The Insolvency and Bankruptcy Code, 2016 (IBC) was never envisioned as a forum to enforce disputed commercial claims or settle murky contractual accounts. The recent pronouncement by the Hon’ble National Company Law Appellate Tribunal (NCLAT) in Pravin Electricals Pvt. Ltd. vs. Akshaya Engineering Works Pvt. Ltd., decided on 30th July 2025, reinforces this doctrinal foundation and adds another significant judicial layer to the Mobilox jurisprudence.

Backdrop: Between Debt and Dispute

In this case, the Operational Creditor (Akshaya Engineering Works Pvt. Ltd.) had approached the NCLT under Section 9 of the IBC seeking initiation of CIRP against the Corporate Debtor (Pravin Electricals Pvt. Ltd.) for an alleged default of ₹1.54 crore. The amount arose from sub-contractual arrangements pursuant to two principal contracts awarded to the Corporate Debtor by MSEDCL—one for material supply and another for installation and services. Despite partial payments being made, the Operational Creditor claimed dues on the remaining invoices.

The Adjudicating Authority admitted the Section 9 application, prompting the Corporate Debtor to appeal.

NCLAT’s Judicial Calibration

The NCLAT, in a meticulously reasoned decision, overturned the NCLT’s order, reinstating a principle that has often been acknowledged but inconsistently applied: mere non-payment of invoices does not per se amount to operational debt in default where there exists a genuine pre-existing dispute.

Core Findings

1. Pre-existing Dispute: Not Hypothetical, But Evident
   1. The Appellate Tribunal placed reliance on the seminal ruling of the Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353. The touchstone remains whether a “plausible contention” exists which warrants investigation. The NCLAT found that extensive email exchanges, dated much before the issuance of the Section 8 demand notice, clearly indicated serious concerns over performance, delayed execution, and eventual partial termination of the MSEDCL contract.
   1. The Corporate Debtor’s emails (notably those from August and September 2021) had unambiguously denied any crystallised liability, stating that reconciliation with MSEDCL was pending—a fact corroborated by documentary evidence.

• ‘Pay-When-Paid’ Clause and Contractual Privity
  • The sub-contract between the parties was back-to-back with the MSEDCL contract. Appendix I to the agreement laid out milestone-based payments strictly tied to MSEDCL’s own disbursements. Importantly, Clause 2.3 and 3.1 clarified that the final 10% payments were conditional upon successful commissioning and issuance of a HOTO certificate by MSEDCL.
  • The NCLAT noted that MSEDCL had issued communications levying penalties and expressing dissatisfaction with project progress even during the period the Operational Creditor was executing the work. It also found that the Operational Creditor’s claim of having completed work satisfactorily was not conclusively supported by any official closure or payment from MSEDCL.

• IBC: Not a Recovery Tribunal
  • The Appellate Tribunal cautioned against misuse of the IBC framework for mere debt recovery in the absence of an established default, holding that “the defence raised by the Corporate Debtor is plausible and deserves further investigation.”
  • It found that while the Operational Creditor may have remedies under traditional civil or arbitration routes, insolvency proceedings are inappropriate in the face of substantial factual disputes.

• No Moonshine Defence
  • In consonance with Mobilox, the Tribunal reaffirmed that a defence need not be foolproof to defeat a Section 9 application—it must simply be genuine, not “spurious, hypothetical or illusory.” The Corporate Debtor’s reliance on contractual terms and voluminous contemporaneous records met this standard convincingly.

The Larger Message: Mobilox Revisited and Reaffirmed

This ruling is a timely reaffirmation of the jurisprudential integrity of the IBC. It emphatically reminds stakeholders—operational creditors, debtors, and the adjudicating authorities alike—that the Code is not a substitute for contractual enforcement. Nor is it a pressure tool in the hands of disgruntled vendors.

What we witness here is the NCLAT playing the role of a vigilant sentinel, guarding the gates of insolvency from being breached by unresolved contractual ambiguities masquerading as insolvency claims.

Conclusion: The Code is a Shield, Not a Sword

In Pravin Electricals, the Appellate Tribunal has restored the delicate balance the IBC seeks to maintain between creditor rights and debtor protection. It reiterates that commercial certainty and contractual sanctity must precede the disruptive force of insolvency.

The ruling should serve as a cautionary tale to operational creditors to diligently assess the nature of their claim, the terms of their contract, and the existence of bona fide disputes before resorting to the nuclear option under the Code.

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Disclaimer

This blog is intended solely for informational purposes and is based on publicly available judicial documents. It does not constitute legal advice or opinion of any kind. Readers are advised to seek guidance from qualified professionals before acting on the basis of the contents herein. The accuracy of judicial excerpts should be verified from official sources.