NCLAT rejects cotton supplier's claim for interest on delayed insolvency-period dues

The National Company Law Appellate Tribunal (NCLAT) has dismissed an appeal by Parkash Cotton Pressing Factory, a cotton supplier, that sought interest on delayed payment for raw material it supplied to a textile company during that company's insolvency and liquidation. In an order dated 29 October 2026, the NCLAT's Principal Bench in New Delhi upheld a 2 January 2025 order of the National Company Law Tribunal (NCLT), Chandigarh Bench. Allahabad Bank is a respondent in the case.

What Happened

According to the order, the textile company was admitted into the corporate insolvency resolution process, a process under the Insolvency and Bankruptcy Code to rescue or wind up a company in default, on 29 September 2017, and its liquidation began on 8 August 2018. The resolution professional asked the supplier to keep supplying cotton so the company could run as a going concern, with the supplies treated as process costs.

After State Bank of India, one of the financial creditors, sought an audit of these costs, an auditor certified Rs 6,95,24,683 as due to the supplier. The order records that the supplier gave an undertaking accepting this amount in full and final settlement and was paid. It then pressed a separate claim for interest of Rs 2,29,56,480 for the delay.

The NCLAT agreed with the NCLT that the invoices had no provision for interest and that there was no separate agreement allowing it. It held that a circular of the Indian Cotton Association on interest for late payment had no statutory authority. It also rejected the argument that the undertaking was given under financial duress, holding that it bars the supplier from claiming anything beyond the audited amount. The order may be appealed to the Supreme Court.

What It Means

The ruling matters to suppliers who keep a company running while it is in insolvency. Their supplies may be treated as process costs, which are paid ahead of most creditors, but the tribunal held that interest for late payment cannot be claimed unless the invoices or a contract provide for it. A supplier who signs a full-and-final undertaking to receive an audited amount may also lose the right to claim more.

For the lenders, the order leaves the distribution decided under the audit, which the financial creditors had ratified, unchanged.

Source: NCLAT order