NCLAT Upholds Insolvency Against Butter, Ghee Maker Jhandewalas Foods

The National Company Law Appellate Tribunal (NCLAT) has recently upheld the initiation of corporate insolvency proceedings against butter and ghee manufacturer and trader Jhandewalas Foods Limited.

It held that the company's defence of a pre-existing dispute over unpaid dues was not supported by credible evidence and could not prevent the insolvency process.

A bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra observed, “In our considered view, we have no good grounds to disagree with the Adjudicating Authority that the alleged disputes claimed by the Corporate Debtor are feeble disputes not supported by credible evidence. In sum, no real pre-existing dispute is discernible.”

The appeal was filed by Raakesh B. Kulwal, suspended director of Jhandewalas, against an order of the Jaipur bench of the National Company Law Tribunal admitting Param Dairy Limited's plea for insolvency proceedings against the company.

Jhandewalas Foods manufactures and trades butter and ghee. It had business dealings with Param Dairy Limited, which supplied butter and ghee under confirmed purchase orders. According to the tribunal, the company made only part payments despite repeated requests to clear the outstanding dues.

Param Dairy later issued a demand notice claiming operational dues of ₹3.83 crore. This comprised a principal amount of ₹3.08 crore and compounded interest of ₹75.33 lakh.

Jhandewalas Foods contested the claim, alleging that some consignments of ghee and butter were of inferior quality. It claimed laboratory reports supported its case and asserted that around 67,310 kilograms of defective ghee had been returned to Param Dairy. The company further argued that the supplier had failed to account for the returned stock and reconcile the accounts.

According to the company, proper adjustments would show amounts recoverable from Param Dairy instead of amounts payable by Jhandewalas Foods. It also contended that the operational debt had not crystallised and that the insolvency proceedings were being used as a debt recovery mechanism.

Param Dairy argued that Jhandewalas Foods had acknowledged its liability by making part payments even after receiving the demand notice. It also maintained that no complaint, debit note, adjustment entry, or any other contemporaneous communication alleging defective goods had been issued before the demand notice.

The supplier further questioned the credibility of the laboratory reports. It pointed out that they were prepared more than ten days after receipt of the perishable goods and at a location different from where the consignments had been delivered.

After examining the record, the tribunal found inconsistencies in the company's reliance on the laboratory reports. It noted that the reports did not correspond with all four invoices cited by the corporate debtor. The tribunal also found no material showing that complaints regarding the quality of the goods or the laboratory reports had been communicated to Param Dairy before the demand notice was issued.

The tribunal observed, “Neither do we find any proof placed on record by the Appellant of any written communication having been contemporaneously sent by them to the Operational Creditor regarding the supply of inferior quality of goods. Hence, we are inclined to agree with the Operational Creditor that the complaint of defective consignments and related laboratory test report which surfaced after the service of Section 8 Demand Notice upon the Appellant shows that this was an afterthought and a moonshine defence.”

The tribunal also rejected the company's reliance on mediation proceedings. It noted that the mediation had been initiated only after the demand notice was issued and therefore could not constitute a pre-existing dispute.

The tribunal further noted that the butter maker continued to make part payments even after receiving the demand notice. It held that these payments amounted to an acknowledgment of the outstanding debt.

Holding that there was no genuine pre-existing dispute and that the operational debt remained unpaid, the tribunal dismissed the appeal. It upheld the order admitting the corporate insolvency resolution process against Jhandewalas Foods Limited.