Tribunal holds that allegations of collusion, inflated pricing, and kickbacks involving operational creditor and erstwhile employees establish a substantive pre-existing dispute, warranting rejection of CIRP initiation despite earlier application withdrawal.
In a significant order dated September 30, 2026, the National Company Law Tribunal (NCLT), New Delhi Bench, dismissed the Corporate Insolvency Resolution Process (CIRP) initiation petition filed by M/s Impresario under Section 9 of the Insolvency and Bankruptcy Code, 2016 ("IBC") against Colorbar Cosmetics Private Limited. The petition sought recovery of over Rs. 4.39 crores comprising unpaid principal and interest for supplied goods.
The applicant, a registered partnership firm engaged in promotional activities and supply chain management, alleged that Colorbar Cosmetics failed to pay outstanding dues arising from 16 tax invoices issued between December 2024 and August 2025. The operational creditor initially filed a Section 9 application which was withdrawn to explore settlement but later refiled a fresh application after settlement talks failed.
However, the Corporate Debtor opposed the petition on grounds of a genuine pre-existing dispute existing prior to the issuance of the demand notice. Colorbar Cosmetics submitted substantial documentary evidence including an internal email dated December 5, 2025, informing the applicant about ongoing investigations into fraudulent activities and collusion between its erstwhile employees and vendors including M/s Impresario. Further, a police complaint filed on February 6, 2026, specifically named the applicant as involved in bid rigging, inflated pricing, and kickbacks in procurement orders, supported by reports from Ernst & Young, an external investigative agency appointed by the corporate debtor.
The NCLT, comprising Shri Mahendra Khandelwal (Judicial Member) and Shri Atul Chaturvedi (Technical Member), held that the existence of a pre-existing dispute is a bar to admission of an application under Section 9(5)(ii)(d) of the IBC. The Tribunal extensively relied on the Supreme Court precedents in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2018) and Sabarmati Gas Ltd. v. Shah Alloys Ltd. (2023), which clarify that the adjudicating authority at the admission stage need only see if a plausible and genuine dispute exists prior to the demand notice, without delving into the merits or truthfulness of the claims.
Further, the Tribunal rejected the corporate debtor's reliance on the principle of res judicata and the Surguja Transport Service judgment, clarifying that the earlier withdrawal of the Section 9 petition did not bar fresh filing since the prior matter was never decided on merits and the operational creditor issued a fresh demand notice.
The NCLT observed that the defence raised by Colorbar Cosmetics was neither spurious nor a mere legal façade but supported by substantial material including internal emails, police complaints, and investigation reports indicating serious irregularities involving the applicant. The Tribunal also took note of another similar Section 9 application against Colorbar Cosmetics dismissed by a coordinate bench on identical grounds of pre-existing dispute.
Consequently, the Tribunal dismissed the instant Section 9 application filed by M/s Impresario, holding that it would be unjust to subject Colorbar Cosmetics to the rigours of CIRP when a bona fide dispute of such gravity existed before the issuance of the demand notice.
This judgment underscores the importance of the pre-existing dispute defense in operational creditor proceedings under the IBC and reiterates the stringent threshold for admission of CIRP petitions where allegations of fraud, collusion, and contractual irregularities are supported by credible evidence. It also reaffirms that the adjudicating authority's role at the admission stage is limited to a prima facie examination of the dispute's existence rather than its merit.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 Section 9 application by operational creditor is liable to be rejected where material on record shows a genuine pre-existing dispute prior to issuance of demand notice - Earlier withdrawal of a Section 9 application to explore settlement does not bar filing of a fresh application when earlier matter was not decided on merits, but such fresh application still cannot be admitted if dispute is not moonshine.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 5(6), 8, 9(5)(ii)(d), 60(1); Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 Rule 5, Rule 6
