The Dispute Inception Paradox

**Shekhar Patil

Can a creditor manufacture its own way for filing the insolvency petition? This is precisely the issue the NCLAT addressed in  M/S. Shivani Enterprises v. M/S. S Square Cargo Movers Private Limited [Company Appeal (AT) (Insolvency) No. 463 of 2026, NCLAT, Principal Bench, New Delhi, decided 17^th April 2026; reported at (2026) ibclaw.in 516 NCLAT], where a trade creditor had a claim that did not meet the minimum threshold amount necessary to initiate an insolvency process. To make up the deficit, it included a 3% interest, which had been included only in the fine print of its invoices but had never been part of any agreement entered into by the buyer. The NCLAT did not accept the mathematics and opined that terms unilaterally inserted into an invoice cannot constitute “operational debt” under the IBC, 2016.

This paper argues that, apart from resolving issues relating to the footer of an invoice, the decision also provides a framework that prevents any abuse of the process by creditors seeking to impose arbitrary penalties, thereby ensuring the threshold may be reached. The NCLAT identified a principle which this paper calls the ‘Dispute Inception Paradox’.

The Statutory Groundwork

Before explaining the decision, it makes sense to present the legislative framework first.

An operational creditor can initiate the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC), 2016, only if the threshold defined under Section 4, which is currently ₹1 Crore, a limit designed to ensure that the Code is not used as a method for debt recovery.

An operational creditor is someone who is demanding payment of trade debt (rather than a bank loan), and the amount owed is operational debt, which is defined in Section 5(21) of the Code. Before approaching the NCLT, such creditors must serve a demand notice in accordance with Section 8 of the Code. In case the response of the debtor mentions a genuine pre-existing dispute regarding such a debt, it would prevent the admission of the insolvency petition in accordance with Section 9 of the Code. 

The Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. [(2018) 1 SCC 353; Civil Appeal No. 9405 of 2017, decided 21 September 2017] has authoritatively established what amounts to a “dispute” for this purpose. The NCLT will not examine the merits of the dispute at the admissibility stage. The NCLT will be satisfied if the dispute is not frivolous, fictitious, or lacking in substance. However, the submitted materials must present a legal argument or a factual allegation with sufficient merit to warrant investigation, rather than a weak argument or assertion that the NCLT will not admit as a dispute.

The Supreme Court has defined the time period of a dispute. For a motion to be admissible, it must be raised before the notification under section 8 of the Code. It cannot be articulated for the first time in the debtor’s reply with a view to frustrating the petition. Therefore, Mobilox dismisses defenses raised only in response to the alleged threat of insolvency, without factual support.

The Legal Friction and A Claim Based on Fine Print

The Shivani Enterprises case is a classic instance in which the creditor seeks to exploit the situation to circumvent the high bar set by the IBC. The facts of the matter can be stated as follows: 

The Operational Creditor sold goods to the Corporate Debtor. After certain installment payments, there was still a principal sum remaining, which was ₹70,54,167 and was well below the ₹1 Crore mark, which is the jurisdiction of Section 4.  To make up the shortfall, the Operational Creditor applied a compounded interest rate of 3% per annum, derived solely from the boilerplate footer on the invoice it regularly sends. The combination of principal plus this interest made a total amount of ₹1,06,09,920 and thus, fell within the jurisdiction of Section 4. 

The NCLT Cuttack Bench has rejected the claims and struck off the interest component, as there was a complete absence of a written contract or any prior history of payment of such interest to the debtors. The NCLAT Principal Bench faces an important question. Can a boilerplate footer in a commercial invoice be an enforceable contractual clause to pay interest under the IBC? 

Decoding the ratio decidendi: Why an invoice is not a contract 

In its judgment, the NCLAT rejected the operational creditor’s case on a foundational point: an invoice, however detailed, is not a contract.  According to the NCLAT, for the interest component to be successfully incorporated in the definition of “operational debt” as per Section 5(21), the creditor should prove:  

1. A mutually agreed written agreement stating payment of interest on any delayed payments; or 
2.  A consistent practice of business between parties, wherein the debtor has been paying interest without any objection. 

The core of the Tribunal’s rationale lies in the basic principle of contract law known as Consensus Ad Idem (Meeting of the Minds). An invoice is a unilateral document prepared by a seller for internal accounting and taxation purposes. It shows the fulfillment of a contract but does not constitute a contract itself. 

Just having the line “Interest @ 3% p.a. will be levied on delayed payments” printed in the invoice is a unilateral demand. Without a purchase order from the buyer or an independent interest agreement,  the buyer will not be involuntarily bound by it. 

Reconciling distorted precedents: Prashant Agarwal and Descent Buildwell

Operational creditors often argue about isolated cases to mislead the Adjudicating Authorities on the issue of interest. Here, Shivani Enterprises argued that in Prashant Agarwal v. Vikas Parasrampuria, interest necessarily followed operational debts. 

However, the NCLAT distinguished both cases perfectly well: 

Prashant Agarwal v. Vikas Parasrampuria (2022) Company Appeal (AT) (Ins) No. 690 of 2022 NCLAT Principal Bench, 15^th July 2022

The Bench pointed out that in the case of Prashant Agarwal, there was an absolute agreement between the parties as regards the value of the interest and a fixed date from when it was to accrue. Here, the invoice footer simply reflected the agreement already entered into, whereas in Shivani Enterprises, there was no underlying agreement specifying the interest provision.

Descent Buildwell LLP v. Reliance Communications Infrastructure Ltd. (2025) Company Appeal (AT) (Ins) No. 871 of 2025 NCLAT Principal Bench

Likewise, the Tribunal explained that if there are no terms of delay-payment penalties in the parent agreement, an agreement regarding interest on the invoice is a nullity, absent any prior history of interest payments by the debtor. 

Through this approach, the NCLAT closed a significant loophole in the system by stopping generic precedents from being abused to turn unilateral receipts into bilateral agreements. 

The dispute inception paradox: How inflation tactics defeat themselves 

The profound jurisprudential lesson to learn from Shivani Enterprises is the way in which the NCLAT treated the “pre-existing dispute” concept in Section 9. 

Usually, to prevent the initiation of a Section 9 petition, a corporate debtor raises disputes regarding the quality or delay in the delivery of the goods. In this case, Shivani Enterprises submitted that, upon acceptance of the goods, the debt became indisputable; hence, the petition should continue. 

But NCLAT reversed this approach and noted that, since the Corporate Debtor denied the legality of the interest portion of the debt in its response to the Section 8 demand notice, the disputed interest became the pre-existing dispute.

This leads to the paradoxical situation known as the “Dispute Inception Paradox”, whereby the introduction of an unauthorized penalty charge by the creditor results in the inception of a dispute. In accordance with the IBC, the NCLT is required to reject the Section 9 application if a dispute exists. The very mechanism by which the creditor achieves the Section 4 threshold now becomes the reason to reject the Section 9 application.

Reconciling the Inception Paradox with Mobilox Innovations

On the face of it, however, the logic runs contrary to the principle laid down in Mobilox Innovations Private Ltd vs Kirusa Software Private Ltd. [(2018) 1 SCC 353; Civil Appeal No. 9405 of 2017, decided 21 September 2017]. The holding as well as the principles laid down by reference to the judgment in Innoventive Industries Ltd. v. ICICI Bank [(2018) 1 SCC 407, paras 29–30, quoted in Mobilox at para 37] both indicate that the dispute must be “pre-existing”, meaning that the dispute should have existed before the issuance of the demand notice under Section 8. If the logic of the judgment of the NCLAT in Shivani Enterprises is to be understood narrowly, it does indeed encourage a “moonshine defense” of the sort that Mobilox was intended to prevent.

There is no need for the resolution to force Mobilox to extend the ambit of its timing rule. In Mobilox, the adjudicating authority’s inquiry is made in an ordered sequence of questions and not one single question: (i) Whether there is an ‘operational debt’ as defined exceeding Rs 1 lakh? (ii) Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid? and (iii) whether there is a dispute between the parties [Mobilox, para 34]. It is only after the adjudicating authority is satisfied that the first of these requirements is met that the question of the dispute (the pre-existing dispute requirement, regulated by Mobilox’s timing rule) arises. If the interest component fails, the first test on its own merit, because an unnegotiated invoice footer cannot be regarded as a legitimate “operational debt” under Section 5(21), then there is no point even in applying Mobilox’s temporal test to the dispute in question.

This is how the NCLAT decided the Shivani Enterprises case. While the reasoning of the case may at certain points rely upon the fact that there is a dispute as per the reply of the debtor, its ultimate finding was that the interest, having been held excluded as it had no contractual basis, rendered the claim below the threshold set out under Section 4 and thus led to the dismissal of the appeal as it is only within the domain of an appropriate court that such disputes can be addressed.

Mobilox’s prior dispute requirement is designed to prevent the creation of a fabricated factual dispute regarding quality, delivery, or breach by a debtor to gain extra time to pay an undisputed and payable claim. Whether the creditor’s footnote on the invoice constitutes “operational debt” is a different matter altogether: it is a jurisdictional fact that must be ascertained independently by the doctrine discussed below, irrespective of any assertion of either party and its timing. 

The debtor’s response merely highlights an independent jurisdictional fact for the Tribunal to verify. Thus, the Dispute Inception Paradox survives Mobilox scrutiny not by satisfying the pre-existing dispute test, but because that requirement was inapplicable to an uncontracted claim component in the first place. 

The Jurisdictional Facts Doctrine

The reconciliation above rests on a recognized doctrine of administrative law: the doctrine of jurisdictional facts. The tribunal’s jurisdiction to decide a case depends on certain facts that must be proved independently of the person relying on the tribunal’s jurisdiction.

The above-mentioned doctrine was laid down in the case of Arun Kumar v. Union of India, [(2007) 1 SCC 732]. Thus, the NCLT cannot rely on a creditor’s self-made calculation to satisfy Section 4’s ₹1 crore threshold. 

The Regulatory Framework Reinforces the Ruling 

This problem is not only a doctrinal one. In the wake of IBBI (CIRP) (Third Amendment) Regulations, 2026, [F. No. IBBI/2026-27/GN/REG152, notified 1 June 2026, effective 2 June 2026], Regulation 2-B was amended to require operational creditors to submit a separate account statement of principal due and interest charged separately. Along with the newly introduced provision of Section 64A of IBC through the IBC (Amendment) Act, 2026 [Act No. 6 of 2026, assented to on 6 April 2026, Gazette of India Extraordinary, Part II, Section 1, CG-DL-E-06042026-271594], which makes malicious or vexatious insolvency applications punishable, it becomes clear that there is unmistakable alignment between the statutory and regulatory provisions and the NCLAT’s rationale in Shivani Enterprises.

Why does this Matter for Commercial Certainty

The far-reaching consequences of this decision for commercial certainty are very important. The structure of IBC is such that it was meant to be a fast-track process for resolving an insolvent corporation’s case, but certainly not an aggressive tool for debt collection or penalties that are under dispute.  

1. Corporate protection: It shields a healthy corporation from any restructuring attempt because of unfair interest penalties imposed.  
2. Judicial Efficiency: It ensures that the NCLT is not overloaded with cases involving contractual litigation on invoices, as the NCLT was designed as a summary forum for resolving genuine insolvency cases.
3. It incentivizes the contractual discipline: It compels trade creditors to ensure that there are penalty clauses in their Purchase Order/Sales Contracts beforehand.  

Whether an unnegotiated invoice footer binds a party to pay interest is a fact-intensive question best resolved at a civil trial.  

The requirement of such a high level of predictability by courts is very much reflective of the evolving position of the Supreme Court in relation to procedural strictness in equivalent recovery mechanisms, as can be seen from cases like M.R.Vasumathi v. Authorized Officer [Civil Appeal No. 1606 of 2026, decided 9 June 2026; reported at 2026 LiveLaw (SC) 613] and the maintenance of predictability in auctions as mentioned in Celir LLP v. Mr. Sumati Prasad Bafna [Contempt Petition (C) Nos. 158–159 of 2024 in Civil Appeal Nos. 5542–5543 of 2023, decided 13 December 2024], courts have made it clear that they will uphold the stability and predictability of the commercial environment. 

Conclusion

The Shivani Enterprises judgment prevents procedural abuse by affirming that an invoice merely facilitates a contract and cannot replace consensus ad idem.  By deciding that non-negotiated claims for interest fail the operational debt test before any dispute question is reached, the NCLAT has ensured that solvent enterprises are not pushed into insolvency by such financial excesses. In comparison to Mobilox, the paradox does not undermine the criterion of pre-existing disputes; it only demonstrates how the same absence of documentation that keeps the claim out of Section 4 makes the Section 9 dispute question unnecessary to reach at all. The Dispute Inception Paradox underscores that, in insolvency and other legal fields, how a claim arises is as important as why it fails.

**Shekhar Patil is a 2^nd Year B.A., LL.B. (Hons.) Student at WBNUJS, Kolkata and a Researcher at the Centre for Financial and Regulatory Governance Studies, NUJS.

**Disclaimer: The views expressed in this blog do not necessarily align with the views of the Vidhi Centre for Legal Policy.