The National Company Law Appellate Tribunal (NCLAT) has set aside the NCLT Mumbai’s order admitting an insolvency plea against Naxnova Technologies, holding that the existence of a genuine pre-existing dispute between the parties barred initiation of corporate insolvency proceedings under Section 9 of the Insolvency and Bankruptcy Code (IBC).
A Bench comprising Justice Ashok Bhushan (Chairperson) and Technical Member Barun Mitra allowed the appeal filed by suspended director Salil Musale against the NCLT’s May 6 order admitting Lintec India Pvt Ltd’s insolvency application.
The dispute arose out of a long-standing commercial relationship between Naxnova and Lintec concerning supply of automobile-grade adhesive products. Lintec claimed unpaid operational dues of approximately ₹9.74 crore and initiated insolvency proceedings under Section 9 of the IBC.
However, NCLAT found that even before the statutory demand notice was issued, the corporate debtor had communicated the existence of disputes regarding the alleged dues. In its June 19 communication, Naxnova expressly informed Lintec that “pre-existing disputes” existed and termed the demand premature. The company later formally replied to the Section 8 demand notice, disputing the entire claim and asserting that Lintec’s conduct including supply disruptions, defective products, and commercially unreasonable conditions had caused losses of ₹35 crore.
The Appellate Tribunal also noted that the debt reflected on the NeSL information utility portal had been authenticated as “disputed,” attracting the statutory bar under Section 9(5)(ii)(d) of the IBC, which mandates rejection of an insolvency application where notice of dispute exists or a dispute is recorded in the information utility.
Relying on the Supreme Court’s ruling in Mobilox Innovations v Kirusa Software, the Tribunal reiterated that insolvency proceedings cannot be used where a real dispute exists and that the adjudicating authority is only required to see whether the dispute is plausible and not spurious.
NCLAT held that the NCLT erred in dismissing the dispute as “moonshine” despite contemporaneous correspondence and documentary material indicating a bona fide commercial dispute.
Accordingly, the Tribunal allowed the appeal, set aside the insolvency admission order, and rejected Lintec’s Section 9 application.
