Tribunal Finds Genuine Dispute Over Operational Debt and Declines Admission of CIRP Application
In a significant ruling, the National Company Law Tribunal (NCLT), New Delhi Bench, has dismissed the insolvency petition filed by M/s Diwan Spirits against Khao Gali Restaurants Private Limited, citing the existence of a pre-existing dispute. The decision, delivered on December 18, 2025, underscores the tribunal's adherence to the principles laid down under the Insolvency and Bankruptcy Code, 2016 (IBC), particularly concerning Section 9 applications.
The case involved M/s Diwan Spirits, an operational creditor engaged in wholesale liquor trade, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against Khao Gali Restaurants, a corporate debtor operating retail liquor outlets under the Delhi Excise Policy 2021-22. The operational creditor claimed a default amounting to Rs.1,44,28,908.99, inclusive of interest, citing failure of the corporate debtor to clear dues against multiple invoices for liquor supply.
During the proceedings, the corporate debtor acknowledged a partial default but raised disputes concerning reconciliation of accounts, market schemes, expiries, and breakages of stock. These disputes, as asserted by the corporate debtor, impacted the quantum of the claimed operational debt.
The NCLT, comprising Member (Judicial) Shri Manni Sankariah Shanmuga Sundaram and Member (Technical) Shri Atul Chaturvedi, meticulously examined the submissions and evidence presented. The tribunal emphasized the necessity of ascertaining whether a genuine dispute existed prior to the issuance of the demand notice, in line with the precedent set by the Supreme Court in the case of Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd.
The tribunal found that the dispute raised by the corporate debtor was not illusory or moonshine, but a plausible contention requiring further investigation. It noted that the operational creditor's willingness to undertake account reconciliation suggested the liability was not crystallized and undisputed at the time of issuing the demand notice.
Moreover, the NCLT highlighted that the peculiar circumstances surrounding the transactions, given the ongoing investigations into the Delhi Excise Policy 2021-22, reinforced the significance of the disputes related to reconciliation, schemes, and stock adjustments. Consequently, the tribunal concluded that such disputes were not amenable to resolution through insolvency proceedings under the IBC.
In its order, the tribunal dismissed the petition CP (IB)-321(ND)/2025, stating that the applicant failed to establish a clear, undisputed operational debt and default, which is essential for the admission of a Section 9 application. However, the tribunal allowed the applicant to pursue other legal remedies available under the law.
The judgment serves as a reminder of the limited scope of inquiry under Section 9 of the IBC, reaffirming that insolvency proceedings cannot be used as a substitute for recovery forums where the debt is seriously disputed. This decision is likely to impact similar cases, especially those arising from complex commercial relationships involving ongoing investigations or regulatory issues.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 - Section 9 - Application for initiation of Corporate Insolvency Resolution Process (CIRP) cannot be admitted where there exists a pre-existing dispute or where the debt and default are not undisputed and crystallized.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Section 9
