1. An operational creditor initiated insolvency proceedings against a corporate debtor for unpaid dues, which the debtor contested citing a pre-existing dispute regarding defective supplies and reconciliation of accounts. (Para 1 , 2 , 3 )
Back
Next 
2026 Supreme(SC) 372
SUPREME COURT OF INDIA
SANJAY KUMAR, R. MAHADEVAN, JJ.
GLS Films Industries Private Limited – Appellant
Versus
Chemical Suppliers India Private Limited – Respondent
Civil Appeal No. 4019 of 2025
Decided On : 09-04-2026
Advocates Appeared:
For the Appellants : 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 the Respondents: 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.
For the Appellants : 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 the Respondents: 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.
The existence of a plausible pre-existing dispute negates an operational creditor's application for insolvency under Section 9 of the Code, necessitating dismissal of the claim.
Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 8 and 9 - Corporate insolvency resolution process - Application dismissed by NCLT due to pre-existing disputes over supply of defective goods; appeal by respondent allowed by NCLAT; Supreme Court restored NCLT's order - The existence of a dispute negates the operational creditor's claim and necessitates detailed investigation beyond summary jurisdiction. (Paras 7, 21)
Facts of the case:
Company Petition filed by a supplier against a corporate debtor for recovery of dues, contested by the debtor on grounds of defective goods delivered.
Findings of Court:
The NCLT had correctly identified the existence of a pre-existing dispute, which warranted dismissal of the respondent's application. NCLAT erroneously reversed this conclusion.
Issues: Whether there was a pre-existing dispute affecting the validity of the demand notice under Section 8 of the Code.
Ratio Decidendi: NCLT's conclusion that pre-existing disputes existed, justifying rejection of the operational creditor's application, was upheld; NCLAT's assessment was contrary to established legal principles. (Paras 19, 21)
Result: Appeal allowed, NCLAT's order set aside.
Legal Category Hierarchy
Table of Contents
2. The creditor asserted a debt was due, while the debtor claimed existence of a pre-existing dispute due to defective material, reconciliation needs, and coercive debt recovery tactics. (Para 3 , 4 )
3. The court found that records of email correspondence, police complaints, and accounting discrepancies confirmed a genuine, pre-existing dispute, mandating the dismissal of the summary insolvency application. (Para 12 , 13 , 14 , 15 , 16 , 17 , 18 )
4. Under Section 9 of the Code, the adjudicating authority must reject an insolvency application if a plausible, non-illusory pre-existing dispute is shown, precluding summary adjudication of debt. (Para 19 , 20 , 21 )
5. The appeal was allowed, the appellate tribunal's order was set aside, and the original rejection of the insolvency application by the adjudicating authority was restored. (Para 22 )
6. What is the threshold for an adjudicating authority to recognize a pre-existing dispute in Section 9 insolvency proceedings?
The adjudicating authority must determine if there is a plausible contention requiring investigation. It does not need to decide the merits of the dispute or ensure it will succeed, provided the dispute is not spurious, hypothetical, or illusory. (Para 19 , 20 , 21 )
7. Are events occurring after the issuance of a Section 8 demand notice relevant for determining a pre-existing dispute?
While the focus is on the existence of a dispute prior to the demand notice, evidence of accounting confusion, lack of reconciliation, and admissions regarding earlier conflicts provide context that the dispute was indeed pre-existing. (Para 12 , 13 , 14 , 17 )
8. Does the failure to immediately formalize a dispute over defective goods after delivery invalidate a claim of pre-existing dispute?
No, the court noted that evidence such as written correspondence, police complaints filed prior to the demand notice, and the absence of a clear account reconciliation indicates a real and continuing dispute, regardless of strict post-delivery notice timelines. (Para 15 , 16 , 17 , 18 )
JUDGMENT :
SANJAY KUMAR, J.
1. Initiation of corporate insolvency resolution process was denied by the adjudicating authority but the appellate authority reversed that decision. Aggrieved thereby, the corporate debtor is in appeal. On 28.03.2025, this Court stayed the operation of the judgment under appeal.
2. Company Petition (IB)-792(ND) of 2021 was filed before the National Company Law Tribunal, New Delhi Bench (Court II) (hereinafter, ‘the NCLT’), by Chemical Suppliers India Private Limited, the respondent herein, under Section 9 of the Insolvency and Bankruptcy Code, 20161 [For short ‘the Code’] against GLS Films Industries Private Limited, the appellant.
3. The case of the respondent was that it had supplied chemicals to the appellant over a period of time and a sum of Rs.2,92,93,223/- was due and payable to it as on 26.05.2021. Demand notice dated 11.11.2021 was issued by it under Section 8 of the Code. In response, the appellant addressed email dated 06.12.2021 disputing the claim. The respondent thereupon filed the subject application under Section 9 of the Code. The appellant contested the proceedings claiming that there was a pre-existing dispute between the parties prior to issuance of the demand notice. According to it, the respondent had supplied two consignments of solvent on 10.04.2021 and 11.04.2021 respectively at its factory premises at Gurugram but the same were found to be defective. This was brought to the notice of the respondent, which promised that it would do better. Basing on the said representation, the appellant claimed to have sourced some more solvent supplies from the respondent on 20.04.2021 and 23.04.2021. However, these supplies were also found to be defective. The respondent assured the appellant that it would compensate it for the losses suffered and supplied another batch of solvent on 21.06.2021. Yet again, upon checking, this batch was also found to be defective and was returned forthwith.
4. According to the appellant the respondent was called upon time and again to come and settle accounts and compensate the appellant for the losses suffered by it. However, no steps were taken in that regard but the authorised representative of the respondent started applying arm-twisting tactics by threatening to commit suicide if payment was not made for the defective supplies. The appellant filed a police complaint in relation thereto. According to the appellant, in view of the losses suffered by it due to such defective supplies, it issued a debit note on 31.12.2021 for Rs.2,42,11,648/-. After adjusting the account, per the appellant, the respondent was still due and liable to pay it a sum of Rs.70,09,430/-.
5. The NCLT took note of the letter dated 10.12.2020 written by the appellant to the respondent detailing the defective supplies made between 16.09.2020 and 24.10.2020, amounting to Rs.1,66,89,770/-. The appellant had stated therein that its customer had debited its account by Rs.6.50 crore but, owing to its long association with the respondent, the appellant was not planning to debit the said amount from its account. However, the appellant requested the respondent to take note of the debit note raised by it for Rs.1.66 crore and arrange a credit note for that sum.
6. The NCLT noted that the respondent replied to this letter dated 10.12.2020 by way of email dated 14.07.2021. Therein, it denied that its supplies of solvent were defective and requested for payment to be made against overdue bills. In turn, by email dated 16.10.2021, the appellant reiterated that the material supplied to it was defective and called upon the respondent to reconcile the accounts and appropriate the losses caused to it due to defective supplies. The appellant asserted that it was only after repeated efforts on its part that the respondent incorporated a credit note for Rs.1.66 crore but the original thereof and the tax paid note were never delivered to it. On the other hand, by email dated 10.09.2021, the respondent raised
