Settlement Discussions Cannot Defeat CIRP in Absence of Pre-Existing Dispute: NCLT Admits Insolvency Proceedings [Read Order]

The National Company Law Tribunal (NCLT) Bengaluru Bench admitted a corporate insolvency resolution process (CIRP) against a corporate debtor for failing to pay dues to an operational creditor. The Tribunal held that mere settlement discussions between parties cannot constitute a pre-existing dispute capable of defeating an insolvency application under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC). The facts of the case involved the operational creditor, Devkiran Paper Mills Private Limited, supplying wastepaper to the corporate debtor between December 5, 2024, and December 31, 2024, and raising 14 invoices aggregating to ₹1.71 crore. The corporate debtor made only a part payment of ₹4.14 lakh, leaving a substantial amount unpaid. Despite issuance of demand notices under Section 8 of the IBC in July and October 2025, the corporate debtor neither cleared the dues nor raised any dispute regarding the supplies, invoices, or quality of goods. The corporate debtor opposed the petition, arguing that the insolvency proceedings were premature as settlement discussions were ongoing and that financial and operational difficulties had caused delays in payment. The Tribunal observed that no evidence material had been produced to establish any genuine dispute before the issuance of the statutory demand notice. It noted that the corporate debtor had not responded to either demand notice and had even acknowledged liability through ledger confirmations and part payment. Significantly, the company's director had admitted before the Tribunal that an amount exceeding ₹1 crore was due to the operational creditor. The Bench comprising Sunil Kumar Aggarwal (Judicial Member) and Radhakrishna Sreepada (Technical Member) held that ongoing settlement negotiations do not amount to a pre-existing dispute under Sections 8 and 9 of the Code. It further ruled that proceedings under the SARFAESI Act are independent remedies and do not operate as a bar to insolvency proceedings under the IBC. Accordingly, the Tribunal admitted the petition and commenced CIRP against the corporate debtor declaring moratorium under Section 14 of the IBC.

(Source：Taxscan)