TaxTMI 
TaxTMI 
TaxTMI 
Section 8 of the Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides that the operational creditor may issue a notice to the Corporate Debtor directing to pay the outstanding dues. On receipt of the said notice the corporate debtor should respond to the same and inform the corporate debtor about dispute on the invoices, if any, and/or pendency of any suit or arbitration, within 10 days from the date of receipt of the notice.
Section 9 of the Code provides that if the operational creditor does not receive any reply or notice of dispute, he may initiate corporate insolvency resolution process (‘CIRP’ for short) against the corporate debtor along with the prescribed fee and documents in the prescribed form.
The Adjudicating Authority may reject the application filed by the operational creditor if notice of dispute has been received by the operational creditor from the corporate debtor, after giving reasonable opportunity to the parties concerned of being heard.
In M/s. Saraswati Wire and Cable Industries Versus Mohammad Moinuddin Khan and others. - 2025 (12) TMI 770 - Supreme Court, the corporate debtor is a licensed engineering company that carries out works on contract basis. The corporate debtor regularly made payments against invoices raised by the appellant (operational creditor) and maintained a running ledger account reflecting a debit balance of Rs.1.80 crores. On 25.08.2021 the operational creditor issued a demand notice under Section 8 of the Code, claiming the principal amount of Rs.1.80 crores along with interest totalling Rs.2.65 crores. In the meantime, the CIRP was initiated against the corporate debtor in another case.
In reply to the above said notice the suspended technical director of the corporate debtor alleged non-supply under two invoices, short-supply and substantial quality of the product. The allegations were not supported by any record and without quantity and further the notice was issued after the initiation of CIRP against the corporate debtor in another proceeding, passed by the Adjudicating Authority on the file of application by the Central Investigation and Security Services Limited. The operational creditor filed an application under Section 8 of the Code against the corporate debtor for initiation of CIRP against the corporate debtor. The Adjudicating Authority admitted the application filed by the Operational creditor holding that no genuine pre-existing dispute existed.
The appellant challenged the order of Adjudicating Authority before the National Company Law Appellate Tribunal (‘NCLAT’ for short). The NCLAT accepted the plea of a pre-existing dispute by referring to historical correspondence from 2018 – 19 and the time gap between the demand notice and the filing of Section 9 application by the Operational Creditor. Against the order of the NCLAT, the appellant filed the present appeal before the Supreme Court.
The Supreme Court examined the materials on record. The Supreme Court considered the central issue to be decided in the present appeal is as to whether ‘a pre-existing dispute exists on the date of issuance of notice under Section 8 of the Code and whether the NCLAT was justified in reversing the order of the Adjudicating Authority, which admitted the application for initiation of CIRP.
The Supreme Court observed that the correspondences relied upon by the corporate debtor from 2018-19 did not interrupt the running account between the parties, not did it stop further supplies or payments. The ledger maintained by the Corporate Debtor itself showed regular payments and reflected the admitted liability of Rs.1.79 crores. Further the corporate debtor paid Rs.61 lakhs after receipt of Section 8 demand notice, which the Court held was wholly inconsistent with the existence of any real dispute. The Supreme Court further observed that the reply dated 20.11.2021 which was heavily relied upon by the NCLAT, had no legal worth as it was issued by a suspended director at a time when CIRP against the corporate debtor had already commenced and an Interim Resolution Professional had taken charge. Therefore, the objections in the reply were legally unauthorised and could not constitute a pre-existing dispute.
The Supreme Court relied on the judgment in Mobilox Innovations Private Limited Versus Kirusa Software Private Limited - 2017 (9) TMI 1270 - Supreme Court, in which the Supreme Court held that a dispute must be a bona fide, not ‘spurious, hypothetical or illusory. The defences raised by the corporate debtor pertaining to allegations of faulty supply, non-delivery under two invoices, inflated counter claims and an unsubstantiated blacklisting threat were found to be mere ‘moonshine’ unsupported by documents and contracted the corporate debtor’s own conduct. The Supreme Court held that NCLAT erred by overlooking critical facts, ignoring the corporate debtor’s own ledger and mischaracterising the delay in filing the Section 9 petition, which was actually explained by the pendency of earlier CIRP. Therefore, the Supreme Court allowed the appeal and set aside the order of NCLAT and restored the order of the Adjudicating Authority admitting the corporate debtor into CIRP.