Principal Bench of NCLAT dismisses operational creditor’s insolvency plea with Rs. 10 lakh costs after GST assessment exposes fraudulent invoicing and validates corporate debtor’s dispute.
In a significant ruling dated March 23, 2026, the National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi, chaired by Justice Ashok Bhushan, quashed the order of the National Company Law Tribunal (NCLT), Hyderabad, which had admitted an insolvency petition filed under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016 by M/s A.S. Met Corp Pvt. Ltd. ("Operational Creditor") against M/s KLSR Infratech Ltd. ("Corporate Debtor").
The case arose from a dispute over unpaid invoices totaling Rs. 3.79 crore, claimed by the Operational Creditor through a demand notice issued on May 31, 2022. The Corporate Debtor responded within the statutory 10-day period with a detailed reply dated June 15, 2022, raising a bona fide dispute. The Corporate Debtor alleged that the Operational Creditor had issued fictitious invoices without actual supply of goods, colluded with certain employees of the Corporate Debtor to perpetrate fraud, and that some goods were even returned. It further disclosed ongoing investigations, including a filed FIR and criminal proceedings against the Operational Creditor’s officials and some Corporate Debtor employees.
Despite this, the NCLT admitted the Section 9 petition, holding the Corporate Debtor’s defense as spurious and moonshine, relying heavily on a debt acknowledgment affidavit by a director of the Corporate Debtor, which was obtained under suspicious circumstances.
On appeal, the NCLAT conducted a thorough examination, including taking on record a GST assessment order dated July 2, 2025, against the Operational Creditor. This assessment, upheld by the Telangana High Court, revealed multiple instances of fraudulent activities including issuance of fake invoices without supply of goods, generation of duplicate invoices, and non-movement of vehicles related to e-way bills. It conclusively supported the Corporate Debtor’s contentions of fraud and fictitious invoicing.
The Tribunal also scrutinized the payment history and found that payments made by the Corporate Debtor after December 2021 were only to the bank against Letters of Credit and not to the Operational Creditor. This contradicted the NCLT’s finding that payments continued post December 2021 without dispute.
Referring extensively to landmark Supreme Court judgments such as Mobilox Innovations v. Kirusa Software (2018) and Sabarmati Gas Ltd. v. Shah Alloys Ltd. (2023), the NCLAT reiterated the principle that if a plausible pre-existing dispute exists before the filing of a Section 9 petition, the petition must be rejected. The dispute need not be finally adjudicated at this stage but must be genuine and not illusory.
The NCLAT concluded that the Corporate Debtor’s reply to the demand notice constituted a valid notice of dispute and was supported by substantial material evidence including the GST assessment and criminal investigation reports. Hence, the NCLT erred in admitting the petition.
The Tribunal set aside the NCLT order dated July 14, 2023, dismissed the Section 9 petition with costs of Rs. 10 lakhs payable by the Operational Creditor to the Corporate Debtor within 30 days, and directed a copy of the order be forwarded to the Insolvency and Bankruptcy Board of India for further action.
This decision underscores the judiciary’s insistence on protecting genuine corporate debtors from frivolous insolvency proceedings initiated by operational creditors, especially where evidence of fraud and pre-existing disputes are established.
Bottom Line:
Corporate Debtor raised dispute by replying to demand notice alleging fraud, fictitious invoices, and collusion of Operational Creditor with employees of Corporate Debtor - Adjudicating Authority admitted Section 9 petition holding defence as spurious and moonshine - On appeal, NCLAT held that reply to demand notice constituted a plausible pre-existing dispute - GST assessment order and other materials proved issuance of fictitious invoices and no supply of goods - Payments by Corporate Debtor after December 2021 were only to bank against Letters of Credit, not to Operational Creditor - Adjudicating Authority erred in admitting Section 9 petition ignoring material evidence of dispute - Section 9 application dismissed with costs
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Section 8, Section 9(1), Section 9(5)(ii)(d), Indian Penal Code Sections 406, 409, 420, 468, 471, 467, 381, 120B, 109, GST Act provisions
This report encapsulates the detailed findings and reasoning of the NCLAT judgment, highlighting the protection accorded to corporate debtors under the IBC when credible disputes are raised, supported by material evidence such as GST assessments and ongoing criminal investigations.
