Tribunal holds that financial difficulties do not bar initiation of insolvency proceedings where no pre-existing dispute exists; Interim Resolution Professional appointed and moratorium imposed
In a significant ruling dated September 30, 2026, the National Company Law Tribunal (NCLT), Ahmedabad Bench, admitted a Corporate Insolvency Resolution Process (CIRP) petition filed by Naksh Steel Limited against Gujarat Toolroom Limited for defaulting on an operational debt amounting to Rs. 26,20,56,668. The petition, filed under Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016, was admitted following detailed scrutiny of the supply agreement, invoices, and the replies of the corporate debtor.
The operational creditor, Naksh Steel Limited, entered into a supply agreement dated December 16, 2024, with Gujarat Toolroom Limited, under which Naksh Steel supplied goods between January 16 and January 20, 2025. Despite raising invoices and repeated requests for payment, the corporate debtor failed to clear the outstanding dues. Naksh Steel issued a statutory demand notice under Section 8 of the IBC on January 20, 2026, which Gujarat Toolroom acknowledged but cited liquidity constraints as the reason for non-payment and requested a payment arrangement instead of insolvency proceedings.
The NCLT observed that the corporate debtor did not dispute the supply of goods, the existence of the debt, or the invoices raised, and that the delay in payment was solely due to temporary liquidity issues. The Tribunal emphasized that financial difficulties or liquidity crunch are not valid grounds to reject a Section 9 application where the debt is undisputed and acknowledged. Further, the Tribunal noted that the corporate debtor had complied with statutory filings and remained a going concern, but the admitted default justified initiating CIRP.
Consequently, the NCLT allowed the petition, ordered the initiation of CIRP against Gujarat Toolroom Limited, and declared a moratorium under Section 14 of the IBC, which prohibits continuation of pending suits or proceedings against the corporate debtor during the resolution process. The Tribunal appointed Mr. Iqbalsingh Gandhi, a registered Insolvency Professional, as the Interim Resolution Professional (IRP) to take charge of the company's management and assets, conduct public announcements, invite claims from creditors, and manage the insolvency process per the provisions of the IBC.
The order also directs the operational creditor to deposit Rs. 2,00,000 towards initial CIRP costs and mandates full cooperation from the corporate debtor's management to the IRP. The NCLT instructed police authorities to assist the IRP in taking control of the corporate debtor's assets if required. The moratorium ensures uninterrupted supply of essential goods or services to the corporate debtor during the CIRP.
This ruling reiterates the strict approach of the NCLT and the IBC framework towards operational debt recovery, reinforcing that mere financial difficulties will not shield a defaulting corporate debtor from insolvency proceedings when the debt is undisputed and due. The judgment provides clarity on the applicability of the IBC in commercial disputes involving operational creditors and corporate debtors.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 Section 9 application by operational creditor - Debt arising from supply agreement and invoices admitted by corporate debtor - No pre-existing dispute - Non-payment on ground of liquidity constraints does not bar initiation of CIRP - Application admitted, moratorium declared and IRP appointed.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 8, 9, 13, 14, 15, 17, 18, 19, 20, 21, 33; Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 Rule 6
Naksh Steel Limited v. Gujarat Toolroom Limited, (NCLT)(Ahmedabad) : Law Finder Doc Id # 2994799
