot be clubbed with the principal operational debt to get you over that line unless interest was genuinely part of the bargain. NCLT Kolkata applied exactly that rule in K.L. Steels (P) Ltd v. Bridge and Roof Co. (India) Ltd, reported on 1 June 2026, holding that if the levying of interest is not mentioned in any agreement between the parties, or specifically admitted by the corporate debtor, it cannot be clubbed with the principal debt to meet the threshold. In plain terms: the principal amount alone must cross the line.

This single point decides whether a Section 9 application under the Insolvency and Bankruptcy Code, 2016 (IBC) is even maintainable. Below is a plain-English explainer of the rule, why it exists, and what businesses and creditors should do about it.

What operational debt actually means

An operational debt under Section 5(21) of the IBC means a claim in respect of the provision of goods or services, including employment, or a debt in respect of the payment of dues arising under any law and payable to the Central Government, a State Government or a local authority. A vendor who delivered raw material, a contractor who completed work, or an employee owed salary is an operational creditor under Section 5(20).

That is different from a financial debt under Section 5(8), which is money borrowed against the time value of money, such as a loan or a debenture. Financial creditors file under Section 7. Operational creditors must first serve a demand notice under Section 8 and then file under Section 9. Our companion note on operational debt versus financial debt under the IBC goes through the distinction in detail.

The distinction matters because the law treats the two creditor classes differently at almost every stage, from the trigger to the committee of creditors, and the question of what counts towards the threshold plays out differently for each.

Which box the claim falls into decides the door you knock on.

The Rs 1 crore minimum default threshold

Section 4 of the IBC originally applied Part II where the minimum amount of the default was one lakh rupees. By notification S.O. 1205(E), the words "one lakh rupees" were substituted with "one crore rupees" with effect from 24 March 2020. So today no CIRP application, whether by a financial or an operational creditor, can be admitted unless the default is at least Rs 1 crore. Our guide on the insolvency threshold under the IBC covers how tribunals compute that figure.

The word "default" is the whole game. The tribunal does not ask how much the company owes in total. It asks whether the defaulted operational debt is Rs 1 crore or more. If the genuine, undisputed principal is below Rs 1 crore, the gate is shut at the threshold stage itself, regardless of how strong the creditor's case is on the merits.

Key takeaway. Measure the principal against the threshold before you spend a rupee on a Section 9 petition. In K.L. Steels the principal was Rs 97,84,977 and the interest claimed was Rs 57,08,414, taking the total to about Rs 1.55 crore. The tribunal looked only at the principal, found it short of Rs 1 crore, and dismissed the application. A gap of about Rs 2.15 lakh in principal defeated a claim of over Rs 1.5 crore.

Why interest cannot simply be added on

Many creditors, finding their unpaid principal sits just under Rs 1 crore, try to add interest, often at a rate unilaterally stamped on their invoices, to push the total over the line. The reasoning against this runs along three lines.

• Interest is claimable as part of the operational debt only where it was contractually agreed between the parties, for example a clause in the purchase order or supply agreement stipulating interest on delayed payment, or where the corporate debtor has specifically admitted the liability.
• An interest figure printed unilaterally on an invoice, with no underlying agreement and no admission, does not become part of the operational debt merely because it was printed.
• The IBC is not a recovery mechanism. Allowing creditors to manufacture jurisdiction by tacking on interest would convert an insolvency resolution process into a debt-collection shortcut, which is the opposite of the Code's purpose.

So if the principal operational debt is Rs 85 lakh and the creditor adds Rs 20 lakh of unilateral interest to reach Rs 1.05 crore, the application is liable to be rejected as below the threshold, without the tribunal ever reaching the merits.

When interest can legitimately count

Interest can be included towards the Rs 1 crore figure where there is a clear contractual or statutory basis. Common examples:

• A written contract or an accepted purchase order that fixes an interest rate on overdue amounts.
• The Micro, Small and Medium Enterprises Development Act, 2006. Section 15 requires the buyer to pay on the agreed date, and in any case within forty-five days of acceptance or deemed acceptance. Section 16 then makes the buyer liable, notwithstanding any agreement to the contrary, to pay compound interest with monthly rests at three times the bank rate notified by the Reserve Bank of India. Even here the entitlement and the computation must be properly pleaded and proved.
• A course of dealing or correspondence in which the buyer expressly accepted an interest liability, for example a reconciliation statement or a ledger confirmation signed by the debtor.

The burden is on the operational creditor to prove the interest forms part of the debt, not merely to assert it.

Principal and interest: how the threshold is read

The Section 8 and Section 9 sequence

Get the sequence wrong and the petition fails on procedure before anyone looks at the arithmetic.

1. Confirm the debt is operational. Test it against Section 5(21). Supply of goods or services, employment dues, or statutory dues payable to a government or local authority.
2. Add up the principal alone. Exclude any interest you cannot trace to a contract clause, a written admission, or a statutory provision such as Section 16 of the MSMED Act.
3. Check it against Section 4. If the principal default is below Rs 1 crore, stop. The IBC route is closed and pursuing it wastes fees and invites costs.
4. Serve the demand notice under Section 8(1). Deliver a demand notice of the unpaid operational debt, or a copy of the invoice demanding payment, in the prescribed form and manner.
5. Wait out the ten days. Section 8(2) gives the corporate debtor ten days from receipt to bring to your notice the existence of a dispute, or the record of payment.
6. File the Section 9 application. Under Section 9(3) it must be accompanied by the invoice or demand notice, an affidavit that no notice of dispute was given, a certificate from the financial institution maintaining your account confirming non-payment if available, any information utility record, and any other proof specified.
7. Propose an interim resolution professional if you wish. Section 9(4) permits, but does not require, the operational creditor to propose one.
8. The tribunal decides within fourteen days. Section 9(5) requires the Adjudicating Authority to admit or reject within fourteen days of receipt of the application, and its first proviso requires seven days' notice to rectify a defect before an incomplete application is rejected. A second proviso requires the tribunal to record written reasons if it does not decide within the fourteen days.

Step three closes the insolvency door for many suppliers. These are the routes that remain when it does.

What this means for businesses and creditors

If you are an unpaid supplier:

• Check your principal unpaid amount first. If it is under Rs 1 crore, consider a summary suit under Order XXXVII of the Code of Civil Procedure, 1908, an ordinary money suit, arbitration if your contract provides for it, or a reference to the Micro and Small Enterprises Facilitation Council under Section 18 of the MSMED Act if you are a registered micro or small enterprise.
• Do not rely on interest stamped on invoices to reach the threshold unless your contract genuinely provides for it or the debtor has admitted it in writing.
• Build the interest claim into your contracts upfront. A clear delayed-payment interest clause in the purchase order is worth far more than an after-the-fact note on an invoice.
• Keep the ledger confirmations. A signed reconciliation from the buyer is the cheapest evidence of admission you will ever get.

If you are a company facing a CIRP notice:

• Scrutinise whether the principal operational debt truly crosses Rs 1 crore once padding is stripped out.
• If the creditor has inflated the figure with unilateral interest, that is a strong ground to resist admission at the threshold itself, without conceding anything on the merits.
• Check whether there is a pre-existing dispute, which is a separate and independent ground.

Common mistake. Answering a Section 8 demand notice with silence, or with a bare denial sent after the ten day window. In Mobilox Innovations Private Ltd v. Kirusa Software Private Ltd, decided on 21 September 2017, the Supreme Court held that the adjudicating authority must reject the application where a notice of dispute has been received, and that at that stage the court asks only whether there is a plausible contention requiring further investigation, not whether the defence will succeed. A dispute recorded in writing before the demand notice, and repeated in a timely reply, is often the fastest way to defeat a Section 9 petition. A patently feeble legal argument or bare bluster is not.

A word of caution. Insolvency is a drastic remedy. Using it as a pressure tactic to recover a sub-threshold or genuinely disputed debt can backfire, and tribunals have imposed costs on creditors who abuse the process.

How this fits the wider IBC scheme

The threshold rule sits alongside two other gatekeeping ideas that protect companies from premature insolvency. The first is the pre-existing dispute bar in Sections 8 and 9. The second is that debt and default must both be proved; the creditor has to show that a debt is due and that the company defaulted on it, not merely that an invoice is outstanding. The no-clubbing rule on interest is an extension of the same principle, namely that the IBC is a resolution mechanism and not a recovery forum.

One currency point worth flagging. The Code was amended by the Insolvency and Bankruptcy Code (Amendment) Act, 2026 (Act 6 of 2026), with several changes taking effect from 26 May 2026, including amendments touching Sections 5, 7, 9 and 10. Check the current text of any provision on which you rely rather than an older commentary. You can read the Insolvency and Bankruptcy Code, 2016 on the official India Code portal, and the current regulations and notifications on the Insolvency and Bankruptcy Board of India website.

For tailored advice on insolvency notices, threshold disputes, or structuring contracts to protect your right to interest, see our corporate and commercial law practice page.

Frequently Asked Questions

This article is for general informational purposes only and does not constitute legal advice. Laws change and every situation is different; please consult a qualified advocate about your specific matter.

Related guides and where to get help

If this is a live problem rather than background reading, our corporate and commercial practice handles these matters from Bengaluru, including for clients who cannot attend court in person. These guides go deeper on the neighbouring questions:

• Operational Debt vs Financial Debt Under the IBC
• GST Registration in Bangalore: Threshold, Documents and Process
• Insolvency Threshold Under IBC: The Rs 1 Crore Minimum Default