The National Company Law Appellate Tribunal has clarified that an operational creditor’s petition under Section 9 of the Insolvency and Bankruptcy Code cannot be rejected merely on the basis of unsubstantiated allegations of defective goods, unverified digital communications, or incomplete documentation. This judgment reinforces the requirement for concrete, admissible evidence to establish a pre-existing dispute before initiating corporate insolvency proceedings.
Background & Facts
The Dispute
The appellant, Jay Ambe Industries, an operational creditor engaged in the supply of hydrocarbon oil, entered into a business arrangement with the corporate debtor, MIM Petroworld Pvt. Ltd., in January 2022. The corporate debtor, a trading company with no manufacturing facility, operated on a 'Bill to Ship' basis, wherein goods supplied by the appellant were delivered directly to the corporate debtor’s customers as per its instructions.
Key Facts
- The appellant supplied goods and raised invoices between 13.12.2022 and 18.12.2022, totaling Rs. 17,732,898/-
- Payment terms stipulated payment within 30 days of invoice issuance
- No payment was made for any of the invoices
- The appellant issued a demand notice under Section 8 of the IBC on 17.08.2023 via registered post and email, claiming Rs. 17,732,898/- plus interest of Rs. 1,867,637/-
- The corporate debtor received the notice on 21.08.2023 and replied on 29.08.2023, alleging supply of sub-standard material
- The corporate debtor claimed that the quality issue was communicated to the appellant via Uday Jatin Shah (introduced by the appellant as a partner) on 01.11.2022
- The corporate debtor further alleged that machines failed due to the inferior quality of oil, resulting in losses of Rs. 3.75 Crore
- The corporate debtor submitted screenshots of WhatsApp chats (November - December 2022) and two debit notes from its customers: one from Reliable Industries (dated 23.08.2022, relating to a March 2021 transaction) and another from Hiltop Highrise Pvt. Ltd. (dated 22.08.2023, relating to April - May 2023 purchases)
- The corporate debtor claimed a lab test report had been shared via WhatsApp, but no copy of the report was filed
- The appellant denied receiving any prior communication about quality defects before the Section 8 notice and challenged the admissibility of WhatsApp screenshots under Section 65B of the IT Act
Procedural History
- 13.12.2022 to 18.12.2022: Invoices raised by appellant
- 01.11.2022: Corporate debtor claims it first communicated quality dispute to appellant via Uday Jatin Shah
- 17.08.2023: Section 8 notice issued by appellant
- 21.08.2023: Notice received by corporate debtor
- 29.08.2023: Corporate debtor’s reply to Section 8 notice
- 08.11.2024: National Company Law Tribunal, Ahmedabad (Adjudicating Authority) dismissed Section 9 petition, citing pre-existing dispute
- 23.12.2024: Appeal filed before NCLAT (Company Appeal (AT) (Ins) No. 2320 of 2024)
- 06.04.2026: NCLAT delivered judgment
The Parties' Positions
Appellant (Jay Ambe Industries): Argued that no prior dispute existed before the Section 8 notice. Alleged that WhatsApp screenshots were inadmissible without certification under Section 65B, lab reports were not filed, and debit notes from third parties were irrelevant. Cited precedents (Rajendra Bhai Panchal, M/s. Kashyap Infra, S.S. Engineers) to show that disputes with customers cannot be imputed to the operational creditor.
Respondent (MIM Petroworld Pvt. Ltd.): Contended that a pre-existing dispute existed since 01.11.2022, evidenced by WhatsApp chats, lab reports (allegedly shared), and debit notes from its customers. Argued that the appellant’s silence on the WhatsApp content amounted to acceptance.
Relief Sought
The appellant sought setting aside of the Adjudicating Authority’s order dated 08.11.2024 and restoration of its Section 9 petition for initiation of corporate insolvency resolution process.
The Legal Issue
Can a corporate debtor successfully resist an operational creditor’s Section 9 petition under the IBC by relying on unverified WhatsApp screenshots, unfiled lab reports, and third-party debit notes to allege a pre-existing dispute, without providing admissible documentary evidence directly linking the dispute to the operational creditor?
Arguments Presented
For the Appellant
The appellant argued that the Adjudicating Authority erred in accepting WhatsApp screenshots as evidence without compliance with Section 65B of the IT Act, as held in M/s. Kashyap Infra and Startree Retailors. The lab test report was never filed, and its existence was only asserted. The debit note from Reliable Industries pertained to a transaction in March 2021, prior to any supply by the appellant, rendering it irrelevant. The Hiltop Highrise debit note, though dated August 2023, related to purchases made in April - May 2023 - after the Section 8 notice - and thus could not constitute a pre-existing dispute. The appellant further relied on S.S. Engineers and Sharad Chandra Goel, which hold that disputes with end customers cannot be equated with disputes between the operational creditor and corporate debtor. The appellant also emphasized that the corporate debtor continued making payments after the alleged dispute, undermining the claim of a genuine dispute.
For the Respondent
The corporate debtor contended that the WhatsApp chats, though not certified, were not denied by the appellant in its rejoinder, thereby rendering them admissible. It argued that the lab report’s existence was acknowledged and that the failure to file it was not the debtor’s fault. The debit note from Hiltop Highrise was presented as corroborative evidence of quality issues. The corporate debtor relied on Mobilox Innovations and Kay Bouvet Engineering to argue that a dispute need not be judicially determined to be valid under Section 8, and that commercial disagreements over quality suffice. It further claimed that the appellant’s silence on the WhatsApp content amounted to acquiescence.
The Court's Analysis
The NCLAT expressed strong dissatisfaction with the cryptic and unreasoned nature of the Adjudicating Authority’s order, which merely stated that a dispute existed without analyzing the evidentiary foundation. The Tribunal emphasized that the burden to establish a pre-existing dispute lies squarely on the corporate debtor, and that such a dispute must be real, substantial, and demonstrable through credible evidence.
"The plea of pre-existing dispute cannot be sustained on the basis of selective WhatsApp screenshots, unfiled lab reports, and third-party debit notes unrelated to the invoices in question."
The Court noted that the appellant did not specifically deny the WhatsApp chats in its rejoinder, but this silence does not equate to admission under the law. The absence of a Section 65B certificate rendered the screenshots inadmissible as evidence under the Indian Evidence Act. The lab test report, though referenced, was never produced, and the Tribunal could not infer its contents or authenticity. The debit note from Reliable Industries was clearly unrelated to the appellant’s invoices, and the Hiltop Highrise note pertained to a period after the Section 8 notice, thus failing the temporal requirement for a pre-existing dispute.
The Court further observed that the corporate debtor’s claim of communication to Uday Jatin Shah did not establish a dispute with the appellant unless it was proven that Uday was an authorized representative of the appellant - a fact not established on record. The Tribunal reiterated the principle from S.S. Engineers that a dispute must be between the parties to the invoice, not between the corporate debtor and its customers.
The Court concluded that the Adjudicating Authority’s order was legally unsustainable due to its reliance on inadmissible and irrelevant material, and that the matter required a fresh adjudication with proper opportunity to both parties.
The Verdict
The NCLAT allowed the appeal and set aside the Adjudicating Authority’s order dated 08.11.2024. The matter was remanded to the National Company Law Tribunal, Ahmedabad, for fresh adjudication. The corporate insolvency petition (CP(IB) No. 252 of 2023) was revived, and the parties were directed to appear before the Adjudicating Authority on 22.04.2026. No costs were awarded.
What This Means For Similar Cases
WhatsApp Evidence Requires Section 65B Compliance
- Practitioners must ensure that any digital communication submitted as evidence in IBC proceedings is accompanied by a certificate under Section 65B of the IT Act
- Unauthenticated WhatsApp screenshots, even if not denied, are inadmissible and cannot form the basis of a pre-existing dispute
- Failure to produce such certificates will result in rejection of the evidence, regardless of its apparent relevance
Third-Party Disputes Do Not Equate to Operational Creditor Disputes
- A corporate debtor cannot rely on disputes with its own customers to resist an operational creditor’s Section 9 petition
- Debit notes from end customers are irrelevant unless directly tied to the invoice in question and the operational creditor’s liability
- The dispute must be between the operational creditor and the corporate debtor, not between the debtor and its downstream buyers
Silence on Evidence Does Not Constitute Admission
- An operational creditor’s failure to specifically deny digital evidence does not amount to acceptance under the IBC
- The burden remains on the corporate debtor to prove the existence of a genuine dispute with admissible, verifiable documentation
- Courts will not infer facts from silence or circumstantial assertions
