IBC | NCLT Not To Examine If 'Pre-Existing Dispute' Will Succeed While Considering S.9 Application Of Operational Creditor : Supreme Court

The Supreme Court has reiterated that it is impermissible for the adjudicating authority under the Insolvency & Bankruptcy Code to examine the merits of the dispute while considering an application for CIRP under Section 9 by an operational creditor. It added that once the authority is satisfied that there exists a plausible pre-existing dispute, the Section 9 application would be non-maintainable. A bench of Justices Sanjay Kumar and K Vinod Chandran set aside the NCLAT's judgment, which had interfered with the NCLT's decision to dismiss the Respondent's application under Section 9 as non-maintainable because of a pre-existing dispute. The Respondent-Operational Creditor sought insolvency proceedings over an alleged debt of ₹2.92 crore. The Appellant-Corporate Debtor contested this, citing a history of defective solvent supplies and claiming that, after adjustments, the Creditor actually owed them money. Before issuance of a demand notice by the Respondent, the Appellant had lodged the complaint with the police alleging coercive tactics and suicide threats by the Creditor's agent to recover the outstanding payments. The NCLT refused to admit the application, citing a pre-existing dispute; however, the NCLAT reversed the decision, citing the defence of pre-existing dispute to be moonshine. Setting aside the NCLAT's decision, the judgment authored by Justice Sanjay Kumar said that NCLAT erred in going into the merits of the dispute, ignoring the restriction imposed under the Code, to only identify whether there existed a plausible dispute. “…it is not necessary that the Court should be satisfied that the defence of a pre-existing dispute is likely to succeed and it is enough if such a dispute exists between the parties. Per this Court, what is to be seen is whether there is a plausible contention requiring investigation for the purpose of adjudication for it to satisfy the requirement of a pre-existing dispute.”, the court observed, citing Mobilox Innovations Private Limited vs. Kirusa Software Private Limited, (2018) 1 SCC 353. Applying the law, the Court observed: “…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.” Accordingly, the appeal was allowed, and the order passed by the NCLT dismissing the Respondent's application was restored. Cause Title: GLS Films Industries Private Limited versus Chemical Suppliers India Private LimitedCitation : 2026 LiveLaw (SC) 362Click here to download judgmentAppearance: For Appellant(s) Mr. Gopal Sankarnarayanan, Sr. Adv. Mr. Sandeep Choudhary, AOR Mr. Tahir Hussain, Adv. Mr. Vinayak Kapoor, Adv. Mr. Madahv Gupta, Adv. Mrs. Manita Mahlawat, Adv. For Respondent(s) Mr. Sunil Fernandes, Sr. Adv. Mr. Vijay Kasana, AOR Mr. Nikhil Kumar Verma, Adv. Ms. Kamna Singh, Adv. Mr. Kapil Sharma, Adv. Ms. Mehak Aggarwal, Adv. Mr. Pradeep Baisoya, Adv.

IBC | NCLT Not To Examine If 'Pre-Existing Dispute' Will Succeed While Considering S.9 Application Of Operational Creditor : Supreme Court

Yash Mittal

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