Rajesh Harikishan Khandelwal Vs Jay Ambe Industries (NCLAT Delhi)
Quality Dispute Predating Demand Notice Bars Section 9 Admission: NCLAT Sets Aside CIRP Order
Summary: The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, in Rajesh Harikishan Khandelwal Vs Jay Ambe Industries & Another, Company Appeal (AT) (Insolvency) No. 1700 of 2026, decided on 14 October 2026, set aside the order dated 27 August 2026 passed by the NCLT Ahmedabad admitting MIM Petro World Private Limited into the Corporate Insolvency Resolution Process (CIRP). The appeal arose from a Section 9 application under the Insolvency and Bankruptcy Code, 2016, filed by Jay Ambe Industries for recovery of an alleged operational debt of ₹1,96,00,535, comprising principal dues of ₹1,77,32,898 and interest of ₹18,67,637. The claim related to supplies of Mixed Mineral Hydrocarbon Oil under invoices dated 13–18 December 2022. The corporate debtor contended that the goods were sub-standard and had caused breakdowns of machinery and heavy vehicles operated by its customers. It relied on WhatsApp communications exchanged during November and December 2022, photographs, videos, a laboratory report and an admitted return of goods on 24 December 2022. The operational creditor had issued a demand notice on 17 August 2023, to which the corporate debtor replied on 29 August 2023, expressly raising the quality dispute. Although the NCLT initially rejected the insolvency petition on 8 November 2024, the matter was remanded by the NCLAT on 6 April 2026 for fresh consideration. Following remand, the NCLT admitted the petition, prompting the present appeal.
The NCLAT examined whether the materials disclosed a genuine pre-existing dispute concerning the quality of goods. Applying the Supreme Court’s ruling in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353, and referring to GLS Films Industries Pvt. Ltd. v. Chemical Suppliers India Pvt. Ltd., 2026 INSC 344, the Tribunal reiterated that the adjudicating authority must determine whether a plausible contention requiring further investigation existed before receipt of the statutory demand notice. The corporate debtor was not required to conclusively prove that the goods were defective or that its defence would ultimately succeed. The NCLAT found that the contemporaneous WhatsApp complaints, supporting visual material, admitted return of goods and timely reply to the demand notice collectively established a dispute that was neither spurious, hypothetical nor illusory. The fact that the returned invoice was excluded from the operational creditor’s monetary claim did not eliminate the evidentiary significance of the return, which occurred during the same period as the disputed supplies. The Tribunal also observed that the NCLT had not identified any undisputed portion of the claim exceeding the statutory threshold of ₹1 crore that stood independently of the quality dispute.
The Appellate Tribunal rejected the NCLT’s reasoning that the absence of an express contractual quality clause prevented the corporate debtor from raising a dispute. It held that Section 5(6) of the IBC expressly recognises disputes concerning the quality of goods, while Section 16(2) of the Sale of Goods Act, 1930, provides for merchantable quality in the circumstances contemplated by that provision. The NCLAT further held that the parties’ admitted bill-to-ship arrangement, under which goods were invoiced to the corporate debtor but delivered directly to its customers, did not convert complaints about the supplied goods into unrelated third-party disputes. Objections concerning the laboratory report’s identifying particulars, the evidentiary compliance of WhatsApp messages, the authority of the person receiving complaints and the ultimate responsibility for defective supplies were matters requiring fuller examination rather than final determination at the Section 9 admission stage. The Tribunal also declined to draw an adverse inference from non-production of a purported communication dated 14 August 2023, whose existence was doubtful. It expressly placed no reliance on the disputed customer debit notes, finding that the earlier communications, admitted return and timely reply independently established the requisite dispute.
Accordingly, the Bench comprising Justice Mohammad Faiz Alam Khan, Member (Judicial), and Naresh Salecha, Member (Technical), allowed the appeal and set aside the NCLT’s order dated 27 August 2026. The NCLAT clarified that its findings were confined to the existence of a pre-existing dispute for the purpose of Section 9 proceedings. It did not determine whether the goods were actually defective, whether the corporate debtor could recover consequential losses or what amount remained payable to the operational creditor. All such questions were left open for determination in appropriate legal proceedings. No order as to costs was passed. The judgment reinforces that insolvency proceedings cannot be used as a substitute for recovery litigation where contemporaneous evidence establishes a plausible commercial dispute, and that the adjudicating authority must not conduct a trial of the debtor’s defence at the admission stage.
The National Company Law Appellate Tribunal (NCLAT) set aside an order admitting MIM Petro World Private Limited into insolvency, holding that contemporaneous complaints and returned goods established a plausible pre-existing quality dispute.
In Rajesh Harikishan Khandelwal vs. Jay Ambe Industries & Another, Company Appeal (AT) (Insolvency) No. 1700 of 2026, the Tribunal held that the NCLT had effectively tried the commercial defence instead of applying the limited test governing Section 9 applications.
Justice Mohammad Faiz Alam Khan, Member (Judicial), and Naresh Salecha, Member (Technical), delivered the judgment on 14 October 2026.
Operational Creditor Claims ₹1.96 Crore
Jay Ambe Industries supplied Mixed Mineral Hydrocarbon Oil to MIM Petro World, which traded the product for onward supply to customers.
The Section 9 application claimed ₹1,96,00,535, comprising ₹1,77,32,898 principal and ₹18,67,637 interest, calculated at 18%.
The disputed invoices covered 13–18 December 2022. A statutory demand notice dated 17 August 2023 was answered on 29 August 2023, with the corporate debtor raising complaints about inferior goods.
The NCLT initially rejected the petition. Following an earlier appellate remand for fresh consideration, it admitted the application on 27 August 2026.
Contemporaneous Complaints Form Basis of Defence
The corporate debtor relied on WhatsApp communications from November–December 2022, photographs, videos and a laboratory report concerning the goods.
It alleged that defective supplies caused machinery and heavy vehicles operated by its customers to fail.
The operational creditor accepted that goods under an invoice dated 17 December 2022 were returned on 24 December 2022. It argued that this invoice was excluded from the amount claimed.
The NCLAT held that exclusion might answer a question about quantum, but did not eliminate the significance of a documented return during the same supply period.
Mobilox Test Requires Plausibility, Not Final Proof
The Tribunal applied Mobilox Innovations Pvt. Ltd. vs. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353.
It explained that a debtor need not establish its defence conclusively at the Section 9 stage. The inquiry is whether a plausible contention requiring investigation existed before the demand notice and whether it was genuine rather than spurious, hypothetical or illusory.
The Bench also referred to GLS Films Industries Pvt. Ltd. vs. Chemical Suppliers India Pvt. Ltd., 2026 INSC 344.
It reiterated that insolvency proceedings cannot substitute for recovery litigation involving a genuinely contested operational debt.
WhatsApp Material Could Not Be Disregarded
The NCLAT noted that the communications predated the demand notice and included supporting visual material and the laboratory report.
The operational creditor challenged their selectivity, relevance and formal evidentiary compliance, but did not establish that the messages were altered or never sent.
When asked to produce the complete conversation, it stated that the chats were unavailable because the mobile phone had changed.
The Tribunal considered the messages alongside the admitted return and timely demand-notice reply. Together, they supported a dispute that was not first invented after the statutory demand.
No Express Quality Clause Needed to Raise Dispute
The NCLT had relied on absence of a specific contractual quality term.
The NCLAT rejected that approach, observing that Section 5(6) expressly recognises disputes concerning quality of goods. The Code does not require the dispute to have been anticipated in a written clause.
It also referred to Section 16(2) of the Sale of Goods Act, 1930, concerning merchantable quality.
The absence of a formal purchase contract did not prevent a buyer from complaining that goods were unusable. Whether the allegations ultimately succeeded remained a separate matter.
Direct Delivery to Customers Does Not Make Dispute Unrelated
The parties operated under a bill-to-ship arrangement, with invoices raised on the corporate debtor and goods delivered directly to its customers.
The Tribunal held that complaints originating from those users remained complaints about the operational creditor’s supplies.
They could not be dismissed merely as unrelated third-party disputes. Questions concerning responsibility for the alleged defects and recoverability of losses required trial.
Similarly, the fact that only one invoice involved an admitted return concerned the extent of the dispute, rather than conclusively disproving its existence.
Laboratory Objections Required Trial-Level Examination
The NCLT questioned the laboratory report’s institution, date and identifying particulars.
The NCLAT held that these issues affected its eventual evidentiary weight but did not resolve the preliminary question when the report formed part of a wider contemporaneous record.
It also rejected an adverse inference concerning a purported 14 August 2023 communication, whose existence was doubtful.
The Tribunal placed no reliance on the disputed customer debit notes. Its conclusion rested independently on the earlier chats, returned goods and timely reply.
Insolvency Admission Set Aside; Commercial Claims Remain Open
The appeal was allowed, and the NCLT’s admission order was set aside.
The NCLAT expressly confined its findings to the existence of a pre-existing dispute at the Section 9 stage. It did not decide whether the goods were defective, whether losses were recoverable or what amount remained payable.
Those issues were left open for appropriate proceedings. No costs were awarded.
List of Cases Discussed
1. Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353 (Supreme Court of India) — Applied for the principle that a Section 9 petition cannot be admitted where the corporate debtor demonstrates a plausible pre-existing dispute requiring investigation. The adjudicating authority must reject only defences that are spurious, hypothetical, illusory or unsupported by evidence; it must not finally adjudicate the commercial dispute.
2. GLS Films Industries Pvt. Ltd. v. Chemical Suppliers India Pvt. Ltd., 2026 INSC 344 (Supreme Court of India) — Relied upon for reaffirming that the existence of a plausible pre-existing dispute is sufficient to prevent admission under Section 9. Whether the debtor will ultimately succeed in establishing its defence falls outside the limited insolvency admission inquiry.
