Sendoz Commercial Private Limited vs Irel (India) Limited

(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

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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

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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

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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.

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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,

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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.,

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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.

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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

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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

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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.

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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:

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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

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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:

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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.

Company Appeal (AT) (Ins.) No. 533 of 2023 -26-

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