Corporate Debtor’s ‘Cash Payment’ Defence Termed Contrived and Unsupported: NCLAT Upholds Insolvency Admission

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has dismissed an appeal filed by former director Yusuf Malubhaiwala challenging the admission of a Section 9 Insolvency Application against Steelexpert Industries (Indore) Ltd. The bench of Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) has upheld the National Company Law Tribunal (NCLT) Indore’s June 12 order that initiated Corporate Insolvency Resolution Process (CIRP) on the petition of operational creditor Haji Shahadat & Sons. The Appellate Tribunal held that the corporate debtor completely failed to establish any bona fide pre-existing dispute and that the defence of large cash payments allegedly made to the creditor was an “afterthought”, lacking credibility or documentary support. The appellant/assessee, Steelexpert Industries had engaged in regular business transactions with operational creditor Haji Shahadat & Sons for supply of steel and iron materials. The creditor claimed that despite repeated reminders, substantial dues remained unpaid. After issuing a statutory demand notice on October 17, 2019, the creditor filed a Section 9 application seeking recovery of ₹2,32,98,535, which included principal dues of ₹1.56 crore and interest of ₹76.54 lakh. The corporate debtor sent a reply contesting the claim and later argued before the NCLT that it had already made complete payment—mostly in cash—towards all supplies. However, the NCLT rejected this version and admitted the Section 9 application, triggering CIRP. The former director approached the NCLAT to overturn this decision. Before the NCLAT, the appellant contended that the entire liability had already been settled through cash payments totalling Rs. 1.81 crore. These payments were acknowledged through three cash receipts. The creditor and the debtor had disputes long before the demand notice, evidenced by police complaints and a civil suit. The insolvency petition was a misuse of the IBC mechanism to arm-twist a solvent company. The appellant relied heavily on police complaints filed in August 2019—two months before the demand notice—claiming this constituted sufficient proof of pre-existing dispute. The Operational Creditor countered that all supplies were duly supported by invoices, delivery challans and e-way bills. The corporate debtor never objected to the quality or quantity of goods. The alleged cash receipts were fabricated, unsigned, and never disclosed in earlier proceedings. No corresponding bank withdrawals matched the huge cash amounts claimed. The police complaints related to intimidation allegations, not commercial disputes relating to the operational debt. The debtor was attempting to “create” a dispute only after receiving the statutory demand notice. The Tribunal pointed out serious discrepancies namely two receipts bore the same date for different transactions. No mention of these receipts in the debtor’s reply to the demand notice. No corresponding bank withdrawals matching the alleged cash payments. Not referenced in police complaints or the civil suit. This, the Tribunal held, showed the receipts were “an afterthought” and the defence “contrived, improvised and moonshine.” The complaints filed on 08.08.2019 and 09.08.2019 only alleged threats and pressure by the creditor, not any dispute over the invoices, supplies, or payments. The Tribunal noted inconsistencies between two versions of the same complaint—including contradictory statements about who owed money to whom. Hence, these complaints did not qualify as pre-existing disputes under Section 5(6) of the IBC or the Mobilox judgment. The corporate debtor had filed a civil suit after receiving the demand notice. The Tribunal held that such post-notice litigation cannot establish a pre-existing dispute. Reinforcing the settled law, NCLAT observed that insolvency proceedings are not a substitute for recovery but must be based on clear default. Here, the creditor had proven supply of goods and outstanding debt, while the debtor’s defence was implausible. Case Details Case Title: Yusuf Malubhaiwala Versus Mr. Anuj Maheshwari Case No.: Company Appeal (AT) (Insolvency) No. 916 of 2025 Date: 10/12/2025 Counsel For Appellant: Abhijeet Sinha, Sr. Advocate Counsel For Respondent: Soumya Dharwa, Advocate Click Here To Read Order Read More: ICAI Issues Handbook on Foreign Trade Policy – Incentives, Schemes & Related FAQs

Corporate Debtor’s ‘Cash Payment’ Defence Termed Contrived and Unsupported: NCLAT Upholds Insolvency Admission

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