Pre-Existing Contractual Dispute Bars Section 9 IBC Petition – NCLAT Upholds Adjudicating Authority Order
- REEDLAW
- Sep 8
- 3 min read
REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, today, 8 September 2025, upheld the Adjudicating Authority’s order, observing that pre-existing contractual disputes concerning delay, quality, or performance obligations bar the initiation of a Section 9 insolvency application under the Insolvency and Bankruptcy Code (IBC). The Tribunal emphasised that both the debt and default must be undisputed and clearly established to trigger a corporate insolvency resolution process (CIRP).
The NCLAT Bench, comprising Justice N. Seshasayee (Judicial Member) and Mr. Barun Mitra (Technical Member), while adjudicating a Company Appeal, reiterated that pre-existing disputes regarding delay, quality, or contractual obligations prevent the initiation of a Section 9 IBC petition. The Tribunal clarified that the threshold for invoking CIRP requires both debt and default to be undisputed, reinforcing that insolvency proceedings cannot be used to resolve underlying contractual disagreements.
The appellant, a partnership firm engaged in construction, had entered into a Construction Contract with the respondent for civil and allied interior work at the lounge near Terminal 3 of Delhi International Airport. The contract stipulated a three-month timeline for completion, with provisions for submission of running bills and a final bill for payment certification. The appellant submitted four running bills and a final bill, with a total work value of ₹4,66,89,639, of which the respondent had paid ₹3,09,70,026, leaving ₹1,57,19,613 outstanding. Despite issuing a statutory demand notice under Section 8 of the IBC, the respondent did not make payment, prompting the appellant to file a Section 9 application for initiating a CIRP.
The respondent contended that the appellant had not completed the work within the stipulated or extended period, raising quality and delay issues through emails and ultimately terminating the contract. The respondent also relied on contractual clauses imposing a penalty of ₹25,000 per day for delay, asserting that the appellant’s claim was disputed and below the Section 9 threshold limit of ₹1 crore, and that the IBC was not a recovery mechanism but required arbitration for such disputes.
The Adjudicating Authority had dismissed the Section 9 petition, observing the existence of a pre-existing dispute regarding delay, quality, and contractual obligations. On appeal, the NCLAT examined the final bill and noted that it was not unconditionally accepted or approved for payment by the respondent. The tribunal observed discrepancies between the amounts claimed in the final bill and the statutory demand notice, raising doubts regarding the exact debt due and whether it met the IBC threshold. Emails exchanged between the parties indicated unresolved quality and discrepancy issues. Further, the respondent had clearly raised the possibility of claiming damages for delays, which rendered the appellant’s claim uncertain and disputed.
Considering these factors, the NCLAT concluded that the appellant’s case was not free from dispute and that the prerequisites of debt and default necessary for invoking Section 9 were in doubt. The tribunal found no ground to interfere with the Adjudicating Authority’s order and dismissed the appeal, upholding the rejection of the Section 9 petition.
Mr. Palash S. Singhai and Mr. Harshal Sareen, Advocates, represented the Appellant.
Mr. Hemant Phalpher and Mr. Kunal Sinha, Advocates, appeared for the Respondent.
This is premium content available to our subscribers.
To access the full content related to this article — including the complete judgment, detailed legal analysis, ratio decidendi, headnotes, cited case laws, and updates on relevant statutes and notifications — we invite you to subscribe to REEDLAW’s premium research platform.
Click here to Subscribe and unlock exclusive access to structured legal analysis, judicial summaries, and a comprehensive legal research database.
Already a subscriber? Click the link below to access the full document and linked case laws.
REEDLAW Legal Research & Analysis is India’s most trusted legal publishing and research platform, empowering legal professionals with structured judicial insights and authoritative legal intelligence since 1985.
Our comprehensive legal intelligence platform covers Corporate Insolvency, Bankruptcy, SARFAESI, Company Law, Contract, MSMEs, Arbitration, Debt Recovery, and Commercial Laws. Through curated journals — IBC Reporter and Bank CLR — and an advanced digital database, REEDLAW simplifies complex legal research for professionals, institutions, and academia across India.
Comments