NCLAT Delhi Upholds Section 9 CIRP Admission: Lab Reports and Mediation Raised After Demand Notice Constitute Moonshine Defence

Case Overview

Case: Raakesh B Kulwal Vs Param Dairy Limited
Forum: National Company Law Appellate Tribunal, Delhi
Statutory Basis: Section 61 of the Insolvency and Bankruptcy Code, 2016
Challenge Against: Order dated 4 July 2025 passed by the National Company Law Tribunal, Jaipur Bench

The present matter arose from an appeal preferred by the suspended director of the Corporate Debtor against the admission of an application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC), which triggered the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor — M/s Jhandewalas Foods Limited. The Adjudicating Authority had admitted the petition filed by Respondent No. 1 — Param Dairy Limited (Operational Creditor) — after rejecting the Corporate Debtor's plea of pre-existing disputes.

The NCLAT, after a thorough examination of the factual matrix and legal principles, dismissed the appeal and upheld the initiation of CIRP, affirming that disputes engineered after the issuance of a demand notice carry no weight in insolvency proceedings under the IBC.

Background Facts and Dispute

M/s Jhandewalas Foods Limited, engaged in the manufacture and trading of butter and ghee, maintained an ongoing commercial relationship with Param Dairy Limited, which regularly supplied butter and ghee against confirmed purchase orders placed by the Corporate Debtor.

Over the course of their dealings, the Operational Creditor alleged that despite multiple follow-ups and payment requests, the Corporate Debtor released only partial payments against dues arising from invoices pertaining to the period 1 April 2021 to 28 June 2022. Exhausting all informal remedies, the Operational Creditor served a demand notice dated 2 November 2022 under Section 8 of the IBC, claiming an operational debt of Rs. 3.83 crore, which comprised:

  • Principal outstanding: Rs. 3.08 crore
  • Compounded interest: Rs. 75.33 lakh

The Corporate Debtor filed a reply dated 14 December 2022 disputing the claim and raising the following alleged pre-existing disputes:

  1. Supply of defective and substandard consignments against four invoices
  2. Non-accounting of approximately 67,310 kilograms of returned defective ghee
  3. Non-adjustment of accounts reflecting amounts allegedly recoverable from the Operational Creditor
  4. Absence of any agreement for payment of interest on outstanding dues

When the dues remained unpaid, the Operational Creditor filed a petition under Section 9 of the IBC before the NCLAT, Jaipur Bench. By the impugned order dated 4 July 2025, the Adjudicating Authority admitted the petition, rejected the pre-existing dispute defence, and ordered commencement of CIRP. The suspended director of the Corporate Debtor challenged this order before the NCLAT, Delhi.

Arguments Advanced by the Appellant (Corporate Debtor)

Senior Counsel appearing for the Appellant pressed the following submissions before the Appellate Tribunal:

  • The Adjudicating Authority gravely erred in admitting the Section 9 application without appreciating that genuine and substantial pre-existing disputes existed between the parties, stemming from the supply of inferior quality butter and ghee, as corroborated by laboratory test reports.
  • Approximately 67,310 kilograms of defective ghee was returned to the Operational Creditor; however, it failed to incorporate necessary accounting adjustments, thereby distorting the ledger entries and concealing receivables due to the Corporate Debtor.
  • Had appropriate reconciliation been carried out, the financial statements would have demonstrated that no amount was payable to the Operational Creditor — to the contrary, amounts were recoverable from it.
  • Since the operational debt itself had not crystallised, the recourse to Section 9 amounted to nothing more than a debt recovery mechanism, which is impermissible under the IBC.
  • The reply to the Section 8 demand notice had categorically raised disputes concerning defective goods, non-adjustment of returned stock, and accounting discrepancies.
  • Initiation of pre-institution mediation under Section 12A of the Commercial Courts Act itself demonstrated the existence of a genuine live dispute.
  • Reliance was placed on Innoventive Industries Limited versus ICICI Bank, Civil Appeal No. 8337-8338 of 2017, where the Supreme Court held that the existence of a plausible and bona fide pre-existing dispute renders a Section 9 application liable to rejection.

Counter-Arguments of the Operational Creditor

Counsel for Param Dairy Limited advanced the following contentions to defend the impugned order: