NCLT rejects Ricova International's insolvency petition against Shree Narayan Kraft Paper Mill over disputed claim

The Ahmedabad bench of the National Company Law Tribunal (NCLT) has dismissed an insolvency petition filed by Panama-based Ricova International INC against Shree Narayan Kraft Paper Mill LLP , ruling that a pre-existing contractual dispute barred the proceedings under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016.

The bench of Judicial Member Shammi Khan and Technical Member Sanjeev Sharma rejected the petition under Section 9(5)(ii)(d) of the Code, holding that the corporate debtor's defence was supported by contemporaneous correspondence and was not a patently feeble legal argument.

A Contract Soured by Fire and Refusal

Ricova International claimed an operational debt of Rs 3,81,87,186.24 (equivalent to USD 4,44,192.34) arising from the supply of waste paper (NDLKC) pursuant to various indents placed between October 2024 and January 2025. The claim included not just the invoiced value of consignments but also detention charges, demurrage, ground rent and resale losses.

According to the petition, the corporate debtor requested a change in payment terms from Documents Against Payment (DP) to Documents Against Acceptance (DA) after a fire incident disrupted its factory operations. Ricova accepted the request and forwarded the original shipping documents through banking channels.

However, in March 2025, Shree Narayan Kraft Paper Mill refused to honour the DA arrangement, declined to accept several consignments, and instructed Ricova to divert and sell the shipments to third parties. A demand notice under Section 8 was issued on December 6, 2025, but no payment followed, prompting the insolvency petition.

The Battle Over Indent No. RF/24-25/049

The corporate debtor mounted a robust defence, pointing to a chain of communications that predated the demand notice. Central to its case was Indent No. RF/24-25/049 . Shree Narayan argued that it had rejected the proposed rate of USD 325 per metric tonne, offered a counter-proposal of USD 315 per metric tonne on February 5, and cancelled the indent the next day — contending no concluded contract ever came into existence.

The debtor also relied on an email dated April 4, 2025, in which Ricova stated it would sell the diverted material to another mill and that "we will never ever ask for any payment from you because material not being received by you." No Objection Certificates issued on the same date in favour of shipping lines permitted diversion of consignments and amendments to the Import General Manifest.

Ricova countered that the transaction had been confirmed through its agent Radico Fibers by email dated January 20, 2025, and that subsequent cancellation could not extinguish liabilities arising after dispatch. It insisted the April 4 email was taken out of context and related only to loss mitigation, not waiver of claims.

A Pre-Existing Dispute, Not a Post-Notice Defence

The tribunal scrutinised the contemporaneous correspondence exchanged before the Section 8 notice — emails dated February 5, February 6, March 31 and April 4, along with the NOCs. It found that disputes over contractual terms, cancellation, diversion of consignments and liability for detention and resale losses had clearly arisen prior to the demand notice.

The tribunal observed that the corporate debtor's defence "cannot be treated as a defence raised after receipt of the demand notice " and that the documents established a genuine controversy over the parties' contractual obligations.

Whether the transactions culminated into concluded contracts, whether Ricova was entitled to recover the claimed amount, and whether the claim represented consideration for goods or damages for breach — these, the bench held, are " disputed questions requiring adjudication upon evidence before the competent forum," falling outside the limited jurisdiction of the Adjudicating Authority under Section 9.

Mobilox Precedent Governs

Applying the Supreme Court's ruling in Mobilox Innovations Private Limited v. Kirusa Software Private Limited , (2018) 1 SCC 353, the tribunal noted that it is required to examine whether a plausible, non-spurious dispute exists. The bench also invoked Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors. , (2019) 4 SCC 17, reiterating that the IBC "is not intended to be a substitute for recovery proceedings."

One email stood out in the tribunal's analysis: the April 4 communication from Ricova to Shree Narayan stating it would never seek payment since the material was not received. These emails, the bench noted, "have not been denied by the OC."

The Final Word

Dismissing the petition with no order as to costs, the tribunal concluded that the defence raised by the corporate debtor was "supported by contemporaneous correspondence and cannot be treated as a patently feeble legal argument or an assertion unsupported by evidence."

The judgment reinforces the settled position that Section 9 of the IBC is not a debt recovery mechanism. For operational creditors, the ruling serves as a reminder that a pre-existing dispute — even one rooted in emails and commercial correspondence — can shut the door to insolvency proceedings, leaving contractual remedies as the only available path.