Demand Notice Served via Private Courier Valid; Pre-Existing Disputes Deemed Spurious; Operational Debt Over Rs. 1 Crore Confirmed Under IBC Section 9
In a significant ruling dated 17th September 2026, the National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, allowed the appeal filed by M/s. Identity Science Company Ltd., a Japanese company, against M/s. Sonal Plasrub Industries Private Limited. The appellant had approached the tribunal challenging an order of the National Company Law Tribunal (NCLT), Mumbai Bench-V, which had dismissed its petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) for initiation of Corporate Insolvency Resolution Process (CIRP).
The dispute arose from contracts entered into between the parties for the supply of chemicals 1-Bromo Butane (NBB) and Hydro Bromic Acid 48% (HBr). The appellant had paid substantial advances amounting to over Rs. 1 crore for these supplies, but the respondent failed to deliver the contracted goods or return the advances. The appellant issued a Demand Notice on 21st February 2020 through FedEx courier, which was received by the respondent on 27th February 2020. Despite receipt, the respondent neither replied to the notice nor repaid the advances.
The NCLT had dismissed the petition citing multiple grounds including: alleged pre-existing disputes between the parties regarding damages for leakage during transit; invalid service of the Demand Notice as it was not sent by registered post or email as mandated under Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016; and that the operational debt claimed was below the statutory threshold of Rs. 1 crore after excluding disputed damages.
On appeal, the NCLAT examined the submissions and evidence meticulously. It held that:
1. The Demand Notice served through private courier was valid since effective delivery was established. The mode of service is procedural and should not defeat substantive rights where the respondent had knowledge of the claim. Reliance was placed on precedents such as G. Shivramkrishna v. Isgec Covema Ltd. and Piya Puri v. Debashish Nanda RP.
2. The operational debt exceeded Rs. 1 crore even after excluding the disputed amount of USD 16,766 claimed as damages. The exchange rate prevailing on the date of the Demand Notice was rightly applied for conversion of foreign currency claims into Indian Rupees, as guided by the Supreme Court's judgment in Forasol v. ONGC.
3. The so-called pre-existing disputes regarding damages were not genuine. The respondent had admitted receipt of advances and its failure to refund the amounts despite undertaking to do so in an email dated 12.07.2019. The dispute on damages was separate and did not negate the admitted liability for non-supplied goods. The Supreme Court's principle that disputes must be genuine and not spurious to defeat insolvency proceedings was invoked.
4. The insolvency proceedings under Section 9 are not a recovery mechanism but a resolution process. However, where operational debt and default are clearly established without genuine disputes, proceedings must be admitted. The respondent's claim of solvency was not a ground to reject the petition.
Consequently, the NCLAT set aside the NCLT order and directed the Adjudicating Authority to initiate CIRP against M/s. Sonal Plasrub Industries within fifteen days. The respondent was given liberty to repay the amount due before initiation of proceedings, failing which the CIRP would commence. No costs were awarded.
This judgment reinforces that operational creditors can invoke insolvency proceedings where genuine default occurs and the statutory criteria are met. It also clarifies that mode of service of Demand Notice should be pragmatic, ensuring the debtor is aware of the claim, and that pre-existing disputes must be bona fide to prevent misuse of the IBC framework.
Bottom Line:
Insolvency and Bankruptcy Code - Operational debt exceeding statutory threshold and default established - Pre-existing disputes must be genuine and not moonshine or spurious disputes raised to avoid insolvency proceedings - Demand Notice served even through private courier is valid if effective delivery is established.
Statutory provision(s):
Section 9 of Insolvency and Bankruptcy Code, 2016; Rule 5 of Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016
