Acceptance of Goods Does Not End Pre-Existing Dispute If Quality Issues Emerge After Use: NCLT Ahmedabad

The National Company Law Tribunal (NCLT) at Ahmedabad recently ruled that accepting and consuming goods does not, by itself, erase a dispute. Quality defects that emerge after consumption can still qualify as a valid pre-existing dispute under insolvency law.

A bench of Judicial Member Shammi Khan and Technical Member Sanjeev Sharma passed the order on December 19, 2025, while dismissing a Section 9 CIRP application filed by Hella Infra Market Metal Private Limited against SMW Ispat Private Limited.

It clarified that acceptance of delivery does not conclusively prove acceptance of goods when issues emerge after consumption.

It observed, “The contention of the Applicant that the Corporate Debtor accepted and consumed the goods without objection does not negate the existence of a dispute, as issues relating to quality and furnace damage may surface only upon actual usage and operation.”

The case arose from supplies of sponge iron lumps and iron raw materials made by Hella Infra Market Metal Private Limited to SMW Ispat Private Limited under various purchase orders. Hella Infra raised tax invoices between September 15, 2024 and December 10, 2024.

Each invoice required next-day payment and carried interest at 24 percent per annum for delay. SMW Ispat made part payments. Hella Infra claimed that Rs 1.34 crore remained unpaid and asserted an operational debt of Rs 1.52 crore, including interest and GST.

Hella Infra argued that there was no pre-existing dispute. It said SMW Ispat accepted the invoices without raising any contemporaneous objection at the time of delivery. It also pointed out that no debit notes were issued and that the materials were indeed consumed after quality checks.

According to it, these allegations of inferior quality were raised only after repeated payment reminders. SMW Ispat however, countered. It said the supplied materials were sub-standard, with low metallic iron content and high silica.

It alleged that the inferior sponge iron caused damage to its induction furnace. It also claimed substantial delays in supply, leading to financial losses.

The tribunal, during its examination, noted that the corporate debtor had raised quality and delay concerns through contemporaneous emails. It referred to an email dated December 24, 2024 describing inferior sponge iron and furnace damage.

Applying the Mobilox test, the tribunal held that these issues were substantial and required detailed examination. it said that these could not be resolved in insolvency proceedings.

Holding that a notice of dispute existed under Section 8(2), the tribunal ruled that the bar under Section 9(5)(ii)(d) against initiation of insolvency existed and dismissed the application.