A dispute over ancillary damages does not defeat Section 9 proceedings for admitted unpaid advances.

The Appellant, a Japanese company, entered into contracts with the Respondent for supply of 1-Bromo Butane and Hydro Bromic Acid 48%. Although certain consignments were supplied, the Respondent failed to supply further quantities against advance payments of USD 84,060 and Japanese Yen 62,40,000.

The Respondent also did not refund these advances, despite stating by email dated 12 July 2019 that it would repay them and provide a repayment schedule.

The Appellant issued a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), claiming ₹1,12,37,645.54, and thereafter filed a Section 9 application when no payment was made.

The NCLT dismissed the application on the grounds of pre-existing disputes, inconsistencies in the claim, inadequate documentation, and failure to satisfy the statutory threshold.

The NCLAT applied Sections 8 and 9 of the IBC, under which an operational creditor may initiate CIRP upon occurrence of default in respect of an operational debt, provided that the corporate debtor has not raised a genuine pre-existing dispute.

Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 prescribes modes for service of the demand notice; the Court held that the rule must be construed in light of its purpose, namely, ensuring that the corporate debtor receives notice and an opportunity to respond.

The Court relied on G. Shivramkrishna v. Isgec Covema Ltd., 2020 SCC OnLine NCLAT 909, and Piya Puri v. Debashish Nanda, 2022 SCC OnLine NCLAT 4006, against hyper-technical objections to service.

On foreign-currency conversion, it relied on Forasol v. ONGC, 1984 Supp SCC 263, holding that the exchange rate on the date of the demand/action may be used, and distinguished DLF Ltd. v. Koncar Generators and Motors Ltd., (2025) 3 SCC 343, as arising in an arbitral-enforcement context.

The Court also recognised the principle from Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17, that the IBC is not a debt-recovery statute, while holding that this principle does not bar proceedings where the operational debt is admitted and undisputed.

The NCLAT held that service through FedEx was sufficient because the notice was dispatched to and delivered at the Respondent’s undisputed registered-office address, and the Respondent had actual knowledge of the claim; consequently, the technical objection to the mode of service could not defeat the application.

For the threshold requirement, the Court held that the exchange rate prevailing on the date of the demand notice was relevant and that, even after excluding the disputed USD 16,766 damages component, the admitted advance amounts exceeded ₹1 crore.

The Court distinguished the dispute concerning damage to one earlier consignment from the principal liability to refund advances received for goods that were never supplied.

The Respondent had expressly acknowledged the advances and undertaken to repay them, but neither furnished a repayment schedule nor made payment.

Accordingly, the alleged dispute regarding damages was not a genuine pre-existing dispute concerning the admitted advance liability, but was characterised as a moonshine or spurious dispute.

The Respondent’s solvency and continuing business operations were irrelevant once the statutory requirements for Section 9 were otherwise satisfied.

It held that the demand notice was duly served, the operational debt exceeded the ₹1 crore threshold even after excluding the disputed damages claim, and the Respondent had failed to establish a genuine pre-existing dispute regarding the unpaid advances.

The NCLT was directed to pass the necessary order initiating CIRP against the Respondent under Section 9 within fifteen days.

However, the Respondent was permitted to pay the entire amount due before issuance of the initiation order; if payment was made within that period, the Section 9 order was not required to be issued.