M/s Garnet Veneer & Decors Limited vs M/s Hours Overseas Pvt Ltd

The instant petition has been filed by M/s Garnet Veneer & Decors Ltd. (“Applicant” / “Petitioner” / “Operational Creditor” / “OC”) on 06.04.2026 before this Adjudicating Authority under Section 9 of the Insolvency and Bankruptcy Code, 2016 (“IBC” / “Code”) read with Rule 6 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (“Adjudicating Authority Rules, 2016”), for initiating the Corporate Insolvency Resolution Process (“CIRP”), declaring moratorium and for appointment of an Interim Resolution Professional (“IRP”) for M/s Hours Overseas Pvt. Ltd., the Corporate Debtor (“Respondent” / “CD”), on the ground that the Respondent has failed to pay/refund the outstanding amount due to the Applicant to the tune of Rs. 1,07,75,000/-(Rupees One Crore Seven Lakhs Seventy-Five Thousand only) as on 28.02.2026, along with interest @ 18% per annum.

The Applicant/OC, M/s Garnet Veneer & Decors Ltd., bearing CIN: U36100DL1994PLC057932, is a company incorporated under the provisions of the Companies Act, and is engaged in the business of manufacturing, processing, seasoning and trading of wood and articles of wood, bags of different kinds, blockboard, flush doors, panel doors, shutter doors, resins, veneers and allied products. The registered office of the Operational Creditor is at Harsha Bhawan, E-13/29, 1st Floor, E Block, Connaught Place, New Delhi-110001.

The Respondent/CD, M/s Hours Overseas Pvt. Ltd., bearing CIN: U52300DL2015PTC279401, is a company incorporated under the provisions of the Companies Act, having its registered office at 136, Badli Village, Near MCD Public School, Badli, Delhi-110042, and also works at Plot No. 344, Udyog Vihar, Phase-VI, Sector-37, Gurugram-122001, Haryana. Since the registered office of the Corporate Debtor is in Delhi, this Adjudicating Authority has the jurisdiction to deal with this Application.

The Operational Creditor placed an order with the Corporate Debtor for supply of cotton bags under Code No. 42022220 for a total quantity of 50,000 pieces at a fixed price of Rs. 520/- per bag, aggregating to a total contract value of Rs. 2,60,00,000/-. Pursuant thereto, the Corporate Debtor issued a Proforma Invoice dated 27.10.2025 bearing No. PI/25-26/053 amounting to Rs.2,73,00,000/-. Based on the said Proforma Invoice, the Operational Creditor issued a Purchase Order dated 11.11.2025 for procurement of 50,000 cotton bags at the agreed rate. It was agreed between the parties that the Corporate Debtor would first procure the requisite raw materials and accessories, and only thereafter would payments be released by the Operational Creditor. The relevant communications exchanging the Proforma Invoice and Purchase Order are reproduced below:

In furtherance of the said understanding, the Operational Creditor made an advance payment of Rs. 20,00,000/- by cheque. Thereafter, relying upon repeated assurances of the Corporate Debtor and its Director, including the email dated 12.12.2025that 15,000 pieces of cotton bags would be dispatched on or before 15.01.2026, and thereafter 10,000 pieces would be sent against the sale invoice before the 30th of that month, the Operational Creditor proceeded to release further payments to the Corporate Debtor. The relevant extract of the said emails dated 28.11.2025 and 12.12.2025, as placed on record are reproduced below:

Pursuant to the aforesaid assurance, the Operational Creditor had released further payments of Rs. 18,00,000/- (14.02.2026), Rs. 21,75,000/- (23.02.2026), Rs. 21,80,000/- (24.02.2026) and Rs. 26,20,000/- (25.02.2026), taking the total amount disbursed to the Corporate Debtor to Rs. 1,07,75,000/- (Rupees One Crore Seven Lakhs Seventy-Five Thousand only).

Despite receipt of the aforesaid substantial advance, the Corporate Debtor failed to supply the said cotton bags. The Operational Creditor, vide emails dated 02.02.2026 and 26.02.2026, repeatedly called upon the Corporate Debtor to either complete the supply or, in the alternative, refund the advance, and fixed 28.02.2026 as the final date for compliance, failing which the Corporate Debtor would be deemed to be in default. No goods were supplied even within the extended timeline, and the date of default has accordingly been determined as 28.02.2026. The above-mentioned emails are extracted below:

Constrained by the continued default, the Operational Creditor issued a Demand Notice dated 03.03.2026 under Section 8 of the Code, claiming the operational debt of Rs. 1,07,75,000/- together with interest @ 18% per annum from the date of default, and calling upon the Corporate Debtor to make payment within the statutory period. The said notice, along with the enclosed ledger account, stood duly delivered upon the Corporate Debtor, as is borne out from the Speed Post tracking records annexed with the Application.

Despite receipt of the said notice, the Corporate Debtor neither made any payment nor raised any notice of dispute within the statutory period of ten days, which expired on 14.03.2026. Accordingly, the present Application came to be filed under Section 9 of the Code on 06.04.2026, along with the requisite affidavit under Section 9(3)(b) of the Code affirming that no notice of dispute had been received from the Corporate Debtor.

Notice was issued by this Adjudicating Authority vide order dated 25.05.2026, pursuant to which the Respondent entered appearance on 08.07.2026. On the said date, the following order was passed:

The Reply was filed on the DMS e-portal on 29.07.2026. The Respondent in the reply filed submits that no amount is due and payable within the meaning of Section 3(11) and Section 8(1) of the Code, inasmuch as the accounts between the parties, both towards the principal advance and the interest claimed, remain the subject matter of a pending settlement/reconciliation. It is submitted that the legitimate dues pertaining to the advance taken by the Respondent stand duly adjusted and accounted for against (i) the cost of raw materials and accessories procured by the Respondent from its vendors, (ii) part-manufacture and production undertaken pursuant to the Purchase Order, and (iii) other legitimate dues arising out of the transaction, the reconciliation whereof is stated to remain pending.

The Respondent further submits that the emails dated 02.02.2026 and 26.02.2026 relied upon by the Operational Creditor itself demonstrate that the parties were engaged in settlement discussions and reconciliation of accounts, and that the claim of interest @ 18% per annum is unilateral and unsubstantiated by any underlying contract, and has been added only to inflate the claim beyond the statutory threshold of Rupees One Crore as prescribed under Section 4 of the Code. Reliance is placed on Mobilox Innovations Private Limited v. Kirusa Software Private Limited, (2018) 1 SCC 353, and Innoventive Industries Ltd. v. ICICI Bank & Anr., (2018) 1 SCC 407, to contend that the IBC is not a substitute for a recovery mechanism, and that the present Application has been instituted only to pressurise a solvent Corporate Debtor in respect of a disputed and partly-settled claim. It is accordingly prayed that the Application be dismissed.

The Applicant filed its Rejoinder dated 29.07.2026, denying the existence of any genuine pre-existing dispute or reconciliation. It is submitted that the Reply discloses no particulars whatsoever of the alleged "reconciliation of accounts", the manner of adjustment against the admitted advance of Rs. 1,07,75,000/-, or any evidence showing that reconciliation was ever proposed, discussed or accepted.

It is further submitted that this defence was never reduced to writing prior to the reply, not even in the response to the Demand Notice dated 03.03.2026, which went unanswered, and nor through any prior communication and is being raised for the first time in the Reply. The same thus cannot constitute a "pre-existing dispute "within the meaning of Section 8(2) of the Code.

As far as Annexure C-2 of the reply is concerned, it is submitted by the Applicant that the invoices annexed therein only reflect the Respondent's general procurement of raw materials and accessories, and bear no nexus with the Purchase Order or the advance received. The emails dated 12.12.2025, 02.02.2026 and 26.02.2026 highlight that there was no discussion for settlement between the parties, but a demand for performance or refund in the face of continued default. It is lastly submitted that, even excluding interest altogether, the principal sum independently exceeds the threshold under Section 4 of the Code, rendering the argument on maintainability of the application futile.

The matter was listed on 04.08.2026, wherein the Ld. Counsel appearing for the parties argued at length and orders were reserved in the matter.

We have heard the Learned Counsels appearing for the parties and have perused the material available on record. The relevant proceedings of the case are briefly stated as below:

In view of the above factual matrix, it is evident that upon requests made by the parties for completion of their pleadings, this Adjudicating Authority, in the interest of justice, had granted various opportunities to the parties to conclude their respective submissions.

Before analysing the issues at hand, it would be pertinent to refer to the relevant provisions of law.

Section 5(21) of the Code defines “operational debt” as:

Section 8 of the Code reads as follows:

Section 9 of the Code, insofar as relevant, provides as under:

The scheme of Sections 8 and 9 of the Code therefore demonstrates that upon receipt of a demand notice, the Corporate Debtor is expected either to demonstrate the existence of a pre-existing dispute or establish that payment of the debt has been made. A failure to do either assumes significance while examining the existence and quantum of the debt claimed.

The Hon'ble Supreme Court in Mobilox Innovations Private Limited v. Kirusa Software Private Limited, (2018) 1 SCC 353, has held that at the stage of admission, the Adjudicating Authority is only required to determine whether there exists a “plausible contention” requiring further investigation, and that the dispute is not a patently feeble legal argument or an assertion unsupported by evidence. The relevant portion of the judgment is extracted below:

Applying the aforesaid test to the facts of the present case, we find that the factum of receipt of Rs. 1,07,75,000/- by the Respondent from the Applicant stands admitted in explicit terms on the face of the Reply-cum-Objections itself, towards the advance payments. This admission is further fortified by the Respondent's own email dated 26.02.2026, whereby the Respondent acknowledged receipt of "the total payment of approx Rs 1.07 crore" and furnished, in confirmation thereof, its own Account Ledger reflecting the said amount as received. The relevant extract of the said email dated 26.02.2026 & relevant portion of the Reply-cum-Objection filed by the Respondent is reproduced below:

The Respondent's plea of "adjustment" cannot be accepted. Significantly, Annexure C-2, on which the Respondent seeks to rely, is the proforma invoice issued by the Operational Creditor and does not evidence any procurement, expenditure, adjustment, or appropriation by the Respondent. Far from substantiating the Respondent's case, Annexure C-2 merely records the commercial terms between the parties and is wholly incapable of proving that the advance amount was ever adjusted. Further, this defence was never reduced to writing prior to the Reply. The Demand Notice dated 03.03.2026 went unanswered, the statutory period under Section 8(2) expired on 14.03.2026 without any notice of dispute, and there is no record of dispute in any information utility. A defence raised for the first time in the Reply, without particulars or antecedent communication, cannot be treated as a "pre-existing dispute" within the meaning of Section 8(2) of the Code.

We are also unable to accept the Respondent's characterisation of the correspondence dated 02.02.2026 and 26.02.2026 as evidencing “settlement discussions”. A plain reading of the said correspondence shows that the Applicant, faced with the Respondent's continued non-performance despite receipt of the full advance, called upon the Respondent either to complete the supply of the contracted goods or, in the alternative, to refund the advance in its entirety, a course of conduct wholly inconsistent with any suggestion that the advance already stood adjusted and consumed against costs incurred by the Respondent. Such a demand for performance or refund, made in the face of admitted non-supply, cannot be equated with a negotiation as to the quantum of an alleged set-off, so as to manufacture a dispute where none genuinely exists.

As regards the claim of interest @ 18% per annum is concerned, we find that even if the said claim were to be excluded in its entirety, the admitted principal amount of Rs. 1,07,75,000/- (Rupees One Crore Seven Lakhs Seventy-Five Thousand only) independently exceeds the statutory threshold of Rupees One Crore prescribed under Section 4 of the Code. The dispute, if any, with respect to the rate of interest or the entitlement thereto is not germane to the issue of maintainability of the instant Application, and in any event, does not constitute a pre-existing dispute concerning the principal debt, which stands independently admitted by the Respondent.

Insofar as the Respondent's contention regarding its solvency and the consequences of admission into CIRP is concerned, it is well settled, as held by the Hon'ble Supreme Court in Innoventive Industries Ltd. v. ICICI Bank & Anr., (2018) 1 SCC 407, that once debt and default stand established, the Adjudicating Authority is bound to admit the application and has no discretion to decline admission on the ground of the Corporate Debtor's alleged solvency or the consequences of admission.

We are, therefore, of the considered view that the defence set up by the Respondent is unsupported by any particulars or documentary material, and is raised for the first time in its Reply, and is not a plausible, real or substantial dispute within the meaning of Section 8(2) of the Code as explained in Mobilox Innovations (supra). It is, at best, a moonshine and illusory defence, insufficient to defeat an otherwise well-founded Application under Section 9 of the Code.

We further find that the Application is complete in all respects; a copy of the Demand Notice, along with proof of delivery, has been placed on record; an affidavit under Section 9(3)(b) of the Code affirming that no notice of dispute has been received is filed; no payment of the unpaid operational debt has been shown to have been made by the Respondent; there is no record of dispute in any information utility; and there is no disciplinary proceeding pending against the proposed Interim Resolution Professional. The requirements of Section 9(5)(i) of the Code, thus, stand satisfied.

Hence, the present Application under Section 9 of the Code is complete and satisfies all the requirements under Section 9 of the Code and the Rules made thereunder, and thus, deserves to be admitted.

Having regard to the conspectus of the present case (as discussed above), we are inclined to ADMIT the present petition bearing No. CP(IB) 170(PB)/2026 filed under Section 9 of the IBC, 2016, and pass the following order:

a. Accordingly, the petition bearing No. CP(IB) 170(PB)/2026 filed by the Petitioner under Section 9 of the IBC, 2016 for initiating CIRP against the Corporate Debtor, i.e., M/s Hours Overseas Pvt. Ltd., is hereby ADMITTED and this Adjudicating Authority orders the commencement of the Corporate Insolvency Resolution Process. The commencement of the CIRP shall be effective from the date of this order.

b. As a consequence thereof, the petition being admitted in terms of Section 9 of the IBC, 2016, the moratorium as envisaged under the provisions of Section 14(1) of the IBC, 2016 shall follow in relation to the Corporate Debtor as per clauses (a) to (d) below:

c. The Petitioner has proposed the name of Mr. Dev Vrat Rana as the Interim Resolution Professional. His written consent in Form-2 under Rule 9(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, along with his Certificate of Registration, is annexed at Annexure-C of the application. Accordingly, this Adjudicating Authority appoints Mr. Dev Vrat Rana as the Interim Resolution Professional (IRP) of the Corporate Debtor. The details of the IRP are as under:

d. In pursuance of Section 13(2) of the IBC, 2016, we direct the IRP to make public announcement immediately with regard to the admission of this application under Section 9 of the Code. The expression "immediately" means within three days, as clarified by the Explanation to Regulation 6(1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

e. During the CIRP period, the management of the Corporate Debtor shall vest in the IRP/RP, who shall perform all functions as contemplated, inter-alia, under Sections 17, 18, 20 and 25 of the Code. It is further made clear that all personnel connected with the Corporate Debtor, its promoters, or any other person associated with the management of the Corporate Debtor are under a legal obligation, as per Section 19 of the Code, to extend every assistance and cooperation to the IRP/RP is at liberty to make an appropriate application to this Adjudicating Authority for passing an appropriate order.

f. The IRP is expected to take full charge of the Corporate Debtor’s assets and documents without any delay whatsoever. He is also free to take police assistance, and this Adjudicating Authority hereby directs the Police Authorities to render all assistance as may be required by the IRP in this regard.

g. The IRP or the RP, as the case may be, shall submit to this Adjudicating Authority periodical reports with regard to the progress of the CIRP in respect of the Corporate Debtor and the action taken in compliance with Sections 17, 18, 20 and 25 of the Code and Regulations 3A and 4 of the IBBI (CIRP) Regulations, 2016.

h. The Petitioner shall deposit a sum of Rs. 3,00,000/- (Indian Rupees Three Lakhs Only) with the IRP to meet the expenses arising out of issuing public notice and inviting claims. These expenses are subject to the approval of the Committee of Creditors (CoC). This amount shall be adjusted towards the fees and expenses payable to the IRP/RP.

j. The Registry is further directed to send a copy of the order to the IBBI for their record.

k. The IRP shall also serve a copy of this order to the various departments, such as Income Tax, GST (Centre), State Trade Tax, Provident Fund, etc., who are likely to have claims against the Corporate Debtor, as well as to the trade unions/employees' associations, so that they are timely informed of the initiation of CIRP against the Corporate Debtor.

l. A certified copy of the order may be issued to all the concerned parties, if applied for, upon compliance with all requisite formalities. The IRP is to report compliance within four weeks.