Ongoing Quality Dispute Over Defective Batteries Shows Debt Not Crystallised; NCLAT Upholds Rejection Of Sec. 9 IBC Plea
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT) Principal Bench, New Delhi, comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member), has dismissed an appeal filed under Section 61 of the Insolvency and Bankruptcy Code, 2016 (IBC), holding that when an operational debt has not crystallised due to a pre-existing dispute over the quality of goods supplied, a petition under Section 9 of the IBC is not maintainable.
The appeal was preferred by Ruchira Green Earth Private Limited, an MSME engaged in the supply of batteries, challenging the order dated 09.06.2025 of the National Company Law Tribunal (NCLT) New Delhi Bench-IV, which had dismissed its Section 9 application against KLB Komaki Private Limited.
Appellant’s Case
The Operational Creditor contended that the outstanding dues were a legally enforceable operational debt, backed by invoices, delivery confirmations, and ledger entries. The invoices relied upon in the Section 9 application related to supplies made between April and August 2022 and, according to the Appellant, had never been disputed. It was argued that any issues raised by the Corporate Debtor pertained to earlier transactions and had no nexus with the unpaid invoices forming the basis of the application.
The Appellant maintained that the alleged disputes were fabricated, pointing out that on 09.08.2022, even after raising complaints, the Corporate Debtor had placed a high-value purchase order worth ₹6.32 crore. It was further argued that the WhatsApp communications relied upon by the NCLT were routine after-sales correspondences between employees, not evidence of a genuine dispute. The Appellant also claimed that the indemnity bond cited by the Corporate Debtor had been executed after goods were supplied and that the warranty proposal was never formally signed.
Respondent’s Case
The Corporate Debtor countered that the Operational Creditor had consistently supplied faulty batteries, resulting in significant loss of consumer confidence and reputational damage. From May 2022 onwards, there had been repeated WhatsApp and email exchanges about manufacturing defects, fire-related cases (FRCs), and short-circuiting incidents.
It was asserted that the Operational Creditor had acknowledged these defects, apologised, and assured replacements, but either failed to supply replacements or provided equally defective ones. The Corporate Debtor also referred to a three-year warranty policy (email dated 22.04.2021) and an indemnity bond dated 27.08.2022, under which the Operational Creditor undertook to repair or replace defective batteries and indemnify the Corporate Debtor for related losses.
Tribunal’s Findings
The NCLAT examined the detailed communications between the parties. It noted that as early as 29.12.2021, complaints about defective batteries had been communicated to the Appellant. Between May and October 2022, WhatsApp chats recorded serious quality issues, including fire hazards.
One key message dated 10.09.2022 showed the Corporate Debtor demanding the replacement of all 600 batteries supplied in December due to multiple FRC cases, to which the Appellant replied: “We stand by with every request Komaki makes and are ready to replace each and every battery to gain your trust and customer satisfaction… Given the replacement will directly impact us with over ₹3 crore hit, we request to increase our business… so that we can cover for these losses in coming months.”
On 17.10.2022—just four days before the Section 8 demand notice—the Corporate Debtor texted: “These batteries provided by you are garbage replacement.” The Bench held that such exchanges were not mere routine after-sales discussions but reflected substantive disputes predating the demand notice. It rejected the Appellant’s attempt to reinterpret its earlier admissions as mere gestures of goodwill.
The Tribunal further observed that the warranty proposal, though alleged by the Appellant to be unsigned, was never denied in contemporaneous communications and had become a “bone of contention” between the parties. The indemnity bond, signed and stamped by the Appellant, also imposed obligations for repair/replacement for 39 months from the date of sale. The Appellant’s claim that the bond was signed under duress required deeper investigation, which lay outside the scope of IBC proceedings.
Application of Mobilox Test
Citing the Supreme Court’s decision in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., the NCLAT reiterated that the Adjudicating Authority must reject a Section 9 application if there is a plausible pre-existing dispute that is not spurious, hypothetical, or illusory. The communications, warranty obligations, and indemnity terms in this case, the Bench held, clearly established the existence of such a dispute. The Tribunal also emphasised that the operational debt had not crystallised, given the parties’ ongoing disagreements over the quality of goods, applicability of warranty, and liability under the indemnity bond.
Finding no infirmity in the NCLT’s reasoning, the NCLAT dismissed the appeal, upholding the rejection of the Section 9 application. However, it clarified that the Appellant remained at liberty to pursue remedies before an appropriate forum in accordance with law.
Appearance
For Appellant: Mr. Anand Chhibbar, Sr. Advocate with Mr. Abhishek Anand, Mr. Karan Kohli, Mr. Vaibhav Sahni, Mr. Arjun Cbhibbar, Advocates.
For Respondent: Dr. Swaroop George, Mr. Abhinandan Jain, Mr. Sunil Roy, Mr. Shivam Prajapati, Mr. Kartikey, Advocates.
Cause Title: Ruchira Green Earth Private Limited V. KLB Komaki Private Limited
Case No: Company Appeal (AT) (Insolvency) No. 1102 of 2025
Coram: Justice Ashok Bhushan [Chairperson], Barun Mitra [Technical Member]
