A WhatsApp message and a meeting note sank a company's defence.

When a WhatsApp message and a meeting note sank a company's defence

M/s Rishabh Triexim LLP, a Chennai-based supplier of PVC Resin, had a simple story. It sent 175 invoices to M/s Nandi Irrigation Systems Limited, a Hyderabad company, between April and November 2022. The total invoiced amount plus an opening balance came to about Rs 57.83 crores. Nandi Irrigation paid Rs 46.50 crores. That left Rs 11.32 crores unpaid. Rishabh wanted its money. Nandi Irrigation said the material was defective. The National Company Law Tribunal, Hyderabad Bench-II, had to decide: was this a genuine quality dispute, or a manufactured defence to avoid insolvency?

The stakes were existential. If the petition was admitted, Nandi Irrigation would face a Corporate Insolvency Resolution Process (CIRP). A moratorium would freeze all suits and recoveries. The management would lose control to an Interim Resolution Professional. For Rishabh, admission meant a chance to recover its dues through a resolution plan or liquidation. For Nandi Irrigation, it meant a fight for survival.

The debt that Nandi Irrigation acknowledged — twice

The evidence against Nandi Irrigation was unusually strong. Rishabh's ledger account was corroborated by Nandi Irrigation's own ledger. Which the corporate debtor had shared via WhatsApp on 28 October 2022. That message acknowledged a debt of Rs 11,87,26,853 as of 9 September 2022. Then, on 13 October 2022, the parties met. Nandi Irrigation agreed to reduce the outstanding over time. It never paid. Simple.

Rishabh then issued a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 on 30 November 2022. Nandi Irrigation replied on 17 December 2022, denying liability. It claimed the PVC Resin supplied was of inferior quality. Rishabh filed its petition under Section 9 of the IBC on 18 January 2023 before the NCLT Hyderabad Bench-II.

The Tribunal examined the records. The ledger accounts matched. Bank statements confirmed payments of Rs 46.50 crores. The lorry receipts — 175 of them — were signed by Nandi Irrigation's representatives at the time of delivery. None of them noted any defect in the material. The invoices were undisputed.

The quality defence that unravelled

Nandi Irrigation's defence rested on a single claim: the PVC Resin was of inferior quality. It said it had rejected 43,676 bags of the material. But the Tribunal found a gaping hole in this story. If the bags were rejected, where were they? Nandi Irrigation could not produce any proof of return of the goods to Rishabh. It could not show that the bags had been disposed of. It had no contemporaneous complaint at the time of delivery. None at all.

The lorry receipts told the real story. Every receipt was signed without any remark about quality. If the material was defective at delivery, the Tribunal reasoned, the receipts would have said so. They did not.

The Tribunal also noted that Nandi Irrigation had filed criminal cases against Rishabh after the Section 9 petition was filed. It introduced FIR documents through an application — IA No. 1712 of 2023 — hoping to bolster its defence. The Bench dismissed that application outright. FIRs filed after the insolvency petition, it held, have no relevance to Section 9 proceedings. They cannot be used to resist admission. Period.

The test the Tribunal applied

The core question under Section 9 of the IBC is whether there is a "pre-existing dispute" between the parties. If there is, the petition cannot be admitted. But the dispute must be genuine, not manufactured. It must be supported by evidence that existed before the demand notice.

The Tribunal distilled this into a clear test. Where the operational creditor's ledger account is corroborated by the corporate debtor's own ledger, matched bank statements, signed lorry receipts, and undisputed invoices, the operational debt stands established. A claim of inferior quality, raised after the demand notice, unsupported by contemporaneous evidence at delivery, without proof of return or disposal of allegedly rejected goods — that constitutes a manufactured dispute. It does not amount to a pre-existing dispute under Section 9.

THE TEST: A quality dispute raised after the demand notice, with no contemporaneous complaint at delivery and no proof of return or disposal of rejected goods, is a manufactured defence — not a pre-existing dispute under Section 9 IBC.

What the WhatsApp message meant

The Tribunal gave particular weight to the WhatsApp message of 28 October 2022. In that message, Nandi Irrigation acknowledged a debt of Rs 11,87,26,853 as of 9 September 2022. This was not a casual exchange. It was a formal acknowledgment of liability, sent by the corporate debtor itself. The meeting on 13 October 2022, where Nandi Irrigation agreed to reduce the outstanding, further confirmed that the debt was genuine. I have seen many such acknowledgments shrugged off as informal chatter — here, the Tribunal treated it like gold.

These communications, the Tribunal noted, implied that Nandi Irrigation had accepted its liability before it ever raised the quality dispute. The quality defence came later — after the demand notice — and appeared to be an afterthought.

The order that changed everything

On 18 September 2024, the Bench comprising Sri Sanjay Puri, Member (Technical), and Sri Rajeev Bhardwaj, Member (Judicial), admitted the petition. CIRP was ordered to commence against M/s Nandi Irrigation Systems Limited. Mr Maruti Venkata Subba Rao Poluri was appointed as the Interim Resolution Professional. A moratorium was declared under Section 14 of the IBC, freezing all legal proceedings against the corporate debtor.

The Tribunal directed the IRP to file an Authorization for Assignment within three days. The operational creditor, Rishabh, was ordered to pay Rs 2,00,000 as an advance fee for the IRP and CIRP expenses. The Registry was directed to communicate the order to the Registrar of Companies, Hyderabad, for updating the MCA website.

IA No. 1712 of 2023, filed by Nandi Irrigation to introduce the FIR documents, was dismissed.

Why this matters for practitioners

This judgment is a reminder of a basic principle: the IBC is not a forum for resolving quality disputes. It is a mechanism for recovering unpaid debts. If a corporate debtor wants to resist a Section 9 petition on the ground of a quality dispute, it must produce evidence that existed before the demand notice. Contemporaneous complaints, inspection reports, rejection memos, or return documents are essential. A bare allegation, raised after the demand notice, will not suffice. It just won't.

The judgment also highlights the evidentiary value of informal communications. A WhatsApp message acknowledging a debt, or a meeting note recording an agreement to reduce the outstanding, can be powerful evidence of liability. Corporate debtors should be careful about what they put in writing — even in a WhatsApp chat.

For operational creditors, the lesson is clear: maintain meticulous records. Ledger accounts, bank statements, signed delivery receipts, and invoices are the backbone of a Section 9 petition. If the corporate debtor acknowledges the debt in any form — email, WhatsApp, meeting minutes — preserve that evidence. It can make the difference between admission and dismissal.

The bottom line

If you are an operational creditor with a corroborated ledger, matched bank statements, and signed delivery receipts, a quality dispute raised after the demand notice — without contemporaneous evidence — will not save the corporate debtor from insolvency.