NCLAT Delhi bars insolvency due to pre-existing dispute over spice quality

The National Company Law Appellate Tribunal (NCLAT) in Delhi has set aside an order by the NCLT Kolkata Bench that had initiated a Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016.

The tribunal ruled that a pre-existing dispute regarding the quality of goods barred the insolvency proceedings. The dispute centered on allegations of sub-standard and spurious spices, specifically involving claims that certain turmeric supplies were blackish and contained insects.

NCLAT noted that the objections regarding product quality were raised in correspondence predating the formal demand notice. The tribunal emphasized that for a dispute to bar insolvency proceedings, it does not need to be ultimately successful on its merits, but must be a plausible dispute that is not merely hypothetical or illusory.