Quality Disputes After Consumption Can Still Bar CIRP; Acceptance Of Goods Not Conclusive: NCLT Ahmedabad
Pranav B Prem
The National Company Law Tribunal, Ahmedabad Bench, has held that mere acceptance and consumption of goods does not extinguish a pre-existing dispute, and quality-related issues that surface after actual usage can still constitute a valid dispute under the Insolvency and Bankruptcy Code, 2016. The Tribunal dismissed a Section 9 CIRP application filed by Hella Infra Market Metal Private Limited against SMW Ispat Private Limited, holding that the existence of a genuine dispute barred initiation of insolvency proceedings The order was passed on December 19, 2025 by a Bench comprising Judicial Member Shammi Khan and Technical Member Sanjeev Sharma. The Tribunal clarified that acceptance of delivery cannot be treated as conclusive proof of acceptance of quality, particularly in cases where defects become evident only after consumption and operational use of the goods.
The dispute arose out of supplies of sponge iron lumps and other iron raw materials made by the operational creditor to the corporate debtor pursuant to multiple purchase orders. Hella Infra Market Metal Private Limited raised tax invoices between September 15, 2024 and December 10, 2024, each stipulating next-day payment and providing for interest at the rate of 24% per annum in case of delay. While part payments were made, the operational creditor claimed that an amount of ₹1.34 crore towards principal remained unpaid and asserted a total operational debt of ₹1.52 crore, inclusive of interest and GST.
The operational creditor contended that there was no pre-existing dispute, asserting that the corporate debtor had accepted the invoices without any contemporaneous objection, issued no debit notes, and consumed the materials after conducting quality checks. It was further argued that allegations regarding inferior quality were raised only after repeated payment reminders and were therefore an afterthought intended to evade liability.
The corporate debtor, however, disputed the claim and asserted that the supplied materials were sub-standard, with low metallic iron content and high silica levels. It was alleged that the inferior quality sponge iron caused damage to its induction furnace, resulting in operational disruptions and financial losses. The corporate debtor also pointed to delays in supply and relied on contemporaneous correspondence exchanged between the parties to demonstrate that disputes regarding quality and delay existed prior to issuance of the statutory demand notice.
During its examination, the Tribunal took note of emails placed on record, including an email dated December 24, 2024, in which the corporate debtor specifically complained of inferior sponge iron and damage to the furnace. The Bench observed that these communications clearly reflected that the dispute was not a belated defence but had arisen in the ordinary course of business prior to the demand notice.
Rejecting the contention that consumption of goods amounted to unconditional acceptance, the Tribunal observed, “The contention of the Applicant that the Corporate Debtor accepted and consumed the goods without objection does not negate the existence of a dispute, as issues relating to quality and furnace damage may surface only upon actual usage and operation.” Applying the principles laid down by the Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., the Tribunal held that the issues raised were substantial in nature and required detailed examination, which could not be undertaken in summary insolvency proceedings.
Holding that a notice of dispute existed within the meaning of Section 8(2) of the Code, the Tribunal concluded that the statutory bar under Section 9(5)(ii)(d) was attracted. It reiterated that the insolvency framework cannot be used as a substitute for adjudicating contested commercial disputes and dismissed the Section 9 application as not maintainable.
Appearance
For Applicant: Advocate Pragnesh Gandhi.
For Respondent: Advocates Ravi Pahwa and Jinsee Desai
Cause Title: Hella Infra Market Metal Private Limited v. SMW Ispat Private Limited
Case Number: CP(IB) No. 375/AHM/2025
Coram: Judicial Member Shammi Khan and Technical Member Sanjeev Sharma
