Why Dunzo failed to defend itself against insolvency petition

The National Company Law Tribunal (NCLT), Bengaluru Bench, on 6 August admitted Quick-commerce startup Dunzo Digital Private Limited into the Corporate Insolvency Resolution Process (CIRP). The order was passed today in response to a petition filed by Velvin Packaging Solutions Pvt. Ltd., an operational creditor, over a default of ₹2.29 crore.

The tribunal, comprising Judicial Member Shri Sunil Kumar Aggarwal and Technical Member Shri Radhakrishna Sreepada, found Dunzo’s defenses against the petition to be “vague,” “an afterthought,” and unsupported by evidence. The ruling underscores the stringent standards for raising a “pre-existing dispute” under the Insolvency and Bankruptcy Code (IBC), 2016.

Background of the Dispute

Velvin Packaging, a Mumbai-based supplier, claimed it had supplied goods to Dunzo between July 2022 and April 2023, raising 107 invoices totalling over ₹6.81 crore. After adjusting for payments received, an amount of ₹1.92 crore (principal) remained unpaid, which, with interest, swelled the claimed debt to ₹2.29 crore. A formal demand notice was served in September 2023.

Despite being served notice of the petition in March 2024, Dunzo repeatedly failed to file its objections on time. The company initially sought time for a settlement and, after missing several deadlines, even approached the National Company Law Appellate Tribunal (NCLAT). The NCLAT granted a final two-week extension in November 2024, but Dunzo only managed an e-filing of its objections in December 2024, failing to submit hard copies as required until very recently.

Dunzo’s Defenses Dismantled

The tribunal’s order systematically rejected Dunzo’s key arguments:

1. “No Money Owed” Contradicted by Settlement: Dunzo’s primary claim that it owed no money to Velvin was directly contradicted by a settlement agreement dated June 24, 2024. In this agreement, Dunzo had acknowledged a debt and promised to pay ₹1.5 crore to Velvin, of which only ₹35 lakh was paid. The tribunal noted this agreement “falsifies the initial stand of the respondent.”
2. Vague and Unsubstantiated Disputes: Dunzo attempted to raise disputes regarding the “nature of goods supplied” but failed to provide any contemporaneous evidence, such as emails or inspection reports, proving that these issues were raised before the demand notice. The tribunal cited the Supreme Court’s landmark Mobilox judgment, emphasizing that a dispute must be “pre-existing” and real, not a “patently feeble legal argument” or a spurious defense raised later.
3. Settlement Does Not Extinguish IBC Proceedings: Dunzo argued that the settlement agreement changed the default date and amount, and that disputes should be referred to arbitration as per the agreement. The tribunal rejected this, stating that a post-default settlement, unless fully complied with, does not wipe out the original cause of action. It relied on the NCLAT’s ruling in Trafigura India Pvt. Ltd. v. TDT Copper Ltd., clarifying that while a breach of a settlement itself is not an “operational debt,” the creditor can still pursue the original, unpaid operational debt.
4. Unproven Part-Payment Claim: Dunzo’s counsel orally claimed an additional ₹20 lakh was paid post-settlement, bringing the debt below the ₹1 crore threshold for initiating CIRP. However, the company failed to produce any bank statements or receipts as proof, leading the tribunal to dismiss this claim.

Tribunal’s Ruling and Immediate Implications

The NCLT held that Velvin Packaging had conclusively established the existence of an operational debt and a default. It found no merit in Dunzo’s defenses and confirmed that all statutory requirements for admission under Section 9 of the IBC were met.

Consequently, the tribunal:

• Admitted Dunzo Digital Private Limited into CIRP.
• Declared an immediate moratorium under Section 14 of the IBC, prohibiting any new or ongoing lawsuits, transfer of assets, or recovery actions against the company.
• Appointed Shri Srinivas Vaidyanath Subramaniam as the Interim Resolution Professional (IRP) to manage the company’s operations and assets during the process.
• Directed Velvin Packaging to deposit ₹2 lakh with the IRP to cover initial administrative costs.

The IRP is now tasked with inviting claims from all creditors, forming a Committee of Creditors (CoC), and managing Dunzo’s affairs in an attempt to rescue the beleaguered firm. The next hearing is scheduled for October 9, 2025, to review the IRP’s initial report.

Broader Impact

This order marks a critical juncture for Dunzo, once a prominent player in India’s hyper-competitive quick-commerce sector. The admission into CIRP provides a shield from creditors through the moratorium but also initiates a time-bound process that could lead to either a revival or liquidation of the company. The ruling also serves as a stark reminder to corporate debtors that courts will rigorously scrutinize defenses raised to thwart genuine insolvency petitions, especially those lacking credible, pre-existing evidence.

Also See: Kolkata-based Priya Food staring at insolvency; Aditya Birla Capital plea against company admitted in NCLT