Only Genuine Pre-Existing Disputes Can Block CIRP Under IBC: Supreme Court

New Delhi, Dec 13 (KNN) The Supreme Court has clarified that under the Insolvency and Bankruptcy Code (IBC), a 'pre-existing dispute' capable of blocking the initiation of a Corporate Insolvency Resolution Process (CIRP) under Section 9 must be genuine, substantive, and supported by credible evidence, not a superficial or fabricated defence raised to delay proceedings.

Supreme Court Rejects ‘Moonshine’ Defence

A Bench of Justices Sanjay Kumar and Alok Aradhe ruled against the Corporate Debtor (CD), which tried to block CIRP by alleging quality defects in pipes and cables despite acknowledging liability and paying Rs 61 lakh after the Section 8 notice. The Court found no evidence to support the claim, calling the defence ‘mere moonshine.’

NCLAT Order Set Aside

The Supreme Court set aside the NCLAT ruling that had upheld the Corporate Debtor’s objections. Justice Sanjay Kumar noted that disputes must be bona fide and not a tactic to delay insolvency. 

The Court held that the CD’s alleged pre-existing dispute was ‘no dispute worth the name’ on the date of the demand notice. It said the CD’s attempt to manufacture a dispute was ‘mere bluster’ and stressed that CIRP cannot be derailed by baseless objections.

Corporate Debtor’s Ledger Undermined Its Own Claim

The Supreme Court further noted that the Corporate Debtor’s own ledger account contradicted the claim of any pre-existing dispute. The firm continued supplying materials and the CD continued making payments, which undermined allegations of quality issues.

The Court held that NCLAT ignored crucial facts, misattributed delay to the Operational Creditor, and overlooked the CD’s ledger, which showed no real dispute and no impact on supply or payments.

(KNN Bureau)