Pre-Existing Coal Quality Dispute Bars Section 9 CIRP: NCLAT Delhi

Sendoz Commercial Pvt. Ltd. Vs IREL (India) Ltd. (NCLAT Delhi)

Summary: NCLAT Delhi dismissed the appeal filed by Sendoz Commercial Pvt. Ltd. against the NCLT Mumbai order dated 24.02.2023 rejecting its application under Section 9 of the Insolvency and Bankruptcy Code, 2016 against IREL (India) Ltd. The dispute arose from a Purchase Order dated 28.01.2020 for supply of coal. The Appellant supplied a lot of 4044.52 MT worth ₹1,83,57,886/- on 22.02.2020, which IREL rejected on 25.02.2020 after its laboratory found GCV of 2429 Kcal/Kg and ash content of 56.6%, outside the contractual specifications. The Appellant contended that subsequent testing by CSIR-NML, Jamshedpur produced favourable results and that the quality objection was spurious, while the Respondent relied on its contemporaneous rejection, contractual testing provisions, minutes of meeting dated 11.06.2020 and conflicting test results, including an adverse CSIR-IMMT report. NCLAT held that the quality dispute arose immediately after supply and long before issuance of the Section 8 demand notice.

The Tribunal found that the rejection was based on contractual quality parameters and that subsequent correspondence, meetings, joint sampling and materially divergent laboratory reports demonstrated a genuine and substantial dispute. Applying Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., NCLAT held that the threshold is the existence of a real dispute having factual or contractual foundation, and not whether the defence would ultimately succeed. The Tribunal also noted that the Appellant itself had invoked the arbitration clause concerning the same invoice and that arbitration was proceeding following appointment of a sole arbitrator by the Orissa High Court. It held that the contractual quality and payment controversy could not be converted into insolvency proceedings and upheld rejection of the Section 9 application. The appeal and pending I.As were dismissed/closed without costs.