NCLAT order set aside as Supreme Court restores NCLT admission in operational creditor CIRP

A bench of Justices Sanjay Kumar and Alok Aradhe heard an appeal challenging the National Company Law Appellate Tribunal’s decision that had set aside an NCLT order admitting a company petition under Section 9 of the Insolvency and Bankruptcy Code, 2016. The dispute concerned whether an operational creditor’s application to initiate corporate insolvency resolution process (CIRP) was barred by a pre‑existing dispute.

The Court allowed the appeal, held that the defence of pre‑existing disputes was "mere moonshine" and restored the NCLT order dated 06.12.2023 admitting the Section 9 petition and appointing an Interim Resolution Professional. The Court found that contemporaneous documents — including the corporate debtor’s own ledger account and subsequent payments of ₹61 lakh after issuance of the Section 8 demand notice — negated any bonafide dispute on the date of the demand. The Court observed that a suspended director’s November 2021 reply lacked authority because a separate CIRP was already in progress, and that the NCLAT had failed to advert to material facts and had unjustly attributed delay to the operational creditor. The Court, in its reasoning, observed: "In Mobilox Innovations Private Limited vs. Kirusa Software Private Limited, this Court held that the adjudicating authority dealing with an application filed under Section 9 of the IBC is required to determine whether there is an operational debt; whether evidence has been furnished to show that the said debt was due and payable but had not been paid; and whether there was any dispute in existence between the parties or any suit or arbitration was pending in relation to such dispute on the date of receipt of the demand notice of the unpaid operational debt. It was further observed that it would be important to separate the grain from the chaff and to reject a spurious defence which was mere bluster and that, while doing so, the Court did not need to be satisfied that the defence was even likely to succeed. It was clarified that, at that stage, the Court would not examine the merits of the dispute in toto and as long as the dispute truly existed in fact and was not spurious, hypothetical or illusory, the adjudicating authority would be entitled to reject the application." The Court further stated: "the defence of pre-existing disputes sought to be put forth by the CD was mere moonshine and had no credible basis or foundation."

Background: The operational creditor maintained running accounts with the corporate debtor for supply of pipes and cables. The corporate debtor’s ledger, forwarded by email on 04.08.2021, showed a closing debit balance of ₹2,49,93,690.80 and, after certain payments, an outstanding of ₹1,79,93,690.80. The firm issued a Section 8 demand notice on 25.08.2021 claiming ₹1,79,93,691 with interest, aggregating ₹2,65,20,800. The corporate debtor replied in November 2021 alleging non‑supply against two invoices, short and substandard supply and counter‑claims; those replies were sent while an earlier CIRP against the corporate debtor was already underway and the sender was a suspended director.

The firm filed its Section 9 petition on 10.02.2023 after learning that the earlier CIRP was being withdrawn; the NCLT admitted the petition on 06.12.2023 and relied on the corporate debtor’s own ledger and post‑notice payments. The NCLAT allowed an appeal by a suspended director and set aside admission on the ground of a pre‑existing dispute and delay by the operational creditor. The Supreme Court found that the NCLAT had not considered critical contemporaneous documents, overlooked that the suspended director lacked authority, and wrongly construed the interval before filing the Section 9 petition (which followed a withdrawal application in a prior CIRP) as evidence of an ongoing dispute. The Court applied precedents including Mobilox Innovations, Amalgamated Commercial Traders and Indus Biotech to hold that only a bona fide, substantial dispute could defeat a Section 9 petition and that spurious or illusory defences must be rejected. The Supreme Court set aside the NCLAT judgment, restored the NCLT admission, directed further proceedings in accordance with law and ordered that parties bear their respective costs.

Case Details: Case No.: CIVIL APPEAL NO. 12261 OF 2024 (2025 INSC 1410) Case Title: M/s. Saraswati Wire and Cable Industries v. Mohammad Moinuddin Khan and others Appearances: For the Petitioner(s): [Not indicated in judgment] For the Respondent(s): [Not indicated in judgment]