S. 9 IBC | Debtor's Ledger Acknowledging Debt & Post-Notice Payments Negate Defence Of Pre-Existing Dispute: Supreme Court

In the context of the Insolvency and Bankruptcy Code (IBC), the Supreme Court has held that a 'pre-existing dispute' capable of barring the initiation of a Corporate Insolvency Resolution Process under Section 9 must be real, genuine, and supported by substantive evidence, and not a moonshine defence raised merely to obstruct CIRP. A bench of Justice Sanjay Kumar and Justice Alok Aradhe heard a case where the Corporate Debtor, despite acknowledging its liability and even paying ₹61 lakhs after receiving the Section 8 demand notice, attempted to oppose the CIRP by alleging quality issues in the pipes and cables supplied by the Operational Creditor, without producing any supporting material or documentation. Setting aside the NCLAT's decision, which allowed the Corporate Debtor objections, the judgment authored by Justice Sanjay Kumar said that “this Court always stressed upon a dispute as to the entitlement of the creditor being a bona fide one and not mere moonshine.” The Court said that the Corporate Debtor's defence was moonshine, having no credible basis or foundation. “we have no hesitation in holding that the defence of pre-existing disputes sought to be put forth by the CD was mere moonshine and had no credible basis or foundation. There was no dispute worth the name existing as on the date of issuance of the demand notice by the firm warranting the withholding of the operational debt due and payable by the CD. The attempt to project such pre-existing disputes was mere bluster and did not have the effect of non-suiting the firm.”, the court observed, adding that “...the (CIR) process cannot be defeated by a corporate debtor by raising moonshine defence only to delay the process.” [Refer to Tata Consultancy Services Limited vs. SK Wheels Private Limited, (2022) 2 SCC 583] In an event when the Corporate Debtor ledger account negated the claim of a pre-existing dispute, the NCLAT erred in dismissing the Section 9 application, the Court held. “The NCLAT, however, lost sight of these critical facts while dislodging the order of admission passed by the NCLT on the application filed by the firm under Section 9 of the IBC. The NCLAT, not being informed of the full facts, attributed delay to the firm and failed to attach value and consequence to the CD's own ledger account which clearly negated the claim of pre-existing disputes, as the minor issues raised by the CD obviously did not have the effect of either stopping further supplies by the firm or further payments to the firm by the CD.”, the Court noted. Accordingly, the appeal was allowed. Cause Title: M/s. Saraswati Wire and Cable Industries versus Mohammad Moinuddin Khan and othersCitation : 2025 LiveLaw (SC) 1200Click here to download judgmentAppearance: For Appellant(s) : Mr. Nikhil Singhvi, Adv. Mr. Manan Sisodia, Adv. Ms. Shraddha Deshmukh, AOR Mr. Soham Krishan Luthra, Adv. For Respondent(s) : Mr. Shaurya Sahay, Adv. Ms. Aarushi Malik, Adv. Ms. Yoothica Pallavi, AOR

S. 9 IBC | Debtor's Ledger Acknowledging Debt & Post-Notice Payments Negate Defence Of Pre-Existing Dispute: Supreme Court

Yash Mittal

CIRP cannot be defeated by a corporate debtor by raising "moonshine defence" only to delay the process, the Court said.

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