Belated and Resolved Disputes Do Not Bar CIRP Initiation Under Section 9 of IBC: NCLAT Clarifies

NCLAT clarified that belated and resolved disputes do not bar the initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code (IBC).

The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), reviewed an appeal and held that a dispute raised by the Corporate Debtor after the issuance of a Section 8 Demand Notice—particularly where dues were previously acknowledged and credit adjustments recorded—does not constitute a pre-existing dispute under the IBC. Consequently, such belated or contrived defences cannot defeat a valid Section 9 application for initiating CIRP.

In the matter of M/s Chemical Suppliers India Ltd. vs. M/s GLS Films Industries Pvt. Ltd., the National Company Law Appellate Tribunal (NCLAT) adjudicated an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the dismissal of a Section 9 application by the NCLT, New Delhi Bench-II. The application sought initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for an outstanding operational debt of ₹2.92 crore, comprising a principal amount of ₹1.72 crore and interest at 24% per annum on delayed payments. The NCLT had dismissed the petition on the ground of pre-existing disputes, prompting the Operational Creditor to seek appellate intervention.

The Appellant contended that they had supplied chemicals to the Corporate Debtor between March and July 2021 and that the Corporate Debtor had acknowledged the debt in its ledger as on 16.08.2021. A demand notice under Section 8 of the IBC was issued on 12.11.2021, followed by the filing of a Section 9 application on 21.12.2021. The Respondent, in defence, relied on prior correspondence regarding product defects, a police complaint filed in September 2021, a debit note of ₹2.42 crore dated 31.12.2021, and a subsequently filed civil suit to assert the existence of disputes before the initiation of insolvency proceedings.

After examining the materials on record, the NCLAT found that the Corporate Debtor had, in fact, raised issues about product quality in a letter dated 10.12.2020 and reiterated the same in October 2021. However, these grievances had already been addressed through the issuance of a credit note for ₹1.66 crore, which was acknowledged by both parties in their ledger accounts. The Tribunal also noted that the subsequent debit note and other complaints were raised only after issuance of the Section 8 demand notice and lacked substantiation or a timely objection, thus failing to establish any genuine or pre-existing dispute.

While evaluating the claim regarding interest charges, the Tribunal held that invoices raised by the Operational Creditor expressly stipulated interest at 24% p.a. for delayed payments. Since the Corporate Debtor had accepted delivery and did not dispute these terms contemporaneously, such interest constituted an integral part of the operational debt as defined under the IBC.

The NCLAT rejected the Respondent’s reliance on the police complaint and civil suit, observing that both were either based on already resolved issues or initiated after the Section 9 application, and thus could not constitute valid pre-existing disputes. It concluded that the defences raised by the Corporate Debtor lacked credibility and were an afterthought designed to evade liability—amounting to what the Tribunal termed "moonshine defences."

In light of the above findings, the Tribunal held that the Adjudicating Authority erred in dismissing the Section 9 application. It allowed the appeal, set aside the impugned order dated 16.12.2022, and granted the Corporate Debtor a one-month opportunity to settle the dues to avoid admission of CIRP. The decision reaffirmed that the IBC process cannot be obstructed by illusory or belated disputes and upheld the right of operational creditors to seek insolvency proceedings when a clear default exists.

Mr. Krishnendu Dutta, Sr. Advocate with Mr. Nikhil Kumar, Mr. Kapil Sharma and Ms. Mahak Agarwal, Advocates, represented the Appellant.

Mr. Virendra Ganda Sr. Advocate, with Mr. Ashraf Belal and Mr. Vishal Ganda, Advocates, appeared for the Respondent.

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