Madan Gopal Jindal (RP) Vs. V.I.R. Foods Ltd. and Ors. - It can be seen that once the admission of CIRP itself is set aside and the dispute is settled between the initiating Financial creditor and the CD, the liability to bear CIRP costs must follow the party who invoked and pursued the insolvency proceedings, particularly when the CIRP process did not culminate in resolution or liquidation and a settlement was reached between them.

  NCLT Chd.(2026.04.09) in Madan Gopal Jindal (RP) Vs. V.I.R. Foods Ltd. and Ors.  [(2026) ibclaw.in 1021 NCLT, I.A. No. 2162/2023 in CP (IB) No. 90/Chd/Chd/2018] held that;-

• It can be seen that once the admission of CIRP itself is set aside and the dispute is settled between the initiating Financial creditor and the CD, the liability to bear CIRP costs must follow the party who invoked and pursued the insolvency proceedings, particularly when the CIRP process did not culminate in resolution or liquidation and a settlement was reached between them.

Excerpts of the Order;

The present Application is filed on behalf of the Resolution Professional (hereinafter referred to as the Applicant) of M/s White Water Hospitality Private Limited (hereinafter referred to as the CD) under Rule 11 of the National Company Law Tribunal Rules, 2016 (hereinafter referred to as NCLT Rules) for seeking directions regarding payment of CIRP costs (including IRP/RP fees). The Applicant has claimed the following reliefs:

• (a) to direct the Respondents / Financial Creditors / COC members to pay the outstanding CIRP Cost (including the Fees of RP as well as Security expenses);

• (b) Or/And issue such necessary orders/ directions as may be deemed fit in the matter.

# 2. The facts of the case, as stated in the Application and the short notes, are as under:

(a) M/s V.I.R. Foods Limited(hereinafter referred to as the Respondent No.1), a Financial Creditor, initiated CIRP under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the Code) against the CD which was admitted by this Tribunal, vide Order dated 21.11.2019. Mr. Madan Gopal Jindal was appointed as the Interim Resolution Professional (hereinafter referred to as the IRP). Pursuant thereto, the IRP issued a public announcement in Form-A on 23.11.2019 inviting claims from stakeholders.

(b) The CoC was constituted pursuant to receipt of claims from following Financial Creditors till the stipulated date:

Name of the COC member	VOTING SHARE (in percentage)
V.I.R Foods Limited	10.28%
Bharat Food And Agro Products	80.48%
Kamal Kant Dewan	9.24%
Total	100%

(c) The 1st CoC meeting was held on 20.12.2019 wherein amongst others, a resolution related to the appointment of Madan Gopal Jindal as RP was passed. In the said 1st meeting of CoC dt. 20.12.2019 unanimous resolutions were passed regarding the fees of IRP and RP, which are as follows:

• (i) The CoC in Agenda item no. 7 discussed the Fees of IRP and expenses incurred by IRP, total of which was Rs. 1,59,257/-. The same was unanimously approved and ratified by the CoC.

• (ii) Further, the CoC in Agenda item no. 8 discussed the Fees of RP and expenses incurred by RP, and it was unanimously approved that RP is appointed for a Professional Fee of Rs.1,25,000/- per month plus actual expenses and GST, if any, till the period he continues to act as RP.

(d) In the 8th CoC meeting held on 02.09.2021, the CoC deliberated upon the fees of the RP and other CIRP expenses under Agenda Item No. 4. The RP placed before the CoC a statement of CIRP costs incurred and to be incurred up to 01.09.2021, amounting to Rs. 37,83,382/-, out of which Rs. 24,25,738/- was outstanding as on that date. Accordingly, the COC unanimously approved and ratified the amount of Rs. 37,83,382/- incurred by RP as CIRP cost. Under Agenda Item No. 6(a) of the 8th CoC meeting, it was unanimously resolved that w.e.f. 02.09.2021, the RP shall be paid a fee of Rs. 70,000 per month plus GST and actual expenses for the next twelve months.

(e) The fees payable to RP which has been duly approved and ratified by CoC as aforesaid is as follows:

S.No.	Purpose	Amount	CoC Approval
1.	Fees payable to IRP	1,59,257	1st CoC
2.	Fees payable to RP (calculated at Rs. 1,25,000 рer month from 21.12.2019 to 01.09.2021) Plus GST Travelling Expenses	27,97,500 69,840	1st and 8th CoC
3.	Fees payable to RP (calculated at Rs. 70,000 per month from 02.09.2021 to 01.09.2022) Plus GST Travel expenses	9,91,200 77,280	8th CoC
	Total	40,95,077

Out of the Total payable fees of Rs. 40,95,077, an amount of Rs, 10,03,857 has already been received by the RP, therefore an amount of Rs. 30,91,220 is still outstanding to be paid towards the fees of Applicant RP.

(f) Regarding Appeal against CIRP order before Hon’ble NCLAT: An appeal being Company Appeal (AT) (Ins.) No. 1489 of 2019 was filed by the suspended Directors before the Hon’ble NCLAT against the CIRP admission order dated 21.11.2019. Vide Order dated 18.12.2019, the NCLAT issued notice and restrained the IRP from selling the assets of the Corporate Debtor without its prior approval, and by Order dated 02.03.2020 directed that all further CIRP proceedings would remain subject to the outcome of the appeal. Thereafter, vide Order dated 05.04.2021, the Hon’ble NCLAT directed the Financial Creditor, M/s V.I.R. Foods Ltd., to pay the dues of the RP for the CIRP period. Ultimately, the appeal was allowed and the CIRP admission Order dated 21.11.2019 was set aside by the Hon’ble NCLAT on 17.08.2023.

(g) Consequent upon the CIRP admission order dated 21.11.2019 being set aside, the management of the CD was handed back to its Directors on 25.08.2023. The present application has therefore been filed seeking directions to the Respondents to pay the outstanding CIRP costs,etc.

(h) The Applicant further submitted in the short note that the CIRP costs including RP fees were unanimously approved by all CoC members with 100% voting share in the 1st and 8th CoC meetings. The Respondents are absolutely bound by their own resolutions and cannot now resile from their obligations. Respondent Nos. 1, 2 & 3 have categorically admitted in their replies that: they do not contest the facts relating to CIRP expenses demanded by the Applicant and the CIRP expenses as sought by the Applicant were already approved and acknowledged by them at all times. The Hon’ble NCLAT vide Order dated 05.04.2021 also directed to pay dues of RP for the CIRP period. The Respondents, having approved the CIRP costs and RP fees in multiple CoC meetings, are estopped from denying their liability to pay the same. The Applicant further contented the fact that CD has settled its debt with Respondent No.1 does not absolve the COC members from their obligation to pay CIRP costs which were approved by them during the CIRP process. In any case, until the NCLAT Order dated 17.08.2023 setting aside the CIRP admission, admittedly the COC members were liable to pay entire CIRP dues, as approved by them.

# 3. The Respondent No. 2 and 3 in its Reply, has made the following submissions:

(a) It is stated that Respondent No. 3, in his individual capacity, and Respondent No. 2, being a partnership firm, who were Financial Creditors of the CD and had duly submitted their claims pursuant to the public announcement issued by the RP in terms of the admission Order dated 21.11.2019 passed in the Company Petition filed at the instance of VIR Foods Ltd. Both were accordingly admitted as members of the CoC constituted during the CIRP. However, the said admission Order dated 21.11.2019 was subsequently set aside by the Hon’ble NCLAT vide Order dated 17.08.2023 passed in Company Appeal (AT) (Insolvency) No. 1489 of 2019. Against the said Order dated 17.08.2023, passed by the Hon’ble NCLAT the Respondent No.2 and 3 filed a Civil Appeal before the Hon’ble Supreme Court of India. Similarly, another Civil Appeal also stood filed by M/s VIR Foods Ltd.

(b) The Hon’ble Supreme Court, set aside the Order of Hon’ble NCLAT and NCLT by order dated 12.12.2023 and recorded the admission of the CD to pay the financial debt of M/s VIR Foods Ltd. amounting to ₹52,64,161.64 along with interest from 01.01.2018 till payment, and remitted the matter to this Tribunal for consideration of the issues specified therein. It is further stated by the Respondent No. 2 and 3 that the IRP/RP has claimed total CIRP costs of ₹40,95,077, out of which ₹10,03,857 has been received and ₹30,91,220 is claimed as payable towards RP’s fees, whereas security expenses of ₹17,24,350 stand already paid and settled by the Financial Creditor.

(c) It is stated by Respondent No. 2 and 3 that once the CD has admitted its liability to pay the financial debt of Respondent No.1 in order to avoid continuation of the CIRP, the entire CIRP costs are liable to be borne by the CD. It is further stated that the CIRP was triggered only due to the failure of the CD to discharge its admitted dues at the initial stage, which led to prolonged proceedings and accrual of CIRP costs. Since the CD ultimately admitted the debt before the Hon’ble Supreme Court, the CIRP costs, including the security expenses and other costs incurred by the RP, are attributable solely to the CD.

(d) The Respondents have prayed that the CD be directed to pay the entire CIRP costs amounting to ₹40,95,077 along with security expenses of ₹17,24,350 and any other CIRP-related expenses to the RP, with a further direction to refund the amounts already paid by the Financial Creditors. It is stated that Respondent No. 3 has already paid ₹25,21,118 towards CIRP costs. They have further sought dismissal of the RP’s application seeking recovery of CIRP costs from the Financial Creditors and have requested the RP to place on record a detailed statement of all CIRP expenses for proper adjudication.

# 4. The Respondent No.1 in its Reply has made the following submissions:

(a) The Reply was filed by the RP of Respondent No.1 stating that pursuant to settlement between the CD and Respondent No.1, the just outcome is that the CD, being the beneficiary of the termination of the CIRP, must bear the expenses related to that process. The Respondent No.1 further states that the CIRP of Respondent No. 1 has already been initiated, it cannot directly pay off the CIRP cost rather RP of CD has to file a claim with the RP of Respondent No.1.

# 5. The Corporate Debtor, not a party to the case gave its Reply and written submissions, which are as follows:

(a) The CD submitted that although it is not a party against whom any relief has been sought in the present application for CIRP costs, it has filed the reply pursuant to the directions of this Tribunal dated 11.03.2024 in order to place the correct factual background before this Bench. The application for recovery of CIRP costs has been filed by the erstwhile Resolution Professional against Respondent No.1 to 3 who were the members of the erstwhile CoC.

(b) It is the case of the CD that the CIRP was set aside by the Hon’ble NCLAT as having been wrongfully initiated. It is further stated that Respondent Nos. 1 to 3 have failed to comply with repeated directions of the Appellate Authority to pay the interim CIRP costs, which remain unpaid till date. The Respondent relies upon settled law, including the judgment of the Hon’ble Supreme Court in Rajkumar Brothers and Production Pvt. Ltd. v. Harish Amilineni, to contend that where CIRP is wrongly initiated, the liability to pay the fees and costs of the Resolution Professional lies upon the financial creditor who invoked the proceedings.

(c) It is submitted by CD that the alleged RP fees were ratified by the FC and COC and CD never ratified the same and he is not a party to I.A. No. 2162 of 2023 and that no relief has been sought against it therein. The obligation to bear and pay the CIRP costs squarely lies upon the members of the CoC and/or FC. Moreover, the CIRP was wrongfully initiated against the CD and was subsequently set aside by the Hon’ble Appellate Tribunal.

# 6. The Applicant filed a Rejoinder to the Reply filed by Respondent Nos.1, 2 and 3 which substantially reiterates the facts and submissions already stated in the main Application.

Analysis and Findings:

# 7. We have Heard the Ld. Counsels for all parties and considered the arguments presented on behalf of the parties and also their respective petitions, replies, and written submissions and have also gone through the legal position in this regard.

# 8. The main issue for determination is ‘who shall bear the CIRP cost/ RP fees incurred during the CIRP period, when the CIRP has finally been set aside?

# 9. The facts of the case clearly show that the Petition was filed under section 7 by the Respondent No.1 i.e V.I.R Foods Ltd., being the Financial Creditor. The petition was admitted by this bench vide Order dated 21.11.2019. The said Order was set aside by Hon’ble NCLAT vide Order dated 17.08.2023 in appeal filed by the respondent CD, in Company Appeal(AT)(INSOLVENCY) No. 1489 of 2019, holding the admission Order to be patently illegal. The NCLAT in the same Appeal, vide its Order dated 05.04.2021, directed the V.I.R Foods Ltd to pay the dues of RP for the CIRP period accrued till that date.

# 10. The Respondent No.2 and 3 filed a Civil Appeal before the Hon’ble Supreme Court of India against the order of NCLAT dated 17.08.2023. Another Civil Appeal also stood filed by M/s VIR Foods Ltd (Respondent No.1). The Hon’ble Supreme Court in the Civil Appeal vide its Order dated 12.12.2023 set aside both the judgements of NCLAT and NCLT. The setting aside was done pursuant to the settlement being done by the CD and the Respondent No.1 wherein the CD agreed to pay the amount of Rs. 52,64,161.64 as claimed due by the Respondent No. 1 and further held that the pleas and contentions of Respondent No.2 and Respondent No. 3 regarding their claims will be dealt by this Tribunal. The Hon’ble Supreme Court remitted the matter to this Tribunal to examine the question of fees/cost of the RP.

# 11. In terms of Section 5(13) of the Code, the fees payable to any person acting as a Resolution Professional and the expenses incurred for running the CIRP comes within the definition of the CIRP cost. The RP renders services during the process of CIRP and the work undertaken during the subsistence of the CIRP cannot be rendered unpaid merely because the proceedings were subsequently set aside. CIRP costs, including RP fees, are accorded priority and must be discharged for the period during which the process remained in force.

# 12. It can be seen that once the admission of CIRP itself is set aside and the dispute is settled between the initiating Financial creditor and the CD, the liability to bear CIRP costs must follow the party who invoked and pursued the insolvency proceedings, particularly when the CIRP process did not culminate in resolution or liquidation and a settlement was reached between them.

# 13. The other CoC members i.e Respondent Nos. 2 and 3 neither triggered the CIRP nor benefited from the CIRP. Their participation was incidental to the statutory process that followed admission. Therefore, once the admission order stands set aside and the matter has been resolved between the initiating Financial Creditor and the Corporate Debtor, the liability to bear the outstanding CIRP costs, including the approved fees of the IRP/RP and other expenses, must rest upon the Applicant who set the insolvency process in motion, and the same cannot be thrust upon the other CoC members merely by virtue of their participation in the process pursuant to the now set aside CIRP.

# 14. The contention of the Respondents that the CD should bear the CIRP costs on the ground that it later admitted its liability before the Hon’ble Supreme Court is legally untenable. Since the very initiation of CIRP was declared illegal by the NCLAT vide order dated 17.08.2023, the Corporate Debtor cannot be held liable for any CIRP costs arising from that vitiated process.

# 15. The Respondent No. 1 herein, who initiated the CIRP cannot now escape the liability of CIRP costs after having initiated the CIRP mechanism which was held unsustainable in law. This is even more so in the light of the settlement amount having been received by them from the CD, outside the CIRP. Non-payment of CIRP cost to RP would be contrary to the scheme and objectives of the Code and would undermine the independence and functioning of insolvency professionals. In the case of Rajkumar Brothers And Production Private Limited Vs Harish Amilineni Shareholder and erstwhile Director of Amilionn Technologies Private Limited & Anr, Civil Appeal No. 4044 of 2020, decided on 22.01.2021, the Hon’ble Supreme Court upheld the order of Appellate Tribunal in which it has directed the Financial Creditor to pay the due fee to the RP –

• “4. …..The Appellant has challenged the impugned order only to the extent of the direction in paragraph 8(C) thereof, which reads as follows:

• “The IRP/RP will place particulars regarding CIRP costs and fees before the Adjudicating Authority and the Adjudicating Authority after examining the correctness of the same will direct the Operational Creditor to pay the same in time to be specified by the Adjudicating Authority.”

• 5. The direction is in the nature of costs of the proceedings under Section 7 of the IBC, which have been found to be unsustainable in law. The Respondent having succeeded, cannot be saddled with the costs of the Corporate Insolvency Resolution Process (CIRP) initiated at the behest of the Appellant or with the fees of the Interim Resolution Professional (IRP). The direction does not warrant interference in appeal.

• 6. We find no grounds to interfere with the order dated 10th August, 2020 passed by the National Company Law Appellate Tribunal in Company Appeal (AT) (Insolvency) No.212 of 2020.”

# 16. In view of above discussions, the Respondent No. 1 i.e V.I.R Foods Ltd, being the Applicant in CP(IB) No. 90/chd/chd/2018 is directed to bear and expeditiously pay the CIRP cost/fees of RP amounting to Rs. 30,91,220.

# 17. Accordingly, I.A. (I.B.C) No. 2162 of 2023 is allowed in the above terms and disposed of.

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GLS Films Industries Private Limited Vs Chemical Suppliers India Private Limited - 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.

 SCI (2026.04.09) in GLS Films Industries Private Limited Vs Chemical Suppliers India Private Limited [2026 INSC 344, (2026) ibclaw.in 183 SC, Civil Appeal No. 4019 of 2025] held that;-

• 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.

• 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.’

• 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.

• 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.

Excerpts of the Order;

# 1. Initiation of corporate insolvency resolution process was denied by 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 herein, under Section 9 of the Insolvency and Bankruptcy Code, 20161, against GLS Films Industries Private Limited, the appellant.

# 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 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.

# 6. The NCLT noted that the respondent replied to this letter dated 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 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.

# 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, 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.

# 10. The NCLAT was also of the opinion that the failure of the appellant 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 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.

# 11. The NCLAT also rejected the plea of the appellant that its recovery 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 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.

# 13. Further, the respondent’s ledger account from 01.03.2021 to 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 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 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.

# 16. The respondent’s debit notes raising exorbitant demands for interest 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 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.

# 17. Once the respondent admitted that written correspondence 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 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 Innovations Private Limited vs. Kirusa Software Private Limited [(2017) ibclaw.in 01 SC]2, 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 Corporation Limited and others [(2022) ibclaw.in 92 SC]3, this Court noted that when examining an application under Section 9 of the Code, the adjudicating authority has to examine (i) whether there was an operational debt exceeding ₹1 lakh (after 24th March, 2020, ₹1 crore); (ii) whether the evidence furnished with 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.

# 20. In Sabarmati Gas Limited vs. Shah Alloys Limited [(2023) ibclaw.in 02 SC]4, this Court considered the scope of the word ‘reconciliation’ and applying the definition in Black’s Law Dictionary, 10th 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 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.

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United India Insurance Co.Ltd Vs Sayona Colors Pvt. Ltd - It is a settled principle that fraud vitiates all solemn acts, and no person can be permitted to take advantage of his own wrong. In S.P. Chengalvaraya Naidu v. Jagannath, this Court held that a judgment or decree obtained by playing fraud is a nullity in the eyes of law. Similarly, in A.V. Papayya Sastry v. Government of Andhra Pradesh, it was reiterated that fraud vitiates all judicial acts, whether in rem or in personam.

  SCI (2026.03.17) in United India Insurance Co.Ltd Vs Sayona Colors Pvt. Ltd [2026 INSC 287, CIVIL APPEAL NO. 6100 OF 2024] held that;-

• It is a settled principle that fraud vitiates all solemn acts, and no person can be permitted to take advantage of his own wrong. In S.P. Chengalvaraya Naidu v. Jagannath (1994) 1 SCC 1 :1993 SCC OnLine SC 318, this Court held that a judgment or decree obtained by playing fraud is a nullity in the eyes of law. Similarly, in A.V. Papayya Sastry v. Government of Andhra Pradesh (2007) 4 SCC 221 : 2007 SCC OnLine SC 317, it was reiterated that fraud vitiates all judicial acts, whether in rem or in personam.

• Applying the aforesaid principles, we are of the considered view that once it is established that the claim itself is founded on fraud, the entire edifice of the claim collapses and no relief can be granted. Quantification of loss cannot override the foundational requirement of a genuine and bona fide claim.

Excerpts of the Order;

Heard learned counsel for the parties.

# 2. The appellant-Insurance Company is aggrieved by the order dated 04.12.2023 passed by the National Consumer Disputes Redressal Commission [For short, “NCDRC”], New Delhi in Consumer Complaint No. 171 of 2012, whereby the complaint was partly allowed and the appellant was directed to pay a sum of Rs.3,33,63,642/- (Rupees Three Crores Thirty Three Lakhs Sixty Three Thousand Six Hundred and Forty Two) along with interest at the rate of 6% per annum from 08.07.2012, within a period of six weeks, failing which, the rate of interest would stand enhanced to 9% for the same period, and Rs.50,000/- (Rupees Fifty Thousand) was directed to be paid towards litigation costs.

# 3. The learned counsel appearing for the appellant submitted that the claim made by the respondent is fraudulent, being founded on a deliberate act of sabotage resulting in a fire in the respondent’s godown. It was contended that the fire incident occurred on 25.03.2011, which the respondent attributed to a short circuit, pursuant to which a claim of Rs. 28,20,65,797/- (Rupees Twenty Eight Crores Twenty Lakhs Sixty Five Thousand Seven Hundred and Ninety Seven) was raised for the alleged loss.

# 4. It was further submitted that the timing and quantum of insurance coverage assume significance. Initially, the respondent had obtained an insurance policy for Rs. 15,00,00,000/- (Rupees Fifteen Crores), which was enhanced to Rs. 19,00,00,000/- (Rupees Nineteen Crores) on 07.03.2011. In addition, another policy for Rs. 17,00,00,000/- (Rupees Seventeen Crores) was obtained for the period from 28.11.2010 to 27.11.2011. The fire incident occurred shortly thereafter on 25.03.2011, raising serious doubt regarding the bona fides of the claim.

# 5. The learned counsel further submitted that upon investigation, the surveyor opined that the fire was not caused by a short circuit, but appeared to a deliberate human act. This conclusion was further supported by an independent expert opinion obtained from Truth Labs.

# 6. It was also contended that the respondent claimed the existence of substantial stock allegedly procured shortly prior to the incident and after enhancement of the insurance coverage. However, upon verification, the agencies shown to have supplied the said material, were found to be either non-existent at the given addresses or were not engaged in the trade of the goods claimed to have been supplied.

# 7. It was further urged that the respondent relied upon a report of the Gujarat Forensic Science Laboratory (GFSL) which indicated the presence of ethyl alcohol, an inflammable substance. According to the appellant, the sample sent namely, parts of the switchboard, had already been burnt, thereby rendering the sample itself unreliable; therefore, the said GFSL report cannot be treated as conclusive.

# 8. It was submitted that a holistic evaluation of all attending circumstances is necessary to determine whether the fire was accidental or deliberate. In the present case, the proximity of procurement of material to the incident, enhancement of insurance coverage, and the discovery that the alleged suppliers lacked the capacity to supply such goods cumulatively establish that the claim is not genuine.

# 9. On the aspect of quantification, the learned counsel submitted that the surveyor’s assessment of loss of Rs. 3,33,63,642/- (Rupees Three Crores Thirty Three Lakhs Sixty Three Thousand Six Hundred and Forty Two) merely reflects the extent of physical damage to the godown and cannot be treated as an admission of liability. It was contended that if the loss itself is consequence of a deliberate and fraudulent act, no claim under the policy would be maintainable, irrespective of the extent of damage. Accordingly, it was prayed that the impugned order passed by the NCDRC be set aside.

# 10. Per contra, the learned counsel appearing for the respondent submitted that during the subsistence of the insurance coverage, an accidental fire occurred on 25.03.2011 in the respondent’s godown due to a short circuit. The incident was duly intimated to the appellant on the same day and was also recorded with the local police. It was contended that the respondent suffered a loss of Rs.28,20,65,797/- (Rupees Twenty Eight Crores Twenty Lakhs Sixty Five Thousand Seven Hundred and Ninety Seven) that the GFSL report conclusively establishes that the fire was accidental in nature.

# 11. In response to a query raised by this Court regarding the authenticity of the alleged suppliers, the learned counsel for the respondent submitted that the claim was made based on the actual supplies, and affidavits of such suppliers had been placed on record. However, it was submitted that the respondent had not independently verified the actual existence or credentials of such suppliers.

# 12. We have considered the rival submissions and perused the material available on record.

# 13. It is evident from the record that the present case involves a fraudulent insurance claim. The respondent enhanced the insurance coverage and procured an additional policy in close proximity to the incident, which raises serious doubt regarding the bona fides of the claim.

# 14. In this context, the Truth Labs Report establishes, through GC-MS analysis of fire debris, the presence of hydrocarbon residues consistent with kerosene in the area identified as the seat of the fire (Zones IX A and X A). Significantly, such traces were absent in samples collected from areas away from the origin of the fire. That apart, the presence of kerosene, a known fire accelerant, at the seat of the fire clearly indicates that it was introduced externally to initiate the fire, thereby ruling out an accidental cause and pointing toward deliberate arson for gain. Further, forensic examination of the electrical infrastructure such as power supply wires, switchboards, and lighting systems, revealed no evidence of short circuit or electrical malfunction. The absence of overheating, annealing, or bead formation in the wiring conclusively negates an electrical cause.

# 15. Additionally, the conduct of the respondent reinforces the inference of fraud. There was delay in furnishing samples and subsequent reliance on fabricated analytical reports, indicating a clear attempt to mislead the investigation. Thus, the forensic report concludes that the fire was the result of deliberate human intervention, with a strong likelihood of it being engineered for unlawful gain.

# 16. The Surveyor’s report corroborates the above conclusions. It reveals material discrepancies between the VAT returns submitted by the Suppliers of the respondent and those filed with the Commercial Taxes Department. The alleged suppliers, in whose names’ invoices were produced to substantiate the claim, were found to be non-existent or unrelated to the claimed transactions, and the invoices produced were evidently fabricated. Notably, the respondent failed to rebut these findings with credible material.

# 17. The investigation further discloses manipulation of accounts and records with a view to inflate the claim. Both the forensic and Surveyor reports unequivocally establish violation of policy conditions, warranting repudiation.

# 18. In view of the above, it stands conclusively established that the fire was not accidental but was the result of a deliberate and orchestrated act of arson.

# 19. Despite these categorical findings, the NCDRC proceeded to allow the claim in part merely on the premise that a fire incident had occurred. Such an approach is legally unsustainable, as it disregards the overwhelming evidence of fraud and deliberate misconduct on the part of the respondent.

# 20. It is a settled principle that fraud vitiates all solemn acts, and no person can be permitted to take advantage of his own wrong. In S.P. Chengalvaraya Naidu v. Jagannath (1994) 1 SCC 1 :1993 SCC OnLine SC 318, this Court held that a judgment or decree obtained by playing fraud is a nullity in the eyes of law. Similarly, in A.V. Papayya Sastry v. Government of Andhra Pradesh (2007) 4 SCC 221 : 2007 SCC OnLine SC 317, it was reiterated that fraud vitiates all judicial acts, whether in rem or in personam.

# 21. Applying the aforesaid principles, we are of the considered view that once it is established that the claim itself is founded on fraud, the entire edifice of the claim collapses and no relief can be granted. Quantification of loss cannot override the foundational requirement of a genuine and bona fide claim.

# 22. There is no concept of partial or equitable relief in cases tainted by fraud. Courts and adjudicatory fora cannot grant compensation merely because some loss is shown to have occurred, when the claim itself is vitiated by fraudulent conduct. An insurance contract cannot be used as an instrument of unjust enrichment. The NCDRC therefore, fell into error in awarding Rs.3,33,63,642/- (Rupees Three Crores Thirty Three Lakhs Sixty Three Thousand Six Hundred and Forty two) towards the alleged loss sustained by the respondent.

# 23. In view thereof, we have no hesitation in holding that the respondent is not entitled to any amount under the policy, and the claim deserves to be rejected in toto.

# 24. Accordingly, the appeal is allowed. The impugned order passed by the NCDRC is set aside. The claim of the respondent stands repudiated. The appellant-Insurance company is absolved of any liability arising out of the said claim. The amount deposited by the appellant before the Registry of this Court shall be refunded to it, along with accrued interest, within a period of two weeks from today.

# 25. Before parting, we deem it appropriate to observe that fraudulent insurance claims involving staged incidents are not uncommon and have serious ramifications on the integrity of the insurance system and public confidence therein.

# 26. In view of the categorical finding of fraud committed in relation to the insurance claim by the respondent, we direct the Commissioner of Police, Ahmedabad, to constitute a Special Investigation Team (SIT) headed by an officer not below the rank of Deputy Commissioner of Police, to conduct a comprehensive investigation into the incident, including the persons involved in the alleged fraud. The investigation shall be completed within a period of three months from today and a report shall be submitted before this Court in a sealed cover. The Commissioner of Police, Ahmedabad, shall ensure full logistical and institutional support to the SIT and shall remain responsible for compliance with these directions.

# 27. The Registry is directed to list the matter on 21.07.2026 at 2.00 PM before the same Bench, treating it as a tied-up / part- heard. A copy of this order shall be communicated to the Commissioner of Police, Ahmedabad, forthwith. 

CIVIL APPEAL NO. 10019 OF 2024 In view of the order passed in Civil Appeal No. 6100 of 2024, of even date, the present appeal stands dismissed.

2. Pending application(s), if any, shall stand disposed of.

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