2025 INSC 1410 1

Non-reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 12261 OF 2024

M/s. Saraswati Wire and Cable Industries … Appellant

versus

Mohammad Moinuddin Khan and others … Respondents

J U D G M E N T

SANJAY KUMAR, J

1. Initiation of corporate insolvency resolution process

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by an

operational creditor under Section 9 of the Insolvency and Bankruptcy

Code, 2016

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, is in issue. By order dated 06.12.2023, the National

Company Law Tribunal, Mumbai Bench- IV

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, admitted C.P.(IB)No.

398/NCLT/MB/C- IV/2023 filed by a registered partnership firm, viz.,

M/s. Saraswati Wire and Cable Industries

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, under Section 9 of the IBC

and initiated the CIRP against Dhanlaxmi Electricals Private Limited, the

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For short, ‘CIRP’

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For short, ‘the IBC’

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For short, ‘the NCLT’

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For short, ‘the firm’

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corporate debtor

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, by appointing an Interim Resolution Professional.

Aggrieved thereby, Mohammad Moinuddin Khan, a suspended director of

the CD, filed Company Appeal (AT) (Insolvency) No. 22 of 2024 before

the National Company L aw Appellate Tribunal, Principal Bench

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, New

Delhi, under Section 61 of the IBC. By judgment dated 13.03.2024, the

NCLAT allowed the said appeal and set aside the order of admission

passed by the NCLT on the ground that there was a pre-existing dispute

between the parties as to the firm’s debt prior to institution of the

application under Section 9 of the IBC. Hence, this appeal by the firm.

2. The CD is a licensed engineering company that carries out works

on contract basis. It placed purchase orders on the firm for supply of pipes

and cables for its projects. The CD maintained a running account and

used to make payments to the firm on the strength of the invoices raised

by it from time to time. While so, the firm communicated its ledger account

to the CD under email dated 31.07.2021 and sought confirmation thereof.

In response, the CD addressed email dated 04.08.2021, through its

Accounts Manager, informing the firm of three points of difference in the

account maintained by it when compared with the ledger account sent by

the firm. The points of difference were in relation to two debit notes of

₹6,490/- and ₹15,340/- respectively and a voucher of ₹1,37,210/-. All three

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For short, ‘ the CD’

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For short, ‘ the NCLAT’

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pertained to November, 2018. The ledger account of the firm maintained

by the CD from 01.04.2017 to 01.04.2021 was communicated by the CD

under its email dated 04.08.2021. A closing debit balance was shown

therein of ₹2,49,93,690.80, i.e., the sum due and payable to the firm. The

ledger account of the firm maintained by the CD from 01.04.2020 to

30.03.2022 is also placed on record and it reflects an opening balance of

₹2,49,93,690.80, i.e., the closing balance of the earlier account. Three

payments of ₹20 lakh each were made to the firm on 18.06.2020,

25.06.2020 and 20.08.2020 respectively and, thereafter, payment of ₹10

lakh was made on 29.08.2020, resulting in a closing debit balance of

₹1,79,93,690.80.

3. On 25.08.2021, the firm issued a demand notice under Section 8 of

the IBC claiming the aforestated principal amount of ₹1,79,93,691/- along

with interest thereon, quantified at ₹85,27 ,110/-, aggregating to

₹2,65,20,800/-. Seven invoices, from 29.05.2019 to 06.10.2019, found

mention therein and the amount payable thereunder added up to

₹2,07,69,341/ -. After adjusting the amounts paid, the claimed amount

tallied with the debit balance shown by the CD in its ledger account

pertaining to the firm. However, in his reply dated 20.11.2021 to this

demand notice, the Technical Director of the CD raised an issue with

regard to two invoices that found mention in the demand notice, i.e.,

Invoice No. 203 dated 29.09.2019 for a sum of ₹33,42,527/- and Invoice

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No. 205 dated 06.10.2019 for a sum of ₹23,81,417/-. According to him, no

supplies were made as against these two invoices, but a sum of ₹50 lakh

was stated to have been paid as advance against them . It was further

stated that the material supplied by the firm was sub-standard and there

was also an issue of short supply. He stated that the CD had incurred

financial losses owing to the sub-standard material supplied by the firm

and a complaint was also made in that regard by a client, M/s. MSEDCL,

under threat of blacklisting the CD. The reply ended with counter-claims

for a sum of ₹67,96,800/- for 80 kilometres of faulty cable and ₹50 lakh

towards non-supply of material under Invoice Nos. 203 and 205.

4. At this stage, we may note certain crucial facts: A separate CIRP

had already been initiated against the CD, vide order dated 06.09.2021

passed in C.P.(IB)/244/MB-V/2020, an application filed under Section 9 of

the IBC by M/s. Central Investigation and Security Services Limited,

another operational creditor. Therefore, at the time the reply was furnished

by the Technical Director of the CD to the firm’s demand notice, that CIRP

against the CD had commenced and an Interim Resolution Professional

had taken over its management. In such a situation, the Technical Director

of the CD, who stood suspended, had no authority to reply on its behalf.

Further, it is an admitted fact that, even after issuance of the demand

notice by the firm under Section 8 of the IBC, the CD continued to make

payments to the firm and, in all, a sum of ₹61 lakh was paid.

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5. Upon initiation of the CIRP against the CD, the firm submitted its

claim before the Interim Resolution Professional on 09.11.2021. In reply,

the Interim Resolution Professional addressed letter dated 19.11.2021

stating that the firm had supplied sub-standard cables and there was also

short supply, as was conveyed under the CD’s email dated 24.1 2.2018.

The firm was, therefore, requested to accept the debit charges in order to

process the payment further. The debit charges were, however, not

detailed. Significantly, it was one day later that the suspended Technical

Director of the CD separately sent his reply, i.e., on 20.11.2021.

6. While so, IA No. 2597 of 2021 was filed by the said Interim

Resolution Professional under Section 12A of the IBC seeking withdrawal

of C.P.(IB)/244(MB)2020 in view of a settlement with Central Investigation

and Security Services Limited. The application was allowed by the

National Company Law Tribunal, Mumbai Bench–V, vide order dated

22.06.2023. Perhaps having come to know of the filing of the withdrawal

application, the firm instituted its own application under Section 9 of the

IBC, i.e., C .P.(IB) No. 398/NCLT/MB/C-IV/2023 , before the NCLT on

10.02.2023. Admittedly, the CD failed to file its reply in the company

petition and its right to do so stood forfeited, vide order dated 11.09.2023

passed by the NCLT. This failure on the part of the CD speaks for itself.

On 06.12.2023, the NCLT admitted the firm’s application under Section 9

of the IBC. Reliance was placed on the ledger account maintained by the

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CD itself, which showed that ₹1,79,93,690.80 was due and payable to the

firm. The NCLT also noted the fact that the CD had paid ₹61 lakh towards

the firm’s outstanding dues after issuance of the demand notice under

Section 8 of the IBC, which clearly negated a pre-existing dispute.

7. However, on appeal by the suspended director of the CD, the

NCLAT accepted the plea that there was a pre-existing dispute, warranting

dismissal of the firm’s application under Section 9 of the IBC. Reference,

in that regard, was made to the correspondence between the firm and the

CD in the years 2018 and 2019. Apropos Invoice Nos. 203 and 205, the

NCLAT was of the opinion that was only one facet of the dispute, as there

was also an issue with regard to short supply and faulty cables. Further,

the NCLAT laid much stress upon the fact that the firm issued a demand

notice under Section 8 of the IBC on 25.08.2021 but did not choose to file

its application under Section 9 of the IBC till 10.02.2023. According to the

NCLAT, this delay on its part was a clear indication that disputes persisted

between the parties regarding the claim put forth by the firm.

8. Surprisingly, the NCLAT seems to have been kept in the dark about

a separate CIRP having been initiated against the CD, vide order dated

06.09.2021, and the fact that there was no possibility of the firm initiating

its own CIRP at that stage. As per procedure, the firm attempted to lodge

its claim with the Interim Resolution Professional appointed in that CIRP

and it was only upon coming to know of the filing of a withdrawal

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application in that CIRP that the firm filed its own application under Section

9 of the IBC. The delay on its part, therefore, could not be held against it.

9. Further, we find that though there were some exchanges between

the parties in the years 2018 and 2019 on some issues regarding the

supply of pipes and cables made by the firm, the same did not have the

effect of stopping further supplies or further payments. This is clear from

the ledger account of the firm maintained by the CD itself, which manifests

continuous payments being made to the firm during the course of and

even after the exchange of such correspondence. It is also an admitted

fact that, after issuance of the demand notice under Section 8 of the IBC

and the replies thereto both by the former Interim Resolution Professional

as well as the suspended Technical Director of the CD in November, 2021,

a sum of ₹61 lakh was paid to the firm, which would not have been the

case if there were pre-existing disputes, giving rise to counter claims by

the CD, as the CD would have then withheld such payment.

10. More importantly, having received the ledger account forwarded by

the firm for confirmation, with its email dated 04.08.2021, the CD raised

only three issues, i.e., vis-à-vis two debit notes and one voucher , and

forwarded by email its own ledger account , signed on 04.08.2021,

certifying that the debit balance stood at ₹2,49,93,690.80. The later

account took note of the payments of ₹70 lakh made during June and

August, 2020, and closed with a debit balance of ₹1,79,93,690.80.

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11. These documents ought not to have been brushed aside lightly by

the NCLAT while concentrating on the reply dated 20.11.2021 addressed

to the firm by the suspended Technical Director of the CD. As already

noted hereinbefore, he stood suspended as on that date and had no

authority to address that reply on its behalf. Further, the issues sought to

be raised by him were on three counts: i) that no supplies had been made

against Invoice No. 203 dated 29.09.2019 and Invoice No. 205 dated

06.10.2019; ii) that there was short/faulty supply of cable by the firm as

was conveyed under email dated 24.12.2018 ( no details were mentioned

as to the amounts to be deducted from the bills of the firm for the

insufficient/faulty cables); and iii) that due to the sub- standard material

supplied by the firm, the CD incurred huge financial losses and was also

put under the threat of being blacklisted by its client, M/s. MSEDCL.

12. As regards, the first issue of non- supply of material against Invoice

Nos. 203 and 205, the firm placed on record D elivery Challan dated

29.09.2019 in relation to Invoice No. 203 along with the e-way bill

pertaining thereto. The value of the goods delivered thereunder was

shown in the e-way bill as ₹33,42,527/-. As regards Invoice No. 205, the

firm produced tax invoice dated 06.10.2019, mentioning Invoice No. 205

dated 06.10.2019, indicating that the delivery of the goods was to be made

to the CD at Uttar Pradesh. The transport bill dated 06.10.2019 in relation

to the supply of pipes under Invoice No. 205 from Palghar to Uttar

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Pradesh, duly indicating the registration number of the truck in which the

pipes were loaded, is also produced. An issue is sought to be raised by

the CD for the first time, by way of the written submissions now filed, as

to the maximum weight that could be loaded in the truck, which seems to

have been used to transport both consignments, but the transport bill

dated 06.10.2019 reflects the entry ‘full trailer’ in the remarks column,

which explains the so-called discrepancy sought to be projected by the

CD at this belated stage. Further, it is hardly believable that the firm would

have cooked up all these documents in the year 2019 in anticipation of

this litigation years later. Thus, the plea of the CD that no supplies were

made against these two invoices, prima facie, cannot be accepted.

13. As regards the issue of short/faulty supply of cables, it may be noted

that under the CD’s email dated 24.12.2018, there was no clear mention

of the actual short supply, but a later email dated 03.07.2019 indicated

that the short supply was approximately 20,000 meters. Thereafter, in the

replies issued in November 2021, the short/faulty supply was shown as

80 kilometres. No explanation is forthcoming from the CD as to how this

inflated figure was arrived at.

14. As regards the issue of suffering huge losses due to substandard

quality of the material supplied by the firm, resulting in a complaint from a

client coupled with a threat of blacklisting, the CD did not place any

material or document in support thereof. Further , there is no explanation

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as to how the suspended Technical Director of the CD increased the

length of the faulty cables allegedly supplied by the firm to 80 kilometres

or how he quantified the counter claim at ₹67,96,800/- in that regard.

15. This being the factual scenario, we may now note the settled legal

position on the issue. In Mobilox Innovations Private Limited vs.

Kirusa Software Private Limited

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, 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.

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(2018) 1 SCC 353

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16. Even in the pre-IBC era, in the context of a defence of a pre-existing

dispute in a creditor’s petition for winding up of a company in the regime

obtaining under the Companies Act, 1956, this Court always stressed

upon a dispute as to the entitlement of the creditor being a bonafide one

and not mere moonshine. In Amalgamated Commercial Traders (P.)

Ltd. vs. A.C.K. Krishnaswami and another

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, a 3-Judge Bench of this

Court held that a winding up petition is not a legitimate means of seeking

to enforce payment of a debt which is bonafide disputed by the company

and a petition presented ostensibly for a winding up order but really to

exercise pressure would be dismissed, and under circumstances may be

stigmatized as a scandalous abuse of the process of the Court. This

principle was followed thereafter in Madhusudan Gordhandas & Co. vs.

Madhu Woollen Industries Pvt. Ltd.

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, Mediquip Systems (P) Ltd. vs.

Proxima Medical System Gmbh

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and again in Vijay Industries vs.

NATL Technologies Limited

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. Applying the same principle in IBA

Health (India) Private Limited vs. Info-Drive Systems Sdn. Bhd.

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, this

Court observed that, in Mediquip Systems (P) Ltd. (supra), it was held

that the defence must be substantial and not mere moonshine and held

that if the debt is bonafide disputed, there cannot be ‘neglect to pay’ within

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(1965) 35 Comp Cas 456

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(1971) 3 SCC 632

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(2005) 7 SCC 42

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(2009) 3 SCC 527

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(2010) 10 SCC 553

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the meaning of Section 433(1)(a) of the Companies Act, 1956, and the

petition for winding up would not lie.

17. Coming back to the IBC regime, in Indus Biotech Private Limited

vs. Kotak India Venture (Offshore) Fund and others

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, while dealing

with a financial creditor’s application under Section 7 of the IBC, a 3- Judge

Bench of this Court observed that the adjudicating authority has a duty to

advert to the contentions put forth in the application, examine the material

placed before it by the financial creditor and record satisfaction as to

whether there is default or not. It was further observed that, while doing

so, the contention put forth by the corporate debtor shall also be noted to

determine as to whether there is substance in the defence and to arrive

at the conclusion whether there is default.

18. Referring to the aforestated decision in Tata Consultancy Services

Limited vs. SK Wheels Private Limited, Resolution Professional,

Vishal Ghisulal Jain

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, this Court reiterated that the adjudicating authority

is duty-bound to advert to the material before him, as made available

along with the application filed under Section 7 of the IBC by the financial

creditor to indicate default along with the version of the corporate debtor.

It was noted that this is for the reason that, keeping in perspective the

scope of the proceedings under the IBC and there being a timeline for the

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(2021) 6 SCC 436

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(2022) 2 SCC 583

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consideration to be made by the adjudicating authority, the process cannot

be defeated by a corporate debtor by raising moonshine defence only to

delay the process. Therefore, per this Court, the adjudicating authority

must advert to the contentions put forth on the application filed under

Section 7 of the IBC, examine the material placed before it by the financial

creditor and record satisfaction as to whether there is default or not and,

while doing so, the contention put forth by the corporate debtor shall also

be noted to determine as to whether there is substance in the defence and

to arrive at the conclusion whether there is default.

19. Applying this legal standard to the case on hand we have no

hesitation in holding that the defence of pre -existing disputes sought to be

put forth by the CD was mere moonshine and had no credible basis or

foundation. There was no dispute worth the name existing as on the date

of issuance of the demand notice by the firm warranting the withholding

of the operational debt due and payable by the CD. The attempt to project

such pre-existing disputes was mere bluster and did not have the effect of

non-suiting the firm.

20. The NCLAT, however, lost sight of these critical facts while

dislodging the order of admission passed by the NCLT on the application

filed by the firm under Section 9 of the IBC. The NCLAT, not being

informed of the full facts, attributed delay to the firm and failed to attach

value and consequence to the CD’s own ledger account which clearly

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negated the claim of pre-existing disputes, as the minor issues raised by

the CD obviously did not have the effect of either stopping further supplies

by the firm or further payments to the firm by the CD. The NCLAT also

failed to attach requisite importance to the email dated 04.08.2021 sent

by the CD along with the said ledger account, that clearly evidenced that

more than the threshold amount was due and payable to the firm even

after adjustment of the amounts mentioned in the debit notes and voucher.

21. The judgment dated 13.03.2024 passed by the National Company

Law Appellate Tribunal, Principal Bench, New Delhi, is accordingly set

aside and the order of admission dated 06.12.2023 passed by the

National Company Law Tribunal, Mumbai Bench- IV, in C.P.(IB)No.

398/NCLT/MB/C- IV/2023, is restored. F urther proceedings in the said

company petition shall be initiated in accordance with law and due

procedure from the date of communication of this judgment.

The appeal is allowed in the aforestated terms.

Parties shall bear their respective costs.

..............................., J.

[SANJAY KUMAR]

..............................., J.

[ALOK ARADHE]

December 10, 2025

New Delhi.