Full Judgment Text
Non-reportable
2026 INSC 344
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No. 4019 of 2025
GLS Films Industries Private Limited … Appellant
versus
]
Chemical Suppliers India Private Limited … Respondent
J U D G M E N T
SANJAY KUMAR, J
Initiation of corporate insolvency resolution process was denied by
1.
the adjudicating authority but the appellate authority reversed that
decision. Aggrieved thereby, the corporate debtor is in appeal. On
28.03.2025, this Court stayed the operation of the judgment under appeal.
2. Company Petition (IB)-792(ND) of 2021 was filed before the
National Company Law Tribunal, New Delhi Bench (Court II) ( hereinafter ,
‘the NCLT’), by Chemical Suppliers India Private Limited, the respondent
1
herein, under Section 9 of the Insolvency and Bankruptcy Code, 2016 ,
Signature Not Verified
Digitally signed by
babita pandey
Date: 2026.04.09
18:42:45 IST
Reason:
against GLS Films Industries Private Limited, the appellant.
1
For short, ‘the Code’
1
3. The case of the respondent was that it had supplied chemicals to
the appellant over a period of time and a sum of ₹2,92,93,223/- was due
and payable to it as on 26.05.2021. Demand notice dated 11.11.2021 was
issued by it under Section 8 of the Code. In response, the appellant
addressed email dated 06.12.2021 disputing the claim. The respondent
thereupon filed the subject application under Section 9 of the Code. The
appellant contested the proceedings claiming that there was a pre-existing
dispute between the parties prior to issuance of the demand notice.
According to it, the respondent had supplied two consignments of solvent
on 10.04.2021 and 11.04.2021 respectively at its factory premises at
Gurugram but the same were found to be defective. This was brought to
the notice of the respondent, which promised that it would do better.
Basing on the said representation, the appellant claimed to have sourced
some more solvent supplies from the respondent on 20.04.2021 and
23.04.2021. However, these supplies were also found to be defective. The
respondent assured the appellant that it would compensate it for the
losses suffered and supplied another batch of solvent on 21.06.2021. Yet
again, upon checking, this batch was also found to be defective and was
returned forthwith.
4. According to the appellant the respondent was called upon time and
again to come and settle accounts and compensate the appellant for the
losses suffered by it. However, no steps were taken in that regard but the
2
authorised representative of the respondent started applying arm-twisting
tactics by threatening to commit suicide if payment was not made for the
defective supplies. The appellant filed a police complaint in relation
thereto. According to the appellant, in view of the losses suffered by it due
to such defective supplies, it issued a debit note on 31.12.2021 for
₹2,42,11,648/-. After adjusting the account, per the appellant, the
respondent was still due and liable to pay it a sum of ₹70,09,430/-.
5. The NCLT took note of the letter dated 10.12.2020 written by the
appellant to the respondent detailing the defective supplies made between
16.09.2020 and 24.10.2020, amounting to ₹1,66,89,770/-. The appellant
had stated therein that its customer had debited its account by ₹6.50 crore
but, owing to its long association with the respondent, the appellant was
not planning to debit the said amount from its account. However, the
appellant requested the respondent to take note of the debit note raised
by it for ₹1.66 crore and arrange a credit note for that sum.
The NCLT noted that the respondent replied to this letter dated
6.
10.12.2020 by way of email dated 14.07.2021. Therein, it denied that its
supplies of solvent were defective and requested for payment to be made
against overdue bills. In turn, by email dated 16.10.2021, the appellant
reiterated that the material supplied to it was defective and called upon
the respondent to reconcile the accounts and appropriate the losses
caused to it due to defective supplies. The appellant asserted that it was
3
only after repeated efforts on its part that the respondent incorporated a
credit note for ₹1.66 crore but the original thereof and the tax paid note
were never delivered to it. On the other hand, by email dated 10.09.2021,
the respondent raised a demand for ₹4,60,05,397/-. The NCLT also noted
that the appellant had lodged a police complaint on 27.09.2021, long prior
to issuance of the demand notice, raising the issue of the defective quality
of the supplies made by the respondent and its pressure tactics in seeking
payment therefor under threat of suicide. Therein, the appellant had also
referred to the fact that it called upon the respondent to come for
reconciliation of accounts but to no avail.
7. On a conspectus of these facts, the NCLT opined that there was a
plausible dispute raised by the appellant, which was not disclosed by the
respondent upfront in its application. The NCLT also took note of the
counterclaim of the appellant that it was due and payable a sum of
₹70,09,430/-. The NCLT opined that the respondent had approached it to
recover its alleged dues and that was not the objective of the process
provided under the Code. The NCLT, accordingly, concluded that there
existed a dispute between the parties prior to issuance of the demand
notice which necessitated a detailed investigation of documents and
adducing of evidence by all concerned, which was beyond the scope of
its summary jurisdiction under the Code. The respondent’s application
was accordingly dismissed by the NCLT, vide order dated 16.12.2022.
4
8. Aggrieved thereby, the respondent filed Company Appeal (AT) (Ins)
No. 157 of 2023 before the National Company Law Appellate Tribunal,
Principal Bench, New Delhi ( hereinafter , ‘the NCLAT’). This appeal was
allowed by the impugned judgment dated 11.02.2025. Therein, the NCLAT
noted that the respondent had raised eight invoices between the dates
27.03.2021 and 26.07.2021, amounting to ₹1,72,04,137/-, for the material
supplied by it to the appellant and as the appellant failed to make payment
therefor within time, the respondent charged interest @24% per annum,
as per the invoice terms, amounting to ₹1,20,89,086/-. As no payment was
made even thereafter, the respondent was stated to have issued demand
notice dated 11.11.2021 under Section 8 of the Code for ₹2,92,93,223/-,
being the principal and the interest due, and then filed the application
under Section 9 of the Code on 21.12.2021.
9. The NCLAT observed that the appellant had addressed letter dated
10.12.2020 to the respondent, complaining about the poor quality of the
material supplied by it in September, 2020 and October, 2020 and that this
letter found reference in the appellant’s email dated 16.10.2021. The
NCLAT, however, opined that the respondent had accepted its liability in
that regard and issued a credit note to the appellant for ₹1.66 crore. The
NCLAT also noted that the appellant had incorporated this credit note in
its ledger account on 31.03.2021. According to the NCLAT, this credit note
resolved the issue raised by the appellant in its letter dated 10.12.2020,
5
which was again raked up in the email dated 16.10.2021. On this basis,
the NCLAT concluded that it could not be treated as a pre-existing dispute.
The NCLAT then referred to the appellant’s email dated 06.12.2021 in
reply to the respondent’s demand notice dated 11.11.2021. Therein, the
appellant had referred to the credit note dated 31.03.2021 for
₹1,66,89,770/-, the original of which was still awaited by it. The NCLAT
opined that the amount covered by the demand notice did not take into
account this sum of ₹1.66 crore which was in relation to the defective
material supplied from September, 2020 to October, 2020. Further, the
NCLAT was of the opinion that the issues raised by the appellant in its
reply to the Section 9 application related to developments and events after
receipt of the demand notice dated 11.11.2021 and could not be taken into
consideration for the purpose of determining whether there was any
pre-existing dispute.
The NCLAT was also of the opinion that the failure of the appellant
10.
to point out the defects in the supplies within seven days from the date of
delivery was sufficient to hold that its contentions in that regard were
nothing but a moonshine defence. The NCLAT rejected the contention
urged by the appellant that levy of interest on the alleged delayed payment
would be a disputed issue in itself. The NCLAT noted that the police
complaint lodged by the appellant referred to the respondent’s demand
for ₹4.60 crore as its outstanding dues but accepted the plea of the
6
respondent that it had made a mistake in its email dated 10.09.2021 while
making that demand and that it had clarified on 09.12.2021 that it had
failed to adjust the sum of ₹1.66 crore. The NCLAT further noted that the
respondent’s demand notice mentioned ₹2.92 crore as being due and
payable to it and not ₹4.60 crore, which showed that adjustment of ₹1.66
crore had been taken care of.
The NCLAT also rejected the plea of the appellant that its recovery
11.
suit in Civil Suit No. 37 of 2022, filed in April, 2022, was an indication of
the existing dispute between the parties, as the said suit was filed after
the respondent’s Section 9 application. On that ground, the NCLAT
refused to consider the proceedings in that suit which, according to the
appellant, supported its plea that there was a pre-existing dispute. Holding
so, the NCLAT set aside the order dated 16.12.2022 passed by the NCLT
and directed admission of the respondent’s application under Section 9 of
the Code after one month. During that period, the NCLAT left it open to
the appellant to settle the issue with the respondent for discharge of the
debt and, in the event of the same fructifying, the NCLAT left it open to the
parties to bring it to the notice of the NCLT for passing appropriate orders.
12. At this stage, we deem it apposite to set out the sequence of events.
The appellant’s letter dated 10.12.2020, informing the respondent of the
defective supplies made in September, 2020, and October, 2020, resulting
in a loss of ₹6.50 crore and requesting a credit note for ₹1.66 crore was
7
followed up by the respondent’s supplies made on 09.04.2021 and
10.04.2021. Notably, the tax invoices in that regard were signed only by
the respondent’s authorised signatory. Further, it was only on 14.07.2021
that the respondent considered it appropriate to reply to the letter dated
10.12.2020, denying that the supplies made by it were of inferior quality.
It was only after this date that the respondent started raising debit notes
on account of interest @24% on the alleged delayed payments made from
April, 2016 onwards. Debit notes dated 25.08.2021, five in number, and
debit notes dated 15.09.2021, three in number, and the debit note dated
12.10.2021, bear out the fact that interest demands from April, 2016, to
October, 2021, were raised only after the respondent’s reply email dated
14.07.2021. As to whether such interest could have been claimed in
August, 2021, on the strength of unilaterally signed invoices quoting an
interest rate of 24% per annum, in relation to alleged delayed payments
dating back to 2016-17 and 2018 is itself a moot point.
Further, the respondent’s ledger account from 01.03.2021 to
13.
13.11.2021, filed by the respondent with its counter, reflects that the credit
entry of ₹1,66,89,770/- was made therein only on 31.07.2021 as a ‘sale
discount’ without reference to the appellant’s letter dated 10.12.2020. The
credit entry of ₹35,59,982/- marked ‘sale return’ was made on 01.07.2021
in relation to the supplies rejected by the appellant on 21.06.2021. The
ledger account also discloses that debit notes were raised for interest on
8
delayed payments only from 25.08.2021. The ledger account of the
appellant for the FYs 2020-21 and 2021-22, which was also filed by the
respondent along with said counter, disclose that the debit entry for
₹1,66,89,770/- was made on 31.03.2021, with the endorsement that the
account had been debited due to ‘stringent smell and impurity in solvents’.
The ledger account also discloses that a debit was raised on 21.06.2021
for ₹35,59,982/-, in relation to the material that was rejected and returned
on that day. That apart, debit entries were made on 22.06.2020 and twice
on 31.03.2021 due to ‘short quantity received’. The discrepancies
between the ledger accounts are, therefore, quite patent. Further, the
respondent’s eight invoices that were relied upon by the NCLAT added up
to a sum of ₹1,72,13,065/- and not the sum of ₹1,72,04,137/-, which was
mentioned in the demand notice.
14. Significantly, had the respondent actually given effect to the credit
entry of ₹1,66,89,770/- on 31.07.2021, there is no explanation forthcoming
as to why it had sent the email dated 10.09.2021, raising a demand for
₹4,60,05,397/-, which admittedly included the sum of ₹1,66,89,770/- also.
The belated email dated 09.12.2021 issued by it, professing to correct the
mistake made in including ₹1,66,89,770/-, speaks for itself.
15. Further, the irrefutable fact also remains that the appellant lodged a
police complaint on 27.09.2021, long before the respondent’s demand
notice dated 11.11.2021. The appellant mentioned therein that it had
9
called upon the respondent to come for reconciliation of accounts, clearly
indicating that there were issues to be settled between them. Even in its
email dated 16.10.2021, issued prior to the respondent’s demand notice,
the appellant had called upon the respondent to reconcile the accounts
pursuant to the losses caused by supply of defective materials.
The respondent’s debit notes raising exorbitant demands for interest
16.
on delayed payments dating back to periods, in defiance of limitation,
manifest that such claims are open to question. Further, though the
NCLAT was not inclined to consider the proceedings in the appellant’s civil
suit on the ground that the same were post-initiation of the corporate
insolvency resolution process (CIRP), the same assume importance as
what was stated therein by Ankur Aggarwal, the Director of the
respondent, has relevance. In his cross examination in the said suit,
speaking as PW1, he stated that he used to interact only telephonically
with the appellant’s personnel and that there were no written
correspondence or emails between them. He admitted that written/email
correspondence started only when disputes arose regarding payment. He
also admitted that there was no written protest of delayed payments by
him from 2016-17 till 2021. He conceded that supply of material was made
on 10.04.2021 and 11.04.2021 by the respondent from the stock at Delhi,
which was kept in drums, and was supplied as it was, in drums, and not
in tankers as it used to be in other transactions. He admitted that the
10
drums had been purchased from vendors, other than the vendors of
chemical products, locally from Delhi and there was no cleaning certificate
for them. These admissions of the Director did not relate to post-CIRP
events but had reference to pre-CIRP issues relevant to this case. The
NCLAT, therefore, ought not to have eschewed them from consideration.
Once the respondent admitted that written correspondence
17.
commenced only after disputes arose, and the first such written
correspondence dated back to 10.12.2020, long prior to issuance of the
demand notice on 11.11.2021, this was sufficient in itself to show that
there were pre-existing disputes between the parties. When the appellant
sought reconciliation of accounts in that context and the respondent failed
to oblige, its demand for a sum of money in excess of ₹1 crore would not
be sufficient to meet the threshold for maintaining an application under
Section 9 of the Code. More so, when the respondent had raised a
demand for ₹4.60 crore just two months prior to issuance of the demand
notice and clarified the same only on 09.12.2021, that is almost a month
after issuance of the demand notice. This confusion and lack of clarity on
the part of the respondent in deciding as to what was the amount allegedly
due to it, clearly supports the case of the appellant that the accounts
required reconciliation.
18. Further, the delay on the part of the respondent in replying to the
letter dated 10.12.2020 is another factor which strengthens the premise
11
that the respondent’s belated reply followed by its multiple debit notes for
interest in quick succession were just afterthoughts to build up a case so
as to file an application under Section 9 of the Code.
19. In this regard, useful reference may be made to Mobilox
2
,
Innovations Private Limited vs. Kirusa Software Private Limited
wherein this Court had observed as under: -
‘51. It is clear, therefore, that once the operational creditor has filed an
application, which is otherwise complete, the adjudicating authority must
reject the application under Section 9(5)(i)(d) if notice of dispute has been
received by the operational creditor or there is a record of dispute in the
information utility. It is clear that such notice must bring to the notice of
the operational creditor the “existence” of a dispute or the fact that a suit
or arbitration proceeding relating to a dispute is pending between the
parties. Therefore, all that the adjudicating authority is to see at this stage
is whether there is a plausible contention which requires further
investigation and that the “dispute” is not a patently feeble legal argument
or an assertion of fact unsupported by evidence. It is important to
separate the grain from the chaff and to reject a spurious defence which
is mere bluster. However, in doing so, the Court does not need to be
satisfied that the defence is likely to succeed. The Court does not at this
stage examine the merits of the dispute except to the extent indicated
above. So long as a dispute truly exists in fact and is not spurious,
hypothetical or illusory, the adjudicating authority has to reject the
application.’
Thereafter, in
S.S. Engineers vs. Hindustan Petroleum
3
, this Court noted that when examining
Corporation Limited and others
an application under Section 9 of the Code, the adjudicating authority has
to examine (i) whether there was an operational debt exceeding ₹1 lakh
th
(after 24 March, 2020, ₹1 crore); (ii) whether the evidence furnished with
2
(2018) 1 SCC 353
3
(2022) 234 COMP CAS 95
12
the application showed that the debt was due and payable and had not till
then been paid; and (iii) whether there was in existence any dispute
between the parties or the record of pendency of a suit or arbitration
proceedings filed before the receipt of demand notice in relation to such
dispute and in the event, any of the aforestated conditions was not fulfilled,
the application of the operational creditor would have to be rejected.
4
In , this Court
20. Sabarmati Gas Limited vs. Shah Alloys Limited
considered the scope of the word ‘reconciliation’ and applying the
th
definition in Black’s Law Dictionary , 10 edition, this Court opined that the
apt meaning suitable to the situation in relation to accounting would mean
an adjustment of amounts so that they agree, especially by allowing for
outstanding items. This Court referred to the observations in Mobilox
( supra ) that it is not necessary that the Court should be satisfied that the
defence of a pre-existing dispute is likely to succeed and it is enough if
such a dispute exists between the parties. Per this Court, what is to be
seen is whether there is a plausible contention requiring investigation for
the purpose of adjudication for it to satisfy the requirement of a
pre-existing dispute.
21. Given the obtaining facts and the aforestated settled legal position,
it was not for the NCLAT to delve into the appellant’s dispute to decide
4
(2023) 3 SCC 229
13
whether it had actual merit. All that is required is for the adjudicating
authority to satisfy itself as to the existence of a plausible pre-existing
dispute, which was not spurious, hypothetical or illusory. Whether the
party raising that dispute would succeed on the strength thereof is not
within the ken of such inquiry. That being so, we are of the opinion that the
NCLT was correct in concluding that the application filed by the
respondent under Section 9 of the Code did not merit consideration, owing
to pre-existing disputes. The NCLAT was not justified in reversing the said
decision. There was clearly no consensus between the parties as to who
was liable to pay to the other and the amount that was payable.
22. The appeal is accordingly allowed, setting aside the judgement
dated 11.02.2025 passed by the National Company Law Appellate
Tribunal, Principal Bench, New Delhi, in Company Appeal (AT) (Ins) No.
157 of 2023 and restoring the order dated 16.12.2022 passed by the
National Company Law Tribunal, New Delhi Bench (Court II), in Company
Petition (IB)-792(ND) of 2021.
Parties shall bear their respective costs.
..............................., J.
SANJAY KUMAR
..............................., J.
R. MAHADEVAN
April 09, 2026
New Delhi.
14
2026 INSC 344
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No. 4019 of 2025
GLS Films Industries Private Limited … Appellant
versus
]
Chemical Suppliers India Private Limited … Respondent
J U D G M E N T
SANJAY KUMAR, J
Initiation of corporate insolvency resolution process was denied by
1.
the adjudicating authority but the appellate authority reversed that
decision. Aggrieved thereby, the corporate debtor is in appeal. On
28.03.2025, this Court stayed the operation of the judgment under appeal.
2. Company Petition (IB)-792(ND) of 2021 was filed before the
National Company Law Tribunal, New Delhi Bench (Court II) ( hereinafter ,
‘the NCLT’), by Chemical Suppliers India Private Limited, the respondent
1
herein, under Section 9 of the Insolvency and Bankruptcy Code, 2016 ,
Signature Not Verified
Digitally signed by
babita pandey
Date: 2026.04.09
18:42:45 IST
Reason:
against GLS Films Industries Private Limited, the appellant.
1
For short, ‘the Code’
1
3. The case of the respondent was that it had supplied chemicals to
the appellant over a period of time and a sum of ₹2,92,93,223/- was due
and payable to it as on 26.05.2021. Demand notice dated 11.11.2021 was
issued by it under Section 8 of the Code. In response, the appellant
addressed email dated 06.12.2021 disputing the claim. The respondent
thereupon filed the subject application under Section 9 of the Code. The
appellant contested the proceedings claiming that there was a pre-existing
dispute between the parties prior to issuance of the demand notice.
According to it, the respondent had supplied two consignments of solvent
on 10.04.2021 and 11.04.2021 respectively at its factory premises at
Gurugram but the same were found to be defective. This was brought to
the notice of the respondent, which promised that it would do better.
Basing on the said representation, the appellant claimed to have sourced
some more solvent supplies from the respondent on 20.04.2021 and
23.04.2021. However, these supplies were also found to be defective. The
respondent assured the appellant that it would compensate it for the
losses suffered and supplied another batch of solvent on 21.06.2021. Yet
again, upon checking, this batch was also found to be defective and was
returned forthwith.
4. According to the appellant the respondent was called upon time and
again to come and settle accounts and compensate the appellant for the
losses suffered by it. However, no steps were taken in that regard but the
2
authorised representative of the respondent started applying arm-twisting
tactics by threatening to commit suicide if payment was not made for the
defective supplies. The appellant filed a police complaint in relation
thereto. According to the appellant, in view of the losses suffered by it due
to such defective supplies, it issued a debit note on 31.12.2021 for
₹2,42,11,648/-. After adjusting the account, per the appellant, the
respondent was still due and liable to pay it a sum of ₹70,09,430/-.
5. The NCLT took note of the letter dated 10.12.2020 written by the
appellant to the respondent detailing the defective supplies made between
16.09.2020 and 24.10.2020, amounting to ₹1,66,89,770/-. The appellant
had stated therein that its customer had debited its account by ₹6.50 crore
but, owing to its long association with the respondent, the appellant was
not planning to debit the said amount from its account. However, the
appellant requested the respondent to take note of the debit note raised
by it for ₹1.66 crore and arrange a credit note for that sum.
The NCLT noted that the respondent replied to this letter dated
6.
10.12.2020 by way of email dated 14.07.2021. Therein, it denied that its
supplies of solvent were defective and requested for payment to be made
against overdue bills. In turn, by email dated 16.10.2021, the appellant
reiterated that the material supplied to it was defective and called upon
the respondent to reconcile the accounts and appropriate the losses
caused to it due to defective supplies. The appellant asserted that it was
3
only after repeated efforts on its part that the respondent incorporated a
credit note for ₹1.66 crore but the original thereof and the tax paid note
were never delivered to it. On the other hand, by email dated 10.09.2021,
the respondent raised a demand for ₹4,60,05,397/-. The NCLT also noted
that the appellant had lodged a police complaint on 27.09.2021, long prior
to issuance of the demand notice, raising the issue of the defective quality
of the supplies made by the respondent and its pressure tactics in seeking
payment therefor under threat of suicide. Therein, the appellant had also
referred to the fact that it called upon the respondent to come for
reconciliation of accounts but to no avail.
7. On a conspectus of these facts, the NCLT opined that there was a
plausible dispute raised by the appellant, which was not disclosed by the
respondent upfront in its application. The NCLT also took note of the
counterclaim of the appellant that it was due and payable a sum of
₹70,09,430/-. The NCLT opined that the respondent had approached it to
recover its alleged dues and that was not the objective of the process
provided under the Code. The NCLT, accordingly, concluded that there
existed a dispute between the parties prior to issuance of the demand
notice which necessitated a detailed investigation of documents and
adducing of evidence by all concerned, which was beyond the scope of
its summary jurisdiction under the Code. The respondent’s application
was accordingly dismissed by the NCLT, vide order dated 16.12.2022.
4
8. Aggrieved thereby, the respondent filed Company Appeal (AT) (Ins)
No. 157 of 2023 before the National Company Law Appellate Tribunal,
Principal Bench, New Delhi ( hereinafter , ‘the NCLAT’). This appeal was
allowed by the impugned judgment dated 11.02.2025. Therein, the NCLAT
noted that the respondent had raised eight invoices between the dates
27.03.2021 and 26.07.2021, amounting to ₹1,72,04,137/-, for the material
supplied by it to the appellant and as the appellant failed to make payment
therefor within time, the respondent charged interest @24% per annum,
as per the invoice terms, amounting to ₹1,20,89,086/-. As no payment was
made even thereafter, the respondent was stated to have issued demand
notice dated 11.11.2021 under Section 8 of the Code for ₹2,92,93,223/-,
being the principal and the interest due, and then filed the application
under Section 9 of the Code on 21.12.2021.
9. The NCLAT observed that the appellant had addressed letter dated
10.12.2020 to the respondent, complaining about the poor quality of the
material supplied by it in September, 2020 and October, 2020 and that this
letter found reference in the appellant’s email dated 16.10.2021. The
NCLAT, however, opined that the respondent had accepted its liability in
that regard and issued a credit note to the appellant for ₹1.66 crore. The
NCLAT also noted that the appellant had incorporated this credit note in
its ledger account on 31.03.2021. According to the NCLAT, this credit note
resolved the issue raised by the appellant in its letter dated 10.12.2020,
5
which was again raked up in the email dated 16.10.2021. On this basis,
the NCLAT concluded that it could not be treated as a pre-existing dispute.
The NCLAT then referred to the appellant’s email dated 06.12.2021 in
reply to the respondent’s demand notice dated 11.11.2021. Therein, the
appellant had referred to the credit note dated 31.03.2021 for
₹1,66,89,770/-, the original of which was still awaited by it. The NCLAT
opined that the amount covered by the demand notice did not take into
account this sum of ₹1.66 crore which was in relation to the defective
material supplied from September, 2020 to October, 2020. Further, the
NCLAT was of the opinion that the issues raised by the appellant in its
reply to the Section 9 application related to developments and events after
receipt of the demand notice dated 11.11.2021 and could not be taken into
consideration for the purpose of determining whether there was any
pre-existing dispute.
The NCLAT was also of the opinion that the failure of the appellant
10.
to point out the defects in the supplies within seven days from the date of
delivery was sufficient to hold that its contentions in that regard were
nothing but a moonshine defence. The NCLAT rejected the contention
urged by the appellant that levy of interest on the alleged delayed payment
would be a disputed issue in itself. The NCLAT noted that the police
complaint lodged by the appellant referred to the respondent’s demand
for ₹4.60 crore as its outstanding dues but accepted the plea of the
6
respondent that it had made a mistake in its email dated 10.09.2021 while
making that demand and that it had clarified on 09.12.2021 that it had
failed to adjust the sum of ₹1.66 crore. The NCLAT further noted that the
respondent’s demand notice mentioned ₹2.92 crore as being due and
payable to it and not ₹4.60 crore, which showed that adjustment of ₹1.66
crore had been taken care of.
The NCLAT also rejected the plea of the appellant that its recovery
11.
suit in Civil Suit No. 37 of 2022, filed in April, 2022, was an indication of
the existing dispute between the parties, as the said suit was filed after
the respondent’s Section 9 application. On that ground, the NCLAT
refused to consider the proceedings in that suit which, according to the
appellant, supported its plea that there was a pre-existing dispute. Holding
so, the NCLAT set aside the order dated 16.12.2022 passed by the NCLT
and directed admission of the respondent’s application under Section 9 of
the Code after one month. During that period, the NCLAT left it open to
the appellant to settle the issue with the respondent for discharge of the
debt and, in the event of the same fructifying, the NCLAT left it open to the
parties to bring it to the notice of the NCLT for passing appropriate orders.
12. At this stage, we deem it apposite to set out the sequence of events.
The appellant’s letter dated 10.12.2020, informing the respondent of the
defective supplies made in September, 2020, and October, 2020, resulting
in a loss of ₹6.50 crore and requesting a credit note for ₹1.66 crore was
7
followed up by the respondent’s supplies made on 09.04.2021 and
10.04.2021. Notably, the tax invoices in that regard were signed only by
the respondent’s authorised signatory. Further, it was only on 14.07.2021
that the respondent considered it appropriate to reply to the letter dated
10.12.2020, denying that the supplies made by it were of inferior quality.
It was only after this date that the respondent started raising debit notes
on account of interest @24% on the alleged delayed payments made from
April, 2016 onwards. Debit notes dated 25.08.2021, five in number, and
debit notes dated 15.09.2021, three in number, and the debit note dated
12.10.2021, bear out the fact that interest demands from April, 2016, to
October, 2021, were raised only after the respondent’s reply email dated
14.07.2021. As to whether such interest could have been claimed in
August, 2021, on the strength of unilaterally signed invoices quoting an
interest rate of 24% per annum, in relation to alleged delayed payments
dating back to 2016-17 and 2018 is itself a moot point.
Further, the respondent’s ledger account from 01.03.2021 to
13.
13.11.2021, filed by the respondent with its counter, reflects that the credit
entry of ₹1,66,89,770/- was made therein only on 31.07.2021 as a ‘sale
discount’ without reference to the appellant’s letter dated 10.12.2020. The
credit entry of ₹35,59,982/- marked ‘sale return’ was made on 01.07.2021
in relation to the supplies rejected by the appellant on 21.06.2021. The
ledger account also discloses that debit notes were raised for interest on
8
delayed payments only from 25.08.2021. The ledger account of the
appellant for the FYs 2020-21 and 2021-22, which was also filed by the
respondent along with said counter, disclose that the debit entry for
₹1,66,89,770/- was made on 31.03.2021, with the endorsement that the
account had been debited due to ‘stringent smell and impurity in solvents’.
The ledger account also discloses that a debit was raised on 21.06.2021
for ₹35,59,982/-, in relation to the material that was rejected and returned
on that day. That apart, debit entries were made on 22.06.2020 and twice
on 31.03.2021 due to ‘short quantity received’. The discrepancies
between the ledger accounts are, therefore, quite patent. Further, the
respondent’s eight invoices that were relied upon by the NCLAT added up
to a sum of ₹1,72,13,065/- and not the sum of ₹1,72,04,137/-, which was
mentioned in the demand notice.
14. Significantly, had the respondent actually given effect to the credit
entry of ₹1,66,89,770/- on 31.07.2021, there is no explanation forthcoming
as to why it had sent the email dated 10.09.2021, raising a demand for
₹4,60,05,397/-, which admittedly included the sum of ₹1,66,89,770/- also.
The belated email dated 09.12.2021 issued by it, professing to correct the
mistake made in including ₹1,66,89,770/-, speaks for itself.
15. Further, the irrefutable fact also remains that the appellant lodged a
police complaint on 27.09.2021, long before the respondent’s demand
notice dated 11.11.2021. The appellant mentioned therein that it had
9
called upon the respondent to come for reconciliation of accounts, clearly
indicating that there were issues to be settled between them. Even in its
email dated 16.10.2021, issued prior to the respondent’s demand notice,
the appellant had called upon the respondent to reconcile the accounts
pursuant to the losses caused by supply of defective materials.
The respondent’s debit notes raising exorbitant demands for interest
16.
on delayed payments dating back to periods, in defiance of limitation,
manifest that such claims are open to question. Further, though the
NCLAT was not inclined to consider the proceedings in the appellant’s civil
suit on the ground that the same were post-initiation of the corporate
insolvency resolution process (CIRP), the same assume importance as
what was stated therein by Ankur Aggarwal, the Director of the
respondent, has relevance. In his cross examination in the said suit,
speaking as PW1, he stated that he used to interact only telephonically
with the appellant’s personnel and that there were no written
correspondence or emails between them. He admitted that written/email
correspondence started only when disputes arose regarding payment. He
also admitted that there was no written protest of delayed payments by
him from 2016-17 till 2021. He conceded that supply of material was made
on 10.04.2021 and 11.04.2021 by the respondent from the stock at Delhi,
which was kept in drums, and was supplied as it was, in drums, and not
in tankers as it used to be in other transactions. He admitted that the
10
drums had been purchased from vendors, other than the vendors of
chemical products, locally from Delhi and there was no cleaning certificate
for them. These admissions of the Director did not relate to post-CIRP
events but had reference to pre-CIRP issues relevant to this case. The
NCLAT, therefore, ought not to have eschewed them from consideration.
Once the respondent admitted that written correspondence
17.
commenced only after disputes arose, and the first such written
correspondence dated back to 10.12.2020, long prior to issuance of the
demand notice on 11.11.2021, this was sufficient in itself to show that
there were pre-existing disputes between the parties. When the appellant
sought reconciliation of accounts in that context and the respondent failed
to oblige, its demand for a sum of money in excess of ₹1 crore would not
be sufficient to meet the threshold for maintaining an application under
Section 9 of the Code. More so, when the respondent had raised a
demand for ₹4.60 crore just two months prior to issuance of the demand
notice and clarified the same only on 09.12.2021, that is almost a month
after issuance of the demand notice. This confusion and lack of clarity on
the part of the respondent in deciding as to what was the amount allegedly
due to it, clearly supports the case of the appellant that the accounts
required reconciliation.
18. Further, the delay on the part of the respondent in replying to the
letter dated 10.12.2020 is another factor which strengthens the premise
11
that the respondent’s belated reply followed by its multiple debit notes for
interest in quick succession were just afterthoughts to build up a case so
as to file an application under Section 9 of the Code.
19. In this regard, useful reference may be made to Mobilox
2
,
Innovations Private Limited vs. Kirusa Software Private Limited
wherein this Court had observed as under: -
‘51. It is clear, therefore, that once the operational creditor has filed an
application, which is otherwise complete, the adjudicating authority must
reject the application under Section 9(5)(i)(d) if notice of dispute has been
received by the operational creditor or there is a record of dispute in the
information utility. It is clear that such notice must bring to the notice of
the operational creditor the “existence” of a dispute or the fact that a suit
or arbitration proceeding relating to a dispute is pending between the
parties. Therefore, all that the adjudicating authority is to see at this stage
is whether there is a plausible contention which requires further
investigation and that the “dispute” is not a patently feeble legal argument
or an assertion of fact unsupported by evidence. It is important to
separate the grain from the chaff and to reject a spurious defence which
is mere bluster. However, in doing so, the Court does not need to be
satisfied that the defence is likely to succeed. The Court does not at this
stage examine the merits of the dispute except to the extent indicated
above. So long as a dispute truly exists in fact and is not spurious,
hypothetical or illusory, the adjudicating authority has to reject the
application.’
Thereafter, in
S.S. Engineers vs. Hindustan Petroleum
3
, this Court noted that when examining
Corporation Limited and others
an application under Section 9 of the Code, the adjudicating authority has
to examine (i) whether there was an operational debt exceeding ₹1 lakh
th
(after 24 March, 2020, ₹1 crore); (ii) whether the evidence furnished with
2
(2018) 1 SCC 353
3
(2022) 234 COMP CAS 95
12
the application showed that the debt was due and payable and had not till
then been paid; and (iii) whether there was in existence any dispute
between the parties or the record of pendency of a suit or arbitration
proceedings filed before the receipt of demand notice in relation to such
dispute and in the event, any of the aforestated conditions was not fulfilled,
the application of the operational creditor would have to be rejected.
4
In , this Court
20. Sabarmati Gas Limited vs. Shah Alloys Limited
considered the scope of the word ‘reconciliation’ and applying the
th
definition in Black’s Law Dictionary , 10 edition, this Court opined that the
apt meaning suitable to the situation in relation to accounting would mean
an adjustment of amounts so that they agree, especially by allowing for
outstanding items. This Court referred to the observations in Mobilox
( supra ) that it is not necessary that the Court should be satisfied that the
defence of a pre-existing dispute is likely to succeed and it is enough if
such a dispute exists between the parties. Per this Court, what is to be
seen is whether there is a plausible contention requiring investigation for
the purpose of adjudication for it to satisfy the requirement of a
pre-existing dispute.
21. Given the obtaining facts and the aforestated settled legal position,
it was not for the NCLAT to delve into the appellant’s dispute to decide
4
(2023) 3 SCC 229
13
whether it had actual merit. All that is required is for the adjudicating
authority to satisfy itself as to the existence of a plausible pre-existing
dispute, which was not spurious, hypothetical or illusory. Whether the
party raising that dispute would succeed on the strength thereof is not
within the ken of such inquiry. That being so, we are of the opinion that the
NCLT was correct in concluding that the application filed by the
respondent under Section 9 of the Code did not merit consideration, owing
to pre-existing disputes. The NCLAT was not justified in reversing the said
decision. There was clearly no consensus between the parties as to who
was liable to pay to the other and the amount that was payable.
22. The appeal is accordingly allowed, setting aside the judgement
dated 11.02.2025 passed by the National Company Law Appellate
Tribunal, Principal Bench, New Delhi, in Company Appeal (AT) (Ins) No.
157 of 2023 and restoring the order dated 16.12.2022 passed by the
National Company Law Tribunal, New Delhi Bench (Court II), in Company
Petition (IB)-792(ND) of 2021.
Parties shall bear their respective costs.
..............................., J.
SANJAY KUMAR
..............................., J.
R. MAHADEVAN
April 09, 2026
New Delhi.
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