National Company Law Appellate Tribunal
Sendoz Commercial Private Limited vs Irel (India) Limited on 22 August, 2025
NATIONAL COMPANY LAW APPELLATE TRIBUNAL
PRINCIPAL BENCH, NEW DELHI
Company Appeal (AT) (Ins.) No. 533 of 2023
(Arising against the impugned order dated 24.02.2023 passed by the Hon'ble
National Company Law Tribunal, Mumbai Bench in CP (IB)
No.552/MB/2021)
IN THE MATTER OF:
Sendoz Commercial Pvt. Ltd.
644, Marshall House, 25, ...Appellant
Strand Road, Kolkata - 700 001, West Bengal.
Versus
IREL (India) Ltd.
Plot No. 1207, ECIL Building,
Veer Savarkar Marg,
Opposite Siddhivinayak Temple, Prabhadevi, ...Respondent
Mumbai - 400 028.
Present:
For Appellant: Ms. Swati Dalmia, Mr. Palzer Moktan, Ms. Mrinal Chaudhary, Advocates.
For Respondent: Mr. A.P. Singh, Mr. Abhijeet, Advocates.
J U D G M EN T (22nd August, 2025) INDEVAR PANDEY, MEMBER (T) The present Appeal arises from the impugned order dated 24.02.2023 passed by the National Company Law Tribunal, Mumbai Bench, in CP(IB)- 552/MB/2021, whereby the Adjudicating Authority dismissed the Application filed by the Sendoz Commercial Pvt. Ltd./ Appellant herein, under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter called the "Code"). The Adjudicating Authority concluded that the date of default fell within the Cont'd..../ -2- exclusion period stipulated under Section 10A of the IBC, and that there existed a pre-existing dispute regarding the quality of goods supplied. The Appellant, being aggrieved by the said order, has preferred the instant Appeal under Section 61 of the IBC, contending that the findings of the Adjudicating Authority are contrary to the evidence on record, the terms of the Purchase Order, and the statutory scheme of the Code.
Brief facts of the case:
2. The brief facts of the case are as follows:
(i) The IREL (India) Limited, / Respondent herein, and Corporate Debtor is a Government of India Undertaking under the Department of Atomic Energy, engaged primarily in the mining and production of rare earths, minerals, and related industrial inputs.
(ii) The Respondent floated an E-Tender (No. IREL/Ganjam/19-20/ET/330) on 18.11.2019, for the supply of coal. Sendoz Commercial Pvt. Ltd / Appellant herein, participated in the tender process and was declared the successful bidder. The Respondent issued Purchase Order No. 36/P/02171/PT/P.O.36-01060 on 28.01.2020, requiring the Appellant to supply 8000 MT (±10%) of coal with GCV ranging between 2800 to 3400 Kcal/Kg, in a staggered manner within four months.
(iii) The Appellant supplied a third lot comprising 4044.52 MT of coal worth ₹1,83,57,886/- on 22.02.2020, and raised a corresponding invoice. The Respondent rejected the said lot on 25.02.2020, alleging that the supplied coal's GCV was 2429 Kcal/Kg, below the acceptable threshold Company Appeal (AT) (Ins.) No. 533 of 2023 -3- prescribed in purchase order. The rejection was communicated via email to the appellant.
(iv) On 29.02.2020, the Appellant invoking Clause 3.0 of the purchase agreement, requested the respondent to get the samples tested by a NABL-accredited government laboratory. The Respondent On 16.03.2020, requested the Appellant's presence for sampling at its site on 17.03.2020, but the Appellant expressed its inability due to medical reasons and the emerging COVID-19 lockdown.
(v) The Respondent again invited the Appellant for sampling on 04.08.2020 and later confirmed that testing would be conducted at NML, Jamshedpur. On 11.08.2020, the Appellant confirmed attendance of its representative at the Respondent's site on 13.08.2020, and thereafter the samples were dispatched to NML, Jamshedpur for testing in the presence of both parties.
(vi) The Appellant on 25.01.2021 issued a Demand Notice under Section 8 of the Code. The Respondent on 17.02.2021, replied to the legal notice, rejecting the binding nature of the NML test result in violation of Clause 3.0.
(vii) Thereafter, the Appellant filed a Section 9 Application (CP(IB)- 552/MB/2021) before the NCLT, Mumbai, for initiating Corporate Insolvency Resolution Process (CIRP) against the Respondent for defaulting on payment of Rs. 1.83 crores. The said Section 9 Application was dismissed by the Adjudicating Authority on 24.02.2023, holding that Company Appeal (AT) (Ins.) No. 533 of 2023 -4- the date of default 23.03.2020, fell within the Section 10A exclusion window, and the rejection email dated 25.02.2020 clearly showed a pre- existing dispute.
(viii) Accordingly, the Appellant has preferred the present Appeal under Section 61 of IBC in April 2023, challenging the legality and correctness of the impugned dismissal order dated 24.02.2023 on the grounds that:
(a) the invoice was payable within 30 days from supply (i.e., by 23.03.2020);
(b) the alleged "dispute" was spurious and unsupported; and
(c) the binding test result of 11.09.2020 from NML proved the coal was of requisite GCV.
Submissions of the Appellant:
3. Ld. Counsel for the Appellant submits that the present Appeal arises out of the impugned order dated 24.02.2023 passed by the Hon'ble National Company Law Tribunal, Mumbai Bench-C-IV, whereby the Section 9 Application filed by the Appellant under the Insolvency and Bankruptcy Code, 2016 was erroneously rejected. The Adjudicating Authority, while passing the said order, failed to appreciate that the Corporate Debtor raised a spurious dispute regarding the quality of coal supplied, despite the existence of a conclusive and binding report dated 11.09.2020 issued by National Metallurgical Laboratory (NML), Jamshedpur, certifying that the coal met the agreed calorific specifications. The rejection is completely devoid of any judicial analysis regarding the existence or genuineness of the alleged dispute Company Appeal (AT) (Ins.) No. 533 of 2023 -5- and overlooks the report of NML, which was never disclosed by the Corporate Debtor until much later during appellate proceedings.
4. Further, the date of default has been clearly set out in Part IV of the Form 5 as well as in the Demand Notice dated 25.01.2021. It is submitted that the default occurred on 23.03.2020, i.e., 30 days from the date of invoice dated 22.02.2020, which falls squarely outside the moratorium period prescribed under Section 10A of the Code. Therefore, the application under Section 9 was maintainable in law and deserved admission.
5. Ld. Counsel submitted that the Respondent floated an e-tender on 18.11.2019 for the supply of coal, pursuant to which, the Appellant emerged as the successful bidder on 04.12.2019 and duly deposited the Earnest Money Deposit (EMD) of Rs. 3,87,400/-. A Purchase Order was issued on 28.01.2020 for supply of 8000 MT (±10%) coal with GCV between 2800-3400 Kcal/Kg.
The Appellant conducted tests and thereafter supplied the third consignment of 4044.5 MT on 22.02.2020, generating an invoice of Rs. 1,83,57,886/-. The Corporate Debtor arbitrarily rejected the consignment citing low GCV, despite the Appellant having complied with specifications and testing protocols.
6. Ld. Counsel submits that repeated requests for resampling led to testing by National Metallurgical Laboratory (NML), Jamshedpur on 14.08.2020. The test report dated 11.09.2020 confirmed the GCV of the supplied coal to be 3275.6 and 3580.5 Cal/g, well within the contractually accepted range. It is his submission that the said report was never shared with the Appellant until 26.07.2023 and was suppressed before the NCLT. Legal notice was issued by the Appellant on 12.11.2020, followed by the filing Company Appeal (AT) (Ins.) No. 533 of 2023 -6- of Section 9 Application on 27.03.2021. Arbitration proceedings were also invoked on 22.03.2023, and Section 11 Application was allowed by Hon'ble High Court of Orissa on 15.07.2025.
7. Ld. Counsel for the appellant points out that the Purchase Order (PO) which forms the basis of the transaction between the parties, required the Appellant to deposit a Security Deposit of 5% of the contract value, over and above the EMD already paid. Clause 2 of the PO clearly stipulated that 100% of the cost, taxes, and freight would be payable within 30 days of receipt and acceptance of coal, failing which interest at 18% p.a. would be levied. The PO mandated staggered delivery within 15 days of intimation.
8. Ld. Counsel submitted that the testing mechanism under Clause 3.0 provided that in case of dissatisfaction with results from IREL's lab, samples could be tested at a government laboratory, and its results would be final and binding. Clause 4.0 permitted rejection only if, GCV was below 2800 Kcal/Kg. Clause 8.0 prescribed the penalty formula for shortfall in GCV and moisture levels. These clauses, read holistically, leave no scope for unilateral testing or arbitrary rejection by the Corporate Debtor, especially when the Appellant had followed every contractual step, including government lab testing.
9. Ld. Counsel for the appellant asserts that the Corporate Debtor's defence that the coal was substandard lacks credibility. The NML report dated 11.09.2020 certified that the coal had GCV readings of 3275.6 and 3580.5 Cal/g, both of which were well within the contractual range of 2800-3400 Kcal/Kg. The report was obtained through proper sampling on 14.08.2020, in Company Appeal (AT) (Ins.) No. 533 of 2023 -7- the presence of the Appellant's representative, and sent to an NABL- accredited government lab, as per Clause 3.0 of the Purchase Order.
10. It is the submission of Ld. Counsel that the Corporate Debtor intentionally withheld this report from the Appellant and chose instead to rely on an internal and unilaterally commissioned test from CSIR Institute of Minerals and Material Technology (IMMT), Bhubaneswar, dated 06.11.2020, which was obtained without notice to the Appellant.
11. Additionally, the counsel pointed out that the Corporate Debtor's assertion that the GCV was below 2800 Kcal/Kg is devoid of merit. The consignment was accepted without protest and the rejection was communicated only after internal testing by the Respondent, in contravention of the Purchase Order. Clause 3.0 required sampling to be done in presence of the Appellant's representative, and testing at either IREL's lab or government lab. This protocol was not followed. In contrast, the Appellant requested third-party testing and sent samples to NML, Jamshedpur--whose results were binding but suppressed by the Respondent.
12. Ld. Counsel disputes the Respondent's assertion that even the second consignment was below standards. Only the third consignment is in dispute. The first two lots, delivered between 04.02.2020 and 13.06.2020, were duly accepted and paid for without any objections. This confirms that the Appellant was regularly supplying conforming material and the dispute regarding quality is selective and fabricated.
Company Appeal (AT) (Ins.) No. 533 of 2023 -8-
13. Ld. Counsel vehemently denies the existence of any genuine or documented dispute prior to the Section 8 Demand Notice dated 25.01.2021. There is no written record of any objection to quality, testing procedures, or invoice terms before the issuance of the notice. On the contrary, the NML report which confirmed the coal quality was hidden by the Respondent and disclosed for the first time only in July 2023. Therefore, the plea of pre- existing dispute is baseless and manufactured.
14. Ld. Counsel has placed reliance on the decision of the Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. [(2018) 1 SCC 353], which lays down that the Adjudicating Authority must determine whether a dispute is genuine, real, and pre-existing. A mere assertion of dispute, unsupported by prior documents, cannot defeat a Section 9 Application. The Appellant further relies on Ahluwalia Contracts v. Raheja Developers (2019 SCC Online NCLAT 942), where this Appellate Tribunal held that a dispute raised after the demand notice or one that lacks supporting evidence cannot be construed as a pre-existing dispute.
15. Ld. Counsel states that this Appellate Tribunal in Henan Boom Gelatin Co. Ltd. v. Sunil Healthcare Ltd. [2019 SCC OnLine NCLAT 5505], held that only a credible, substantial, and genuine dispute raised prior to demand notice would qualify under Section 8(2). The Appellant also cites Jai International Pvt. Ltd. v. Jaroli Agro Pvt. Ltd. [2021 SCC OnLine NCLAT 442] and Tek Travels Pvt. Ltd. v. PCM Worldwide Flights Pvt. Ltd. [2022 SCC OnLine NCLAT 212] in support of its contention that a spurious or afterthought defence cannot be used to defeat legitimate insolvency proceedings. Company Appeal (AT) (Ins.) No. 533 of 2023 -9-
16. Regarding the date of default falling within Section 10A period, Ld. Counsel for the appellant asserts that the Adjudicating Authority has gravely erred in treating the date of default as the date of the legal notice i.e., 12.11.2020, rather than the actual contractual date of default. As per the invoice dated 22.02.2020 and its payment terms, the amount became due on 23.03.2020. This default date clearly falls outside the protection granted under Section 10A, which applies only to defaults occurring on or after 25.03.2020. The Authority's finding ignores the provisions of Section 3(12) of the Code, which defines "default" as non-payment of debt, when it becomes due and payable. It includes even part payments or unpaid instalments.
17. It is his submission that the Adjudicating Authority, in essence, rewrote the contract by relying on the date of legal notice as the starting point for default, which is not tenable in law. The entire premise of rejecting the Section 9 Application under Section 10A is thus legally unsustainable and deserves to be set aside.
18. Regarding the presence of the Arbitration clause in the Purchase Agreement and its invocation, Ld. Counsel submitted that the existence of an arbitration clause does not preclude the maintainability of an application under Section 9 of the Code. The scope of the IBC is entirely distinct from arbitration. While arbitration deals with contractual disputes, the IBC addresses inability to pay debts and aims to preserve the economic viability of a Corporate Debtor. Invocation of arbitration in March 2023 and even filing of Section 11 proceedings in May 2024 does not undermine the insolvency application already filed in March 2021.
Company Appeal (AT) (Ins.) No. 533 of 2023 -10-
19. Ld. Counsel prays that in view of the above submissions, the impugned order dated 24.02.2023 passed by the Ld. NCLT, Mumbai Bench-C-IV be set aside. The Appeal deserves to be allowed as the default occurred prior to Section 10A cut-off, there is no genuine pre-existing dispute, and the Appellant fulfilled all its contractual obligations. The Section 9 Application may be admitted and appropriate orders for initiation of CIRP against the Corporate Debtor be passed.
Submissions of the Respondent:
20. Per-Contra, Ld. Counsel for the Respondent stated that the facts of the present case are very different. The Respondent is a public sector undertaking engaged in the extraction of rare earth minerals such as Sillimanite, Zircon, Rutile, Rare Earths, and Lanthanides, and that the Respondent was seriously alarmed by the major discrepancies in the quality parameters of the consignment dated 20.02.2020. Counsel further submits that the wide variation in the calorific value and the extremely high ash content posed a serious threat to the Respondent's furnace operations, with potential risk of choking or damage. Counsel places on record that there are four test reports-- one conducted by an agency associated with the Appellant, one by the Respondent's in-house lab, one by NML Jamshedpur (where the sample was taken to the lab by the Appellant), and the fourth by CSIR-IMMT, Bhubaneswar. Learned Counsel for the ease of reference of this Hon'ble Tribunal, submitted the comparative data from these reports in tabular form.
21. Learned Counsel for the Respondent submits that from the comparative analysis of test results, it is evident that there exist wide discrepancies in the Company Appeal (AT) (Ins.) No. 533 of 2023 -11- ash content and Gross Calorific Value (GCV). Counsel points out that these discrepancies substantiate the Respondent's position in raising a bona fide dispute after its lab analysis, and in rejecting the consignment after the CSIR- IMMT report. Counsel asserts that, in such circumstances, no liability to pay for the rejected supply arises, and the rejection is strictly in accordance with Clause 4 of the Special Conditions of Contract.
22. Learned Counsel states that the present Appeal is nothing but a second round of litigation instituted by the Appellant, who is a coal supplier, solely for the purpose of seeking payment for one single lot of rejected coal, despite the fact that several other lots had already been supplied and duly paid for without any objection.
23. Learned Counsel submits that the Respondent has honoured all its contractual obligations and made full payments for all other coal supplies made by the Appellant. He further states that the only pending issue relates to the Purchase Order dated 28.01.2020, which is the subject of the present dispute and concerns a consignment that was rejected on quality grounds.
24. Learned Counsel further submits that the Respondent has always acted in accordance with the terms of the agreement and has extended full cooperation to the Appellant in relation to the testing and sampling of the coal consignment in question.
25. He states that the Appellant has concealed a critical fact from this Appellate Tribunal, that the Appellant had already filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996, on 05.04.2023, Company Appeal (AT) (Ins.) No. 533 of 2023 -12- bearing Arbitration Petition No. 40 of 2024, before the Hon'ble High Court of Orissa. Counsel further states that the said petition pertains to the same transaction, between the same parties, and arising out of the same dispute that is the subject of the present appeal. Counsel draws attention to the fact that by its order dated 15.07.2025, the Hon'ble High Court was pleased to appoint Hon'ble Mr. Justice C.R. Dash (Retd.) as the Sole Arbitrator, thereby affirming the subsistence of a valid arbitration agreement covering the present dispute. Counsel also places reliance on the said order, which is annexed to the record as Annexure - 1.
26. Learned Counsel submits that the order dated 15.07.2025 passed by the Hon'ble High Court of Orissa reinforces the existence of factual disputes between the parties. Learned Counsel states that since both parties had agreed to an arbitration clause in the Purchase Order, it is only appropriate that such disputes--especially those involving a public sector undertaking and public funds--be resolved through arbitration and not in a summary proceeding such as the present one under Section 9 of the Code.
27. Learned Counsel points out that the Ld. NCLT, after due consideration, found that the Respondent had promptly disputed the quality of the coal supplied on 20.02.2020 by way of its communication dated 25.02.2020. He further states that the Tribunal correctly observed that the dispute crystallised only after the Appellant issued a legal notice dated 12.11.2020, followed by a demand notice dated 25.01.2021, which was replied to by the Respondent on 17.02.2021. Thus, counsel submits that the date of default, if any, falls squarely within the period protected by Section 10A of the Code (i.e., Company Appeal (AT) (Ins.) No. 533 of 2023 -13- 25.03.2020 to 24.03.2021), thereby rendering the application non- maintainable.
28. It is the submission of Learned Counsel that the Appellant has failed to point out any legal or factual infirmity in the impugned order dated 24.02.2023 passed by the NCLT, and that the findings recorded therein are well-reasoned and fully supported by the materials on record.
29. Learned Counsel further submits that, even assuming the Appellant had any grievance, it had already issued a notice for seeking arbitration through its letter dated 31.05.2020 (appearing at pages 136-138 of the Appeal), much prior to the filing of the Section 9 application under the Code. Counsel submits that such invocation of the dispute resolution clause precludes the Appellant from subsequently invoking insolvency jurisdiction.
30. Learned Counsel states that the Appellant's conduct amounts to a misuse of legal process by initiating two parallel proceedings under two separate enactments for the same cause of action viz., one under the Arbitration and Conciliation Act and another under the Insolvency and Bankruptcy Code.
31. Learned Counsel submits that once the Appellant had invoked arbitration and the Hon'ble High Court had appointed an Arbitrator, there is no legal basis for maintaining this parallel insolvency proceeding. Counsel urges that the Appeal deserves to be dismissed on this ground alone. Company Appeal (AT) (Ins.) No. 533 of 2023 -14-
32. In view of the foregoing submissions, Learned Counsel for the Respondent prays that the present Appeal be dismissed with exemplary costs, as it is frivolous, vexatious and amounts to an abuse of the process of law. Analysis and Findings:
33. We have gone through the records of the case and heard the Ld. Counsels of both the parties in detail. We have also gone through the Written submissions filed by both the parties.
34. The key issue for determination in this case relates to existence of pre- existing dispute in regard to quality of coal supplied by the Appellant, as the appeal would not be maintainable under Section 8 (2) (a) of the Code in case of pre-existing dispute. It is also to be determined as to whether such dispute existed prior to the issuance of the Demand Notice.
35. The Appellant, Sendoz Commercial Pvt. Ltd., asserts that it supplied 4044.52 MT of imported Indonesian coal to IREL in accordance with Purchase Order dated 28.01.2020 and raised an invoice dated 22.02.2020 for Rs. 1.83 crore. The Appellant alleges that the consignment was duly delivered and accepted without protest, and that the Respondent defaulted in making the payment despite repeated follow-ups and reminders. The Appellant contends that the invocation of the insolvency mechanism under Section 9 was justified in view of the non-payment of the operational debt that had crystallised after the lapse of the 30-day credit period.
36. The Respondent, on the other hand, takes the position that the coal consignment was clearly substandard and non-compliant with the Company Appeal (AT) (Ins.) No. 533 of 2023 -15- contractual specifications in terms of Gross Calorific Value (GCV) and ash content. It is submitted that, as per Clause 3.0 of the Purchase Order, IREL had a contractual right to inspect and test the coal and reject the same if found unsuitable. The Clause 3.0 of the purchase order is extracted below for reference:
"3. Tests: Tests will be carried out by IREL (INDIA) LIMITED's Laboratory or by Third Party Agencies (testing agency) deputed by IREL Samples may be collected from IREL (INDIA) LIMITED Plant jointly for tests. You may depute your representative to witness sampling of coal by IREL (INDIA) LIMITED and/or for collection of sample. If your representative is not present at the time of collecting the sample, the sample collected by IREL (INDIA) LIMITED's representative will be sent for testing. The results of the test carried out at IREL (INDIA) LIMITED lab shall be treated for adjustments in payments. Cost of collecting samples and testing in lab shall be borne by IREL (INDIA) LIMITED. If you are not satisfied with the test results, you may ask for referee sample to be tested in a government lab whose results shall be final and binding. You shall have to bear the cost of such test in the government lab and the same shall be deposited by you to IREL (INDIA) LIMITED. Sample collection, sample preparation, analysis and testing at destination shall be done as per latest IS standards. (IS: 1350 latest revision)"
[Emphasis supplied]
37. It is clear from Clause 3 that the test are to be carried out in the Respondents laboratory or in the lab of third party testing agencies. The procedure for drawing the samples has also been laid down and it provides for collection of samples for test in presence of both the parties provided the supplier/ OC in this case depute his representatives for collection. In case no Company Appeal (AT) (Ins.) No. 533 of 2023 -16- representative of supplier/ OC is present then sample drawn by IREL India would be sent for testing. It is clear from the aforesaid clause that the testing was to be done in IREL lab contrary to assertion of Respondent in this regard. The onus in this case was on Respondent to provide his representative at the time of collection of samples. We note that samples were drawn as per the procedure prescribed in Clause 3.
38. Para 1.4 of the scope of work document, which is part of the purchase order as Annexure-I, lays down the quality parameters of coal to be supplied. The same is extracted below:
39. It can be seen from the quality parameters that the Gross Calorific value of coal supplied should be between 2800-3400 Kcal/Kg with Guaranteed GCV of 3000. The ash content in the supplied coal had to be less than 50% by weight. It is seen from the records that the GCV of the aforesaid consignment of coal was 2429 Kcal/Kg and the ash content of the coal was 56.6%. The consignment therefore failed on two critical parameters of Gross Calorific value and ash content.
Company Appeal (AT) (Ins.) No. 533 of 2023 -17-
40. Clause 4 of the Purchase Order deals with matters relating to rejection of coal supplies. The said clause is extracted below:
"4.0 Rejection: Coal received beyond acceptable GCV limit i.e. <2800KCal/Kg shall be rejected. No payment for rejected coal/ the logistic charges for the concerned supply shall be made, irrespective of consumption status of the rejected coal, not there shall be provision for returning the rejected coal as it is not possible to store the coal in separate identifiable lots till receipt of test reports. IREL (INDIA) LIMITED will not be held responsible or liable for any consequential losses. whatsoever, to you arising out of such an eventuality. You will be entirely responsible and liable for such eventuality."
[Emphasis supplied]
41. It is clear from the language of the Clause 4 that the coal received beyond the acceptable calorific parameters of <2800KCal/Kg had to be mandatorily rejected. The use of word 'shall' does not leave the respondent with any choice except to reject the consignment. Accordingly, the entire consignment of coal was rejected by the Respondent.
42. We further note that the rejection was formally communicated by the Respondent through its email dated 25.02.2020. This email directly refers to the inspection carried out and records the finding that the supplied lot had failed the quality parameters. The said email is extracted below:
Company Appeal (AT) (Ins.) No. 533 of 2023 -18-
43. Relying on its internal lab reports dated 24.02.2020, the Respondent rejected the consignment on 25.02.2020 by citing that the coal had a GCV of 2429 Kcal/kg and ash content of 56.6%, both of which were outside the permissible limits of 2800-3400 Kcal/kg and 45% ± 5%, respectively. In term of specific conditions in Clause-4 of purchase order the Respondent was left with no other option, but to reject the consignment on quality considerations. We note that the dispute as to quality arose immediately after supply; it was Company Appeal (AT) (Ins.) No. 533 of 2023 -19- genuine and consistently maintained throughout the correspondence, and was later subjected to joint sampling and third-party testing.
44. A reading of the above clause 3 and 4 and the exchange of communication between the Respondent and Appellant leaves no doubt that the rejection of the consignment was carried out in strict exercise of contractual rights and in accordance with the agreed inspection procedure. The rejection was promptly conveyed within days of delivery, making it part of the normal course of contractual performance, rather than a device to evade payment.
45. We find merit in the Respondent's stand. The documents annexed with the Appeal and Written Submissions, particularly the Purchase Order and the emails exchanged in February 2020, confirm that the consignment was delivered at IREL's Chavara unit on 22.02.2020 and rejected promptly on 25.02.2020 following internal lab testing. The test results revealed parameters that were well outside the contractually agreed quality standards. There was no delay or hesitation on the part of the Respondent in raising its objection, and no indication of any mala fide conduct. The communication of rejection was precise, technical, and fact-based. More importantly, the Appellant did not dispute this rejection immediately. There was no counter-test report submitted by the Appellant at that time, nor was any insistence made for reconsideration or payment.
46. Further, the existence of a pre-existing dispute is evident from the minutes of meeting dated 11.06.2020 held between the parties. These minutes capture the differing stands on the quality findings and show that Company Appeal (AT) (Ins.) No. 533 of 2023 -20- the disagreement arose well before the issuance of section 8 demand notice. Minutes of meeting have been extracted below:
Company Appeal (AT) (Ins.) No. 533 of 2023 -21-
47. As we can see from the minutes of the meeting which was attended by two Directors of M/s Sendoz (Appellant) that the first lot of coal supplied could not meet the specified GCV and hence was rejected by IREL lab. As per tender conditions the supplying parties can seek referee sample from IREL for testing at a government lab. However, the party due to Covid-19 restrictions could not depute its personnel for same collection. The balance quantity of the purchase order i.e. 4000 MT was supplied by the party which were found to be as per laid down specifications in purchase order. In the aforesaid meeting the supplier/Respondent stated that to meet the quality standards of previous supply which could not meet the GCV norms they could blend the supplied coal with high grade coal so as to meet the laid down GCV. The representatives of appellant agreed to positively review the requests from Respondent side provided they agreed to the quality control report and shall not raise any further dispute in this regard. The respondent's representatives confirmed that they shall put up a proposal for further action.
48. We see from the above that there was a clear-cut dispute regarding the quality of first consignment which led to the meeting dated 11.06.2020. Therefore, we are of the considered view that a genuine and substantial dispute did exist.
49. What followed was a process of joint sampling initiated several months later, in August 2020, with the mutual consent of both parties. The samples were sent to two separate government-accredited CSIR laboratories--CSIR- NML (Jamshedpur) and CSIR-IMMT (Bhubaneswar). The results of these tests are extracted below:
Company Appeal (AT) (Ins.) No. 533 of 2023 -22-
50. The results were sharply inconsistent between the two CSIR labs. While CSIR-NML reported favourable results showing GCVs above 3580.5 Kcal/kg and acceptable ash content of 40.50%, CSIR-IMMT found the coal to have GCV of 2053 Kcal/kg and ash content of 60.21%, which strongly corroborated the Respondent's initial rejection. This wide variation in test results indicates that the consignment was likely non-homogeneous, i.e., different portions of the same consignment showed markedly different characteristics, raising serious questions about its reliability and usability.
51. It would be important to note that IREL (India) Ltd. is a strategically important public sector undertaking engaged in the processing of precious and critical minerals under Ministry of Atomic Energy. It is the only company in India which is involved in extraction and processing of Rare Earth Minerals Company Appeal (AT) (Ins.) No. 533 of 2023 -23- which are used in defence and high technology sectors. Such entities operate under stringent quality and safety protocols, not merely for commercial reasons, but to safeguard industrial processes of national significance. In such a context, tolerance for deviation from quality is necessarily minimal, and any non-compliance--especially in bulk fuel supplies like coal--must be addressed with the highest degree of caution. The Respondent is, thus, entitled to reject supplies, that do not meet the agreed specifications and such actions on their part cannot be dismissed as a device to avoid payment.
52. We further note that the demand notice under Section 8 was issued only on 20.11.2020 i.e., nearly nine months after the initial rejection and well after extensive correspondence and testing had already taken place. The entire chain of emails and letters exchanged from February to October 2020 reflect that the parties were actively engaged in resolving the quality dispute and exploring technical verification, without any admission of liability on part of the Respondent. This supports the conclusion that the claim was never treated as undisputed or settled.
53. We also note that, apart from the present rejected lot, the Respondent had accepted subsequent supplies from the Appellant and made full payment without delay. This conduct shows there was no mens-rea or intention on the part of the Respondent to avoid payment obligations. The withholding of payment here is directly linked to the specific quality dispute and not to any evasive conduct.
54. In this regard, we also take notice of the Judgment by the Hon'ble Supreme Court in 'Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. Company Appeal (AT) (Ins.) No. 533 of 2023 -24- [(2018) 1 SCC 353]', wherein the Hon'ble Supreme Court held that the threshold for rejecting a Section 9 application is the mere existence of a real dispute, not necessarily a legally correct or ultimately successful defense. If the dispute is bona fide, based on some factual or contractual foundation, and existed before the demand notice, the adjudicating authority must reject the application.
55. The next issue concerns the legal effect of ongoing arbitration proceedings between the parties in relation to the same underlying transaction. The Appellant contends that the pendency of arbitration cannot defeat its right under the IBC to recover its operational debt. It argues that merely because arbitration proceedings are pending does not establish that the debt is disputed or that the insolvency remedy becomes unavailable. The Appellant insists that the debt remains unpaid and due, and the failure of the Respondent to pay it amounts to a clear default under Section 3(12) of the Code.
56. On the other hand, the Respondent submits that it is the Appellant itself who gave their notice to invoke arbitration on 31.05.2020, concerning the very same invoice, and filed Arbitration Petition No. 24 of 2021 before the Hon'ble High Court of Orissa seeking appointment of an arbitrator. Vide order dated 15.07.2025, the High Court appointed Justice C.R. Dash (Retd.) as the sole arbitrator. The arbitration proceedings, it is submitted, are currently ongoing and actively contested by both sides. The Respondent argues that the existence of arbitration on the same dispute shows that the issue is not one of insolvency but of contractual interpretation and technical adjudication. Company Appeal (AT) (Ins.) No. 533 of 2023 -25-
57. We note that the Appellant intimated the respondent that they proposed to invoke the Clause 12 of the purchase order i.e., the Arbitration clause under the provisions of the Arbitration and Conciliation Act, 1996 by way of a notice dated 31.05.2020, seeking resolution of its monetary claim arising from the alleged non-payment of Invoice No. SCPL/2019-20/055 dated 22.02.2020. This was followed by the Appellant approaching the High Court under Section 11 of the Arbitration Act for appointment of an arbitrator. The Hon'ble High Court, after hearing both sides, appointed a sole arbitrator, who is presently seized of the dispute. From the record, it is clear that the entire controversy relating to the alleged supply, quality rejection, testing disputes, and liability for payment is now being adjudicated through arbitration, at the initiative of the Appellant itself.
58. We note that IREL has been very transparent in its dealing with the appellant. The payment for subsequent consignment of coal which was found to meet the quality parameters was made well in time which was also admitted by the appellant. Regarding the consignment in question their stand has been very clear that the same has to be dealt in the correct forum which is the arbitration as per the Clause 12 of the purchase order. By no stretch of imagination, a Public Sector Company which is solvent and working in strategic sector of the economy can be taken to insolvency proceedings. The aforesaid proceedings are clear-cut misuse of IBC. Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (supra) has also cautioned that IBC should not be used as a coercive mechanism or a pressure tactic to recover disputed claims.
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59. Therefore, we hold that there existed a genuine and pre-existing dispute between the parties regarding the quality of the coal supplied. The rejection was timely, based on internal laboratory results and supported later by independent lab findings. The dispute was rooted in the contractual relationship and was raised long before the demand notice. In light of the legal position under Section 8(2)(a) of the IBC and the settled judicial interpretation in Mobilox (supra), the application under Section 9 was rightly rejected by Adjudicating Authority. We, therefore, hold that the Impugned Order does not suffer from any legal infirmity in this regard.
60. In view of the findings above, the appeal is dismissed. Pending I.As if any, are also closed. There would be no order as to cost.
[Justice Yogesh Khanna] Member (Judicial) [Mr. Indevar Pandey] Member (Technical) SA/Pragya (LRA) Company Appeal (AT) (Ins.) No. 533 of 2023