Application under Section 9 of IBC, 2016 dismissed as Corporate Debtor raised bona fide dispute prior to demand notice regarding contamination in supplied chemicals
In a significant ruling dated September 8, 2026, the National Company Law Tribunal (NCLT), Ahmedabad Bench, dismissed the Corporate Insolvency Resolution Process (CIRP) application filed by Benzo Chem Industries Private Limited against Aether Industries Limited. The petition, filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC), was rejected on the ground that a bona fide, pre-existing dispute concerning the quality of goods supplied existed well before the issuance of the demand notice.
The operational creditor, Benzo Chem Industries, had initiated insolvency proceedings claiming a default amount of Rs. 6.70 crore for chemical supplies made to the corporate debtor, Aether Industries, with payment terms of 90 days. The corporate debtor, however, contested the claim alleging that the chemicals delivered contained foreign particles and contamination, thereby breaching the agreed contractual quality standards.
Evidence on record revealed that the corporate debtor had communicated its concerns about the defective goods in December 2024, months before the operational creditor issued the demand notice in March 2025. The parties had also conducted joint testing and inspection, which indicated mishandling and procedural breaches in the handling of chemicals by the corporate debtor.
The tribunal examined the correspondence exchanged between the parties and the minutes of the joint inspection meeting held in February 2025, which corroborated the existence of a dispute regarding the quality and condition of the chemicals supplied. Although the operational creditor denied the allegations of defects and claimed the suit filed by the corporate debtor was a counterblast, the tribunal observed that the dispute had clearly arisen prior to the demand notice.
Relying on established precedents such as Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. and other relevant case laws, the tribunal reiterated that an application under Section 9 of the IBC is not maintainable when there is a bona fide pre-existing dispute over the operational debt before the demand notice is issued. The presence of such a dispute negates the default and precludes the initiation of insolvency proceedings.
Consequently, the NCLT Ahmedabad Bench rejected the petition CP(IB) 196(AHM) of 2025 filed by Benzo Chem Industries Private Limited, thereby safeguarding the rights of the corporate debtor to defend itself against disputed claims outside the insolvency framework.
This judgment underscores the importance of genuine dispute resolution in commercial transactions and serves as a precedent emphasizing that CIRP applications should not be misused as recovery tools in cases where bona fide disputes exist.
Bottom Line:
Application under Section 9 of Insolvency and Bankruptcy Code, 2016 is not maintainable where there exists a bona fide and pre-existing dispute regarding the operational debt before the issuance of the demand notice.
Statutory provision(s):
Section 9 of Insolvency and Bankruptcy Code, 2016; Regulation 20(1A) of IBBI (Information Utilities) Regulations, 2017; Regulation 2B of IBBI (CIRP) Regulations, 2016
