Pre-Existing Dispute over Special Quantity Discounts Bars Admission of Section 9 IBC Application
- REEDLAW
- Jul 23
- 3 min read
NCLAT held that the pre-existing dispute over special quantity discounts barred the admission of the Section 9 application under the Insolvency and Bankruptcy Code.
On 21 July 2025, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member), while adjudicating a company appeal, held that the existence of a genuine pre-existing dispute regarding special quantity discounts—evidenced by admitted credit notes, conflicting ledger entries, and supporting documentary correspondence—barred the admission of a Section 9 application under the Insolvency and Bankruptcy Code. Relying on the legal standard laid down in Mobilox Innovations Private Limited v. Kirusa Software Private Limited, REEDLAW 2017 SC 09545, the Tribunal concluded that such a dispute, being plausible and backed by evidence, meant the operational debt could not be treated as undisputedly due.
The Appellant, engaged in wholesale trading of paper products, had filed an appeal challenging the NCLT's order dated 23.08.2019, which rejected its Section 9 IBC application against M/s. Compack Enterprise India Pvt. Ltd., the Corporate Debtor. While the NCLAT initially allowed the appeal in 2020 and remitted the matter for admission, the Hon’ble Supreme Court, in its order dated 18.04.2023, set aside that decision and remanded the matter for a fresh determination. The Apex Court specifically directed the Tribunal to assess whether any amount beyond ₹22,56,833/- was due and whether there existed a pre-existing dispute as defined under the principles laid down in Mobilox Innovations Private Limited v. Kirusa Software Private Limited, REEDLAW 2017 SC 09545.
The Operational Creditor claimed an operational debt of ₹1.81 crores based on supplies made between FY 2013–14 and FY 2018–19, with the default dated as 07.05.2018. In contrast, the Corporate Debtor admitted liability only to the extent of ₹22,56,833/- and alleged that special quantity discounts had not been accounted for. The Corporate Debtor relied on letters dated 28.12.2013, 16.04.2016 and 17 credit notes, asserting a consistent practice of offering discounts per kilogram. The Operational Creditor denied the validity of those letters and termed most credit notes as forged, though it admitted eight of them, including one that clearly quantified discounts based on total kilograms supplied. It also relied on a disputed email dated 17.05.2018, which purportedly confirmed dues of over ₹2.34 crores. The Corporate Debtor disputed the authorship and authenticity of the email, noting that it was signed by an employee, not the director.
The Tribunal observed that the admitted eight credit notes were sufficient to demonstrate an ongoing commercial arrangement for special quantity discounts between the parties. The ledger accounts produced by the Corporate Debtor, reflecting 17 credit notes and two debit notes, corroborated the claim that only ₹22,56,833/- was due. The denial of nine credit notes by the Operational Creditor created a material dispute, particularly when viewed against its own ledger records and admitted credit notes. The Tribunal further noted that the Corporate Debtor had issued a cheque for ₹22,56,833/- in full and final settlement, which was rejected by the Operational Creditor, reinforcing the absence of default on the claimed operational debt.
Applying the Mobilox Innovations Private Limited v. Kirusa Software Private Limited, REEDLAW 2017 SC 09545 test, the NCLAT held that the Corporate Debtor's reply dated 11.01.2019 raised a valid notice of dispute. The Tribunal concluded that the dispute regarding the special quantity discounts was genuine, required further investigation, and was not a patently feeble or illusory defence. Consequently, it upheld the Adjudicating Authority’s order rejecting the Section 9 application. The NCLAT directed the Corporate Debtor to transfer the admitted amount of ₹22,56,833/- within two weeks upon receiving the Operational Creditor's bank account details and dismissed the appeal.
Mr. Vikas Mishra, Mr. Sanchit Gauri, Mr. Krishna Dev Yadav, Mr. Arihant Jain, Mr. Prabvani Kaur and Mr. Mohak, Advocates, represented the Appellant.
Mr. Rajesh Banati, Mr. Ashish Sareen, Mr. Adil and Mr. Harsh Gupta, Advocates, appeared for the Respondents.
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