The Supreme Court has allowed the appeal filed by GLS Films Industries Private Limited, the corporate debtor, and set aside the judgment dated 11.02.2025 passed by the National Company Law Appellate Tribunal, Principal Bench, New Delhi, in Company Appeal (AT) (Ins) No. 157 of 2023, thereby restoring the order dated 16.12.2022 passed by the National Company Law Tribunal, New Delhi Bench (Court II), which had dismissed the Section 9 application filed by Chemical Suppliers India Private Limited, the operational creditor.
The respondent had filed Company Petition (IB)-792(ND) of 2021 under Section 9 of the Insolvency and Bankruptcy Code, 2016 claiming a sum of ₹2,92,93,223/- as due on account of supply of chemicals. The appellant contested the petition on the ground that there was a pre-existing dispute inasmuch as the respondent had supplied defective solvent consignments on multiple dates in April and June 2021, leading to heavy losses to the appellant. The appellant had earlier written to the respondent on 10.12.2020 complaining about defective supplies made in September-October 2020 and had raised a debit note of ₹1,66,89,770/-. It had also lodged a police complaint on 27.09.2021 alleging arm-twisting tactics and threats of suicide by the respondent’s representative to recover payment. After adjusting the credit note and the losses suffered, the appellant claimed that it was the respondent who owed it ₹70,09,430/-.
The NCLT, after examining the correspondence, the police complaint and the ledger accounts, held that a plausible pre-existing dispute existed which required detailed investigation beyond the summary jurisdiction under the Code and accordingly dismissed the Section 9 application. The NCLAT, however, reversed the order, holding that the dispute raised by the appellant was a “moonshine defence”, that the credit note of ₹1.66 crore had resolved the earlier complaints, that defects were not pointed out within seven days, and that the issues raised by the appellant were post-demand notice and therefore irrelevant.
Justice Sanjay Kumar, writing the judgment for the bench comprising himself and Justice R. Mahadevan, observed that the NCLAT had fallen into error by delving into the merits of the dispute. The Court reiterated the law laid down in Mobilox Innovations Private Limited vs. Kirusa Software Private Limited and subsequent decisions:
“It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(i)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility… all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the ‘dispute’ is not a patently feeble legal argument or an assertion of fact unsupported by evidence… So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application.”
The Supreme Court emphasised:
“it was not for the NCLAT to delve into the appellant’s dispute to decide whether it had actual merit. All that is required is for the adjudicating authority to satisfy itself as to the existence of a plausible pre-existing dispute, which was not spurious, hypothetical or illusory. Whether the party raising that dispute would succeed on the strength thereof is not within the ken of such inquiry.”
The Court noted that the appellant’s letter dated 10.12.2020, the police complaint of 27.09.2021 (prior to the demand notice), the repeated calls for reconciliation of accounts, the discrepancies in the ledger accounts maintained by the two sides, and the respondent’s own shifting demands (from ₹4.60 crore to ₹2.92 crore) clearly demonstrated the existence of a plausible pre-existing dispute. The Supreme Court held that the NCLT was correct in dismissing the Section 9 application and that the NCLAT was not justified in reversing the same.
The appeal was accordingly allowed. Parties shall bear their respective costs.
Case Title: GLS Films Industries Private Limited versus Chemical Suppliers India Private Limited
Citation: 2026 INSC 344
Coram: Hon’ble Mr. Justice Sanjay Kumar and Hon’ble Mr. Justice R. Mahadevan
Click HERE for full Judgment
Lawcutor 