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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Rajendra Bisht v. M/s Satkar Logistics Pvt Ltd & Anr. - The Hon’ble Supreme Court in the case of Sabarmati Gas Limited v. Shah Alloys Limited, (2023) 3 SCC 229 has held that failure of reconciliation of accounts qualifies as a pre-existing dispute. The rejection of Section 9 application on the grounds of such “pre-existing dispute” was upheld.

 NCLAT (2025.03.11) In Rajendra Bisht  v. M/s Satkar Logistics Pvt Ltd & Anr.  [Company Appeal (AT) (Insolvency) No. 285 of 2022] held that;

• This Tribunal in order dated 16.08.2018 M/s. Laina Power Engineering v. Sokeo Power Private Limited Company Appeal (AT) (Insolvency) No. 452 of 2018 (supra) had relied upon the emails exchanged between the parties prior to issue of demand notice under Section 8 of the IBC, 2016 as evidence of pre-existing dispute.

• it is patently clear that an Operational Creditor can only trigger the CIRP process, when there is an undisputed debt and a default in payment thereof. If the claim of an operational creditor is undisputed and the operational debt remains unpaid, CIRP must commence, for IBC does not countenance dishonesty or deliberate failure to repay the dues of an Operational Creditor.

• The Hon’ble Supreme Court in the case of Sabarmati Gas Limited v. Shah Alloys Limited, (2023) 3 SCC 229 has held that failure of reconciliation of accounts qualifies as a pre-existing dispute. The rejection of Section 9 application on the grounds of such “pre-existing dispute” was upheld.

• this Tribunal in East India Udyog Ltd. v. SPML Infra Limited in Company Appeal (AT) (Insolvency) No. 256 of 2023 held that failure of reconciliation of accounts qualifies as a pre-existing dispute and had upheld the order of Ld. NCLT in rejecting the application under Section 9 on the ground of pre-existing dispute

Excerpts of the Order;

This Appeal has been filed by the erstwhile promoter and director of M/s Ambassador Logistics Pvt. Ltd. (hereinafter referred to as the ‘Corporate Debtor’) assailing the order dated 11.02.2022 of Ld. NCLT, New Delhi, Court-III in C.P.(IB) No. 1924/ND/2019 whereby the Corporate Debtor was admitted into Corporate Insolvency Resolution Professional (hereinafter referred to as the ‘CIRP’) on an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘IBC, 2016’) filed by the M/s Satkar Logistics Pvt. Ltd. (hereinafter referred to as the ‘Operational Creditor’)/Respondent No. 1.

# 2. The brief facts of this case as noted in the impugned order are as under: 

i. The petition was filed by the Operational Creditor for an operational debt of Rs. 6,66,667/- along with interest @ 24% per annum w.e.f. 19.10.2016 till realisation. 

ii. The Operational Creditor had rendered management/logistics services such as ocean freight charges, B/L charges, IHC/THC charges etc to the Corporate Debtor for which various invoices were raised from time to time. 

iii. The parties had maintained a running account. The Corporate Debtor has made part payments which were adjusted by the Operational Creditor as per “FIFO method” (First in First Out method). There was an outstanding amount of Rs. 6,66,667/-. 

iv. The notice under Section 8 of IBC, 2016 was issued by the Operational Creditor on 27.02.2019 and the same was replied by the Corporate Debtor on 07.03.2019. 

v. Before the Ld. NCLT, the Corporate Debtor took the defence of pre-existing dispute, as also that the claim is barred by law of limitation. 

vi. The Operation Creditor on the other hand stated that dispute was raised only after receipt of Section 8 notice. vii. The Ld. NCLT held that the application was within limitation as the last payment was made by the Corporate Debtor on 19.10.2016, and the petition was filed within three years of the last payment. The relevant portion of the impugned order admitting the Corporate Debtor into CIRP is reproduced below for ready reference: 

• “7. We have heard-Ld. Counsels for both the parties at length, perused the application before us as well as the written submissions filed by the parties. The case laws relied upon by both sides have also been considered by us. It is seen that Operational Creditor has issued notice under section 8 of the Code on 27.2.2019 and the said notice has been duly replied by Corporate Debtor on 7.3.2019, and the present Application has been filed on 14.8.2019. In its reply dated 7.3.2019 the Corporate Debtor has only raised issues with regard to certain payments not being accounted for by Operational Creditor and nothing is shown/claimed as being prior existing dispute between the parties. It is seen from copy of ledger account annexed with Section 8 notice that parties are having running account in respect of various invoices raised by Operational Creditor for the logistics/freight services provided by it to the Corporate Debtor during the period from 1.4.2014 to 18.2.2019. The last invoice as recorded in the said ledger account is no. SLPL/15-16/3317 dated 4.1.2016 for Rs. 1,18,315/- and the last payment received from Corporate Debtor is on 19.10.2016 of Rs. 94,064. 

• 8. It is further seen from copies of invoices enclosed with Demand Notice dated 27.2.2019 u/s 8 of the Code sent to the Corporate Debtor that all Invoices (page 101 to 158 of the Application) are made out in Corporate Debtor's name and duly accounted for in Ledger account of Corporate Debtor. The Operational Creditor has been able to establish debt and default on part of Corporate Debtor with regard to these invoices. Corporate Debtor has not provided any cogent evidence in support of its contention with regard to any pre-existing dispute, prior to the issuance of Demand Notice. In defence to the said notice, it has only raised certain issues which are at best related to reconciliation of certain payments. 

• 9. In view of the above discussion, we are convinced that Operational Creditor has made out case against Corporate Debtor for initiation of CIRP under the Code due to non-payment of Operational Debt of Rs. 6,66,667.40. The present application has been filed on 14.8.2019 with the last payment admittedly having been made by Corporate Debtor on 19.10.2016 on running account basis, the same is held to be within limitation u/s 137 of the Limitation Act. Therefore, this Authority admits the present Application under section 9 (5) of the I & B Code, 2016.” 

# 3. The Learned Counsel for the Appellant submitted that in its reply to Section 8 notice dated 07.03.2019, the Corporate Debtor had informed the Operational Creditor that as per their accounts, an amount of Rs. 6,94,102/- is due from the Operational Creditor against its claim of 6,66,667/-. The various accounting entries were also referred too. The relevant portion of the reply is reproduced below: 

• “No payment is due on account of Ambassador Logistics Pvt. Ltd as per below details. 

• 1- Bank payments (Cheques & NEFT) Year 2014 to till date - Rs.261439.00 

• 2- Payment refund of Ambassador Logistics Year 2014-2015 - Rs.242978.00 

• 3- TDS amount F.Y. 2013-2014, F.Y. 2014-2015 - Rs. 24589.00 

• 4- Closing & Opening Balance F.Y.2013-2014, F.Y.2014-2015- Rs. 7501.00 

• 5- Wrong Invoice Year 2014-15 - Rs. 90337.00 

• 6- Invoice amount not as per agreed rate Year 2015-2016 - Rs. 67258.00 

• Total amount to be settled in A/C of Satkar Logistics Pvt. Ltd - Rs.694102.00” 

# 4. The Learned Counsel for the Appellant referred to page 216 to 222 of the Appeal Paper Book containing emails exchange between the Corporate Debtor and the Operational Creditor. The last three emails are dated 18.05.2018 (at page 222 of Appeal) from Operational Creditor to Corporate Debtor, 24.05.2018 (at page 220 of Appeal) from Corporate Debtor to Operational Creditor and finally email sent on 25.05.2018 (at page 220 of Appeal) from Corporate Debtor to Operational Creditor wherein the Corporate Debtor had clearly stated that as per their books of account and bank statement nothing is payable to M/s Satkar Logistics Pvt. Ltd. This final email dated 25.05.2018 is reproduced below: 

# 5. It is submitted the said email dated 25.05.2018 was not replied to by the Operational Creditor and straightway after a gap of 7 months the demand notice dated 27.02.2019 was sent. 

# 6. It is submitted the Ld. NCLT erred in ignoring email correspondence, which was prior to the issue of notice under Section 8 of IBC, 2016 and has erred in holding that there is no pre-existing dispute. The Learned Counsel for the Appellant has relied upon the following judgments in his support: 

• i. M/s S.S. Engineers & Ors. v. Hindustan Petroleum Corporation Ltd. in Civil Appeal No. 4583 of 2022 dated 15th July, 2022 reported in 2022 LiveLaw (SC) 617; 

• ii. M/s. Laina Power Engineering v. Sokeo Power Private Limited in Company Appeal (AT) (Insolvency) No. 452 of 2018. 

# 7. The Learned Counsel for Respondent No. 1/Operational Creditor has submitted that the Appellant had made the last payment amounting to Rs. 94,064/- on 19.10.2016 and the limitation would start from this date. The demand notice was served on the Corporate Debtor and Corporate Debtor replied to the said notice vide reply dated 07.03.2019 and admitted the default and liability of Corporate Debtor towards Respondent No. 1. 

# 8. It is submitted that in view of the appeal of the Corporate Debtor, the application is not barred by limitation, and is an admitted debt, and thus the order of Ld. NCLT be upheld. 

# 9. We have heard both the parties and perused the record. 

# 10. Since the last payment was made on 19.10.2016, and the application was filed within three years, we hold that application under Section 9 of the IBC, 2016 is within limitation. On the issue of “pre-existing dispute”, we find that in email dated 25.05.2018, the Corporate Debtor had clearly stated that as per their books of account and bank statement nothing is payable to M/s Satkar Logistics Pvt. Ltd., the Operational Creditor. 

# 11. On specific query by the Bench, the Learned Counsel for the Respondent No. 1 admitted this e-mail was not replied to by the Operational Creditor. We find there is continuous exchange of e-mails between the Operational Creditor and the Corporate Debtor regarding the differences in the accounting entries and the final email exchanged is dated 25.05.2018, which is reproduced above at para 4, wherein the Corporate Debtor had clearly stated no amount is payable to M/s Satkar Logistics Pvt. Ltd. 

# 12. On perusal of the reply to Section 8 notice, we find that Corporate Debtor had clearly stated no amount is due to the Operational Creditor. This Tribunal in order dated 16.08.2018 M/s. Laina Power Engineering v. Sokeo Power Private Limited Company Appeal (AT) (Insolvency) No. 452 of 2018 (supra) had relied upon the emails exchanged between the parties prior to issue of demand notice under Section 8 of the IBC, 2016 as evidence of pre-existing dispute. 

# 13. The Hon’ble Supreme Court in M/s S.S. Engineers & Ors. v. Hindustan Petroleum Corporation Ltd. in Civil Appeal No. 4583 of 2022 (supra) has held that the application under Section 9 was rightly rejected on the grounds of preexisting dispute. The relevant portion of the order is reproduced below for reference: 

• “30. This Court finds that there was a pre-existing dispute with regard to the alleged claim of the appellant against HPCL or its subsidiary HBL. The NCLAT rightly allowed the appeal filed on behalf of HBL. It is not for this Court to adjudicate the disputes between the parties and determine whether, in fact, any amount was due from the appellant to the HPCL/HBL or vice-versa. The question is, whether the application of the Operational Creditor under Section 9 of the IBC, should have been admitted by the Adjudicating Authority. The answer to the aforesaid question has to be in the negative. The Adjudicating Authority (NCLT) clearly fell in error in admitting the application. 

• 31. The NCLT, exercising powers under Section 7 or Section 9 of IBC, is not a debt collection forum. The IBC tackles and/or deals with insolvency and bankruptcy. It is not the object of the IBC that CIRP should be initiated to penalize solvent companies for non-payment of disputed dues claimed by an operational creditor. 

• 32. There are noticeable differences in the IBC between the procedure of initiation of CIRP by a financial creditor and initiation of CIRP by an operational creditor. On a reading of Sections 8 and 9 of the IBC, it is patently clear that an Operational Creditor can only trigger the CIRP process, when there is an undisputed debt and a default in payment thereof. If the claim of an operational creditor is undisputed and the operational debt remains unpaid, CIRP must commence, for IBC does not countenance dishonesty or deliberate failure to repay the dues of an Operational Creditor. However, if the debt is disputed, the application of the Operational Creditor for initiation of CIRP must be dismissed. 

• 33. We find no grounds to interfere with the judgment and order of the NCLAT impugned in this appeal.” 

# 14. The Hon’ble Supreme Court in the case of Sabarmati Gas Limited v. Shah Alloys Limited, (2023) 3 SCC 229 has held that failure of reconciliation of accounts qualifies as a pre-existing dispute. The rejection of Section 9 application on the grounds of such “pre-existing dispute” was upheld. The relevant portion of the judgment is reproduced below: 

• 55. In this context the meaning of the word “reconciliation” is to be looked into. Going by Black’s Law Dictionary, 10th Edition, the apt meaning suitable to the situation in relation to accounting, reads thus: “an adjustment of amounts so that they agree, especially by allowing for outstanding items”. It is submitted by the learned counsel for the respondent that such a reconciliation had not taken place and also that indisputably, DRS was not formulated and approved. The aforesaid facts revealed from Annexure 40 together with the stand taken by the respondent in the letter dated 04.01.2013 (Annexure 36) would reveal the existence of a pre-existing dispute between the parties. 

• 56. In the contextual situation it is only apposite to be remindful of the observation in Mobilox Innovations that in doing the act of separating the grain from chaff the Court need not to be satisfied that the defence is likely to succeed. It is enough that a dispute exists between the parties and in other words, what is to be seen is whether there was a plausible contention requiring investigation for the purpose of adjudication. Taking note of the nature of the dispute of the respondent as referred hereinbefore in respect of the claim made by the appellant, we do not find any reason to disagree with the concurrent findings of the Tribunals that there existed a ‘pre-existing dispute’ between the parties before the receipt of demand notice under Section 8 IBC. In other words, the dismissal of the application under Section 9 IBC on the ground of ‘pre-existing dispute’ cannot be held to be patently illegal or perverse. We also do not find any reason, in the facts and circumstances, to hold that the case set up by the respondent was a patently feeble legal argument. At any rate, we are not inclined to brush aside the case of the respondent as spurious. 

• 57. We may hasten to add here that we shall not be understood to have held that the dispute set by the respondent regarding the dues is ultimately to be upheld. Certainly, when the expression ‘pre-existing dispute’ is used it will only indicate the existence of a dispute prior to the receipt of a demand notice under Section 8 IBC, and the correctness or its truthfulness is a matter of evidence. In short, the respondent has succeeded in raising a dispute describable as ‘pre-existing dispute’. In that view of the matter once we find that the Tribunals have rightfully held that there existed a ‘pre-existing dispute’ between the parties there cannot be an order of remand of the matter to the Tribunal for reconsideration of Section 9 application under IBC.” 

# 15. Following the said judgment of the Hon’ble Supreme Court, this Tribunal in East India Udyog Ltd. v. SPML Infra Limited in Company Appeal (AT) (Insolvency) No. 256 of 2023 held that failure of reconciliation of accounts qualifies as a pre-existing dispute and had upheld the order of Ld. NCLT in rejecting the application under Section 9 on the ground of pre-existing dispute. The relevant portion of the said judgment is reproduced below: 

• 7. The Learned Counsel for the Corporate Debtor making rival contentions submitted that the business transactions between the Operational Creditor and the Corporate Debtor were based on payments to be made through the LC. Moreover, payments that were released by the Corporate Debtor did not correspond to any particular PO but was released corresponding to consolidated amounts that was due. However, the Operational Creditor has cherry- picked particular invoices which was contrary to the business model and commercial understanding between the parties. Further there has been no reconciliation of accounts and prior to reconciliation of accounts, no default could have arisen. In support of their contention, it has been submitted by the Learned Counsel for the Respondent that the Hon'ble Supreme Court in the matter of Sabarmati Gas Ltd. v. Shah Alloys Ltd. (2023) 3 SCC 229 has held that the failure of reconciliation of accounts also qualifies as a pre-existing dispute between the parties in terms of Section 8 of the IBC Code. ……. …………. 

• 9. The short point for consideration is whether there was any discernible pre-existing dispute surrounding the debt claimed to be due and payable by the Operational Creditor. 10. We find that the Corporate Debtor in its reply dated 08.08.2020 to the Section 8 demand notice had disputed both the quantum of operational debt and also deficiencies in respect of discharge of contractual obligations by the Operational Creditor. ………… 

• 12. We also notice that even prior to receipt of demand notice dated 29.07.2020, the Corporate Debtor on 18.07.2020 had refused to accept the outstanding operational debt, interalia, on the ground of reconciliation of accounts. We also notice that at page 855 of Appeal Paper Book (‘APB’ in short), the Operational Creditor in their counter affidavit dated 15.12.2021 to the additional affidavit dated 27.09.2021 filed by the Corporate Debtor has on their own admitted that they had given numerous reminders to the Corporate Debtor prior to 18.07.2020 to reconcile the account. The Adjudicating Authority has also taken note of the fact that since the Appellant had themselves sent email to the Corporate Debtor on 31.08.2018 and 04.09.2019 for reconciliation of accounts, that by itself shows that there existed a dispute between the parties regarding the amount of debt due and the requirement for reconciliation of accounts as both the parties were having counter claims against the other. It is the case of the Appellant that the emails for reconciliation of accounts were sent since the Corporate Debtor was not sharing their books of accounts. Be that as it may, this does not detract from the fact that there was a dispute around the debt due and payable since both parties had raised the issue of reconciliation of accounts. We also do not find any material to have been placed on record by the Operational Creditor wherein the Corporate Debtor can be said to have unambiguously admitted the operational debt claimed by the Appellant. We, therefore hold that the Adjudicating Authority has rightly observed in the impugned order that the Corporate Debtor had raised an issue with regard to the existence of amount claimed by the Operational Creditor and asked for reconciliation of accounts. ……. 

• 20. Considering the overall facts and circumstance of the present case, and in view of the foregoing discussion, we are of the view that the Adjudicating Authority did not commit any error in rejecting the Section 9 Application filed by the Appellant on the ground of pre-existing dispute. …..” 

# 16. In the facts of this case, we find that there existed a dispute between the Operational Creditor and the Corporate Debtor prior to the issuance of notice under Section 8 of the IBC, 2016, which is evidenced by the emails exchanged between the parties. The Ld. NCLT has erred in ignoring the pre-existing dispute and admitting the Corporate Debtor into CIRP. The impugned order of the Ld. NCLT is set aside and the appeal is allowed. All pending application(s) are closed. No order as to costs. 

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