NCLT Declines CIRP Admission Against Electrotherm, Finds Dispute Predates Demand Notice
Introduction
The National Company Law Tribunal, Ahmedabad Bench, in a petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016, examined whether insolvency proceedings can be initiated in the presence of a pre-existing dispute. The Tribunal refused to admit the CIRP plea against Electrotherm (India) Ltd., holding that the claim was disputed prior to the issuance of the demand notice.
Factual Background
The operational creditor, A.T. Trade Overseas Pvt. Ltd., claimed an operational debt of approximately ₹5.70 crore arising from supply of coal, iron ore pellets, and billets under purchase orders issued between May and October 2022. Invoices were raised between September and November 2022, and the creditor alleged that payments remained unpaid despite repeated follow-ups.
A demand notice was issued on 7 February 2025. The corporate debtor responded on 24 February 2025 disputing the liability. The dispute centered around alleged deficiencies in quality, short supply, and financial adjustments reflected through debit notes. The corporate debtor also relied on prior correspondence and pending cheque bounce proceedings to demonstrate that disputes existed well before the insolvency notice.
Procedural Background
Following the exchange of notices and replies, the operational creditor filed a Section 9 application before the NCLT on 7 July 2025 seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Electrotherm (India) Ltd.
Issues
1. Whether the operational debt was undisputed and due for the purpose of admitting a Section 9 petition.
2. Whether a pre-existing dispute existed between the parties prior to issuance of the demand notice.
3. Whether issues relating to quality, quantity, and adjustments could be adjudicated within insolvency proceedings.
Contentions of Parties
The creditor contended that goods were duly supplied and accepted in the ordinary course of business and that invoices remained unpaid. It argued that objections raised by the corporate debtor were an afterthought intended to evade payment obligations and did not constitute a genuine dispute.
The corporate debtor argued that the claim was not undisputed and pointed to multiple pre-existing disputes regarding quality of goods, short supply, and debit notes. It relied on prior emails, correspondence, and pending legal proceedings to demonstrate that disputes existed well before the demand notice. It was submitted that such disputes required detailed evidentiary examination and could not be resolved in summary insolvency proceedings.
Reasoning and Analysis
The Tribunal observed that while the supply of goods and invoices were supported by documentary evidence, the core issue was whether the debt was undisputed. It noted that correspondence between the parties prior to the demand notice clearly indicated disputes regarding quality, quantity, and financial adjustments.
The bench of Judicial Member Shammi Khan and Technical Member Sanjeev Sharma held that such disputes were not spurious or illusory but required detailed examination of evidence, which falls outside the scope of insolvency proceedings. It reiterated that the IBC is not a substitute for a recovery forum and cannot be invoked where genuine disputes exist. Since the dispute existed prior to the issuance of the demand notice, the essential requirement for admission under Section 9 was not satisfied.
Decision
The Tribunal held that a pre-existing dispute existed between the parties and accordingly rejected the Section 9 application, declining to initiate CIRP against Electrotherm (India) Ltd.
In this case the appellant was represented by Senior Advocate Manish Bhatt with Advocate Yash Dadhich. Meanwhile the respondent was represented by Senior Advocate Saurabh Soparkar and Rashesh Sanjanwala with Ravi Pahwa.