M/S. SARASWATI WIRE AND CABLE INDUSTRIES V. MOHAMMAD MOINUDDIN KHAN 2025 INSC 1410:

DATE: 10/12/2025

COURT: Supreme Court of India

BENCH: Justice Sanjay Kumar and Justice Alok Aradhe

FACTS:

The case concerns the initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016 by an operational creditor, M/s Saraswati Wire and Cable Industries, a registered partnership firm, against Dhanlaxmi Electricals Private Limited, the corporate debtor. The firm had supplied pipes and cables to the corporate debtor pursuant to purchase orders, and the transactions were reflected in a running account maintained by the corporate debtor. As per the corporate debtor’s own ledger accounts, substantial amounts remained unpaid despite partial payments made over time. After issuing a demand notice under Section 8 of the IBC in August 2021 for the outstanding dues along with interest, the firm later filed a Section 9 application before the NCLT, Mumbai Bench-IV, which was admitted on 06.12.2023, leading to initiation of CIRP and appointment of an Interim Resolution Professional.

Aggrieved by the admission order, a suspended director of the corporate debtor preferred an appeal before the NCLAT. The NCLAT set aside the NCLT’s admission order, holding that there existed a pre-existing dispute between the parties regarding the operational debt, based primarily on past correspondence alleging non-supply, short supply, and sub-standard quality of goods. The firm challenged this decision before the Supreme Court, contending that the alleged disputes were illusory, unsupported by evidence, and contradicted by the corporate debtor’s own ledger accounts and continued payments, including payments made even after issuance of the demand notice.

ISSUES:

The principal issue before the Supreme Court was whether there existed a genuine pre-existing dispute between the parties prior to the issuance of the demand notice under Section 8 of the IBC, sufficient to bar initiation of CIRP under Section 9, or whether the defence raised by the corporate debtor was merely illusory and intended to defeat insolvency proceedings despite clear acknowledgment of debt.

JUDGEMENT WITH REASONING:

The Supreme Court allowed the appeal, set aside the judgment of the NCLAT dated 13.03.2024, and restored the NCLT’s order dated 06.12.2023 admitting the Section 9 application. The Court held that no bona fide pre-existing dispute existed as on the date of issuance of the demand notice and directed that CIRP proceedings against the corporate debtor be continued in accordance with law.

The Court carefully examined the documentary evidence, particularly the corporate debtor’s own ledger accounts and email dated 04.08.2021, which clearly acknowledged a substantial outstanding amount payable to the firm even after accounting for alleged debit notes and adjustments. The Court noted that the alleged disputes relating to non-supply, short supply, and sub-standard material were either unsupported by contemporaneous evidence or raised belatedly by a suspended director who lacked authority to represent the corporate debtor, especially since a separate CIRP had already commenced against the company at the relevant time. The Court also attached significant weight to the fact that the corporate debtor continued to make payments to the firm, including payments after issuance of the Section 8 demand notice, which was inconsistent with the claim of serious disputes or counterclaims.

Applying the settled legal principles laid down in Mobilox Innovations v. Kirusa Software and earlier winding-up jurisprudence, the Court reiterated that the adjudicating authority must separate genuine disputes from mere moonshine defences. A dispute, to be relevant under the IBC, must be real, substantial, and pre-existing, and not a speculative or unsupported assertion. In the present case, the Court found that the NCLAT had overlooked critical facts, misconstrued the delay in filing the Section 9 application, and failed to appreciate that the defence raised by the corporate debtor lacked credibility and substance. Consequently, the alleged disputes were held to be spurious and insufficient to defeat the insolvency application, warranting restoration of the CIRP admission order.

ANALYSIS:

This decision reinforces the consistent judicial approach that insolvency proceedings under the IBC cannot be thwarted by raising illusory or afterthought disputes. The Supreme Court’s analysis underscores the evidentiary value of a corporate debtor’s own records, particularly ledger accounts and contemporaneous correspondence, in determining the existence of an operational debt. By relying on the debtor’s acknowledgment of liability and continued payments even after issuance of the Section 8 demand notice, the Court reaffirmed that conduct of the parties is a crucial indicator of whether a dispute is genuine. The judgment also highlights that objections raised by unauthorised persons, such as a suspended director during an ongoing CIRP cannot be accorded legitimacy, especially when unsupported by documentary proof.

Equally significant is the Court’s criticism of the NCLAT’s approach in treating delay and past correspondence as determinative of a pre-existing dispute. The Supreme Court clarified that delay in filing a Section 9 application, when explained by intervening insolvency proceedings and procedural constraints, cannot be used to infer the existence of disputes. By reiterating the “moonshine defence” test laid down in Mobilox Innovations v. Kirusa Software, the judgment strengthens the IBC’s objective of ensuring timely resolution of insolvency and preventing abuse of process by defaulting corporate debtors. The ruling thus serves as an important precedent in safeguarding operational creditors from frivolous defences and ensuring that acknowledged debts are not defeated by unsubstantiated claims raised at a belated stage.