Pre-existing dispute over defective goods can bar insolvency admission where the disagreement predates the demand notice.

A pre-existing dispute over the quality of goods supplied barred admission of the operational creditor's insolvency application under the Insolvency and Bankruptcy Code. Emails and correspondence showed complaints about defective and inferior-quality paper tubes from June 2017 onward, well before the demand notice, and the dispute was reiterated in the reply to the notice. Because the dispute was not a spurious or feeble defence, the Adjudicating Authority was required to reject the application. The text also notes that acceptance and use of goods does not necessarily waive claims for latent defects, and later settlement communications did not erase the earlier dispute.

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Issues: Whether the application under the Insolvency and Bankruptcy Code, 2016 ought to be rejected on the ground that a pre-existing dispute regarding the quality of goods supplied existed before the demand notice and, consequently, the admission order initiating CIRP was unsustainable.

Analysis: The record of emails and correspondence showed that complaints regarding defective and inferior-quality paper tubes had arisen much before the demand notice. The dispute was reflected in the communications exchanged from June 2017 onwards and was also reiterated in the reply to the demand notice. Under the insolvency framework, where notice of dispute has been received and the dispute is not a spurious or feeble defence, the Adjudicating Authority is required to reject the operational creditor's application. The materials also supported the conclusion that, in a sale-of-goods situation, acceptance and use of goods does not necessarily extinguish the buyer's right to claim damages for latent defects, and settlement communications could not by themselves erase the earlier dispute.

Conclusion: The pre-existing dispute was established and the insolvency admission order could not be sustained.

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