Lyka Labs v. Modi Lifecare: invoices not mandatory for Section 9 IBC admission under a Technical Guidance Agreement

The facts in brief

Lyka Labs Ltd., a Mumbai-listed pharmaceutical company, and Modi Lifecare Industries Pvt. Ltd. executed a Technical Guidance Agreement on 14 September 2012. Under that agreement, Lyka Labs supplied technical know-how for the manufacture and marketing of certain pharmaceutical formulations, and Modi Lifecare undertook to pay a minimum annual royalty — set at ₹1 crore per annum in the first years, escalating to ₹2 crore and then ₹3 crore in later periods — or 5% of sales, whichever was higher.

The minimum-royalty obligation was the operative architecture: it was payable each year regardless of whether Modi Lifecare actually achieved sales of the licensed formulations. The construct is familiar from licensing, franchise and take-or-pay arrangements across pharmaceuticals, technology and media — the licensor's revenue floor is bargained for at contract, not contingent on the licensee's commercial fortunes.

Modi Lifecare paid the royalty for several years and then defaulted on the minimum-royalty obligation for the period 2020 through 2023. Lyka Labs computed the shortfall — the difference between actual royalty paid and the contractual minimum — at ₹63 lakh and issued a demand notice under Section 8 of the Insolvency and Bankruptcy Code 2016. Modi Lifecare's response contested the claim and asserted that a pre-existing dispute had been raised in earlier inter-party correspondence.

Lyka Labs filed a Section 9 application before NCLT Ahmedabad. The Adjudicating Authority rejected the application on two grounds: that invoices for the minimum-royalty component had not been raised, and that there appeared to be a pre-existing dispute. Lyka Labs appealed under Section 61 IBC. On 19 May 2026, the NCLAT Principal Bench — Chairperson Justice Ashok Bhushan with Members (Technical) Barun Mitra and Arun Baroka — set aside the NCLT order, held that invoices were not mandatory under the TGA architecture, rejected the pre-existing-dispute defence, and directed Modi Lifecare to deposit ₹63 lakh within 30 days, failing which CIRP admission under Section 9 would follow.

The invoice question — existence versus quantification

The legal question turned on the construction of Section 5(21) IBC, which defines "operational debt" as a claim in respect of the provision of goods or services, and on Regulation 7 of the CIRP Regulations 2016, which prescribes the documentary support an operational creditor must furnish — typically including invoices, statements of accounts and demand notices.

NCLT Ahmedabad had treated the invoice as a documentary precondition: no invoice, no Section 9 admission. NCLAT rejected that reading.

The Bench's logic is that the invoice serves an evidentiary function — it crystallises the quantum of the obligation in a self-documenting form that the operational debtor can scrutinise. But where the underlying contract itself spells out both the existence of the obligation (the minimum-royalty covenant) and its quantum (the rupee figures schedule), the invoice has no independent work to do. A Section 9 application supported by the executed contract, the calculation of the shortfall, and the Section 8 demand notice meets the documentary threshold for operational-creditor maintainability.

That reasoning aligns Section 9 doctrine with the Supreme Court's line in Mobilox Innovations v. Kirusa Software (2018) 1 SCC 353 — that the existence-and-quantification of operational debt is to be tested on the contractual record before the Adjudicating Authority, with the procedural niceties of accounting practice not converted into jurisdictional bars.

The pre-existing dispute defence

The second NCLT ground — pre-existing dispute — fared no better. Modi Lifecare had pointed to correspondence purportedly raising a dispute about the royalty computation. The Bench applied the Mobilox test rigorously: the dispute must pre-date the Section 8 demand notice and be supported by contemporaneous record sufficient to satisfy the Adjudicating Authority that the dispute is "real" and not "spurious, hypothetical or illusory."

Modi Lifecare's correspondence was found to be after-the-fact justification raised in response to the Section 8 notice rather than a pre-existing contestation of the royalty liability. The minimum-royalty covenant in the TGA had been performed by Modi Lifecare for several years without dispute; the sudden invocation of an asserted disagreement only on receipt of the Section 8 notice did not satisfy the threshold.

The "harass or embarrass" frame

A distinct doctrinal thread in the judgment is the Bench's rejection of the suggestion that the Section 9 application had been filed to "harass or embarrass" Modi Lifecare. That formulation has emerged in NCLAT jurisprudence as a bona fides filter — borrowed in spirit from the Supreme Court's strictures in Innoventive Industries v. ICICI Bank (2018) 1 SCC 407 against the misuse of the IBC as a debt-recovery cudgel where no genuine insolvency exists.

The Bench's reading is that the bona fides filter cannot be inverted into a presumption against operational creditors who are pursuing genuine contractual liabilities. Where the existence and quantum of the debt are evident on the contractual record, the application is, by definition, "based on material facts" and does not attract the harass-or-embarrass disqualification. The framing also implicitly cautions Adjudicating Authorities against treating Section 9 admissions as inherently suspect — the harass-or-embarrass filter has work to do only against applications anchored in genuinely contested or evidentially thin claims.

The deposit-or-CIRP direction

Rather than directly admitting Modi Lifecare into CIRP, the Bench fashioned a deposit-or-admission direction: ₹63 lakh to be deposited within 30 days of the order, failing which NCLT Ahmedabad would be free to admit the corporate debtor into CIRP under Section 9. This is now a familiar NCLAT practice — it preserves the operational creditor's substantive entitlement while giving the corporate debtor a final commercial opportunity to discharge the admitted liability and avoid the disruptive consequences of CIRP admission (interim resolution professional taking control, moratorium under Section 14, classification of the debtor as "under CIRP" with attendant reputational and financial-market effects).

The conditional admission framework also addresses a recurring critique of Section 9 admissions for relatively small debts — that triggering full CIRP for a ₹63 lakh shortfall imposes disproportionate collateral consequences on the corporate debtor and its other creditors. By offering the deposit window, the Bench routes the matter back to a substantive payment outcome where possible, reserving CIRP for genuine recalcitrance.

Doctrinal significance

Lyka Labs extends the operational-creditor universe beyond the traditional goods-supplier and services-vendor segments. Contract-anchored revenue floors — minimum royalty, retainer fees, take-or-pay quantities, minimum-billing commitments, franchise floors, technical-guidance fees — are now squarely within Section 9 reach. The decision will encourage operational creditors in the pharmaceutical licensing, technology services, media-licensing and retail-franchise segments to invoke Section 9 without first developing invoice-based documentation.

The judgment also widens the existence-versus-quantification distinction that the Supreme Court traced in Mobilox and that NCLAT itself has refined in cases such as Bhuvee Stenovate v. Marri Mavanna (2024). The contractual record, where sufficiently detailed, is itself the documentary spine of a Section 9 application; supplementary accounting documentation is supportive, not jurisdictional.

The complementary discipline is on the pre-existing-dispute side. Corporate debtors cannot manufacture a dispute by responding to a Section 8 notice with previously-unraised contentions; the dispute must have a contemporaneous footprint. The combined effect is to sharpen the threshold maintainability inquiry — both the operational creditor's claim and the corporate debtor's defence must rest on the pre-notice contractual record.

What this means for take-or-pay and licensing arrangements

Practitioners advising on technical-guidance, licensing, franchise, retainer and take-or-pay contracts should review their dispute-resolution and termination provisions in light of Lyka Labs. Three operational implications follow.

First, the minimum-payment covenant should be drafted with clear quantification — the rupee figures should be set out year-by-year so that the existence-and-quantum of the obligation can be tested on the contract face without ambiguity. Where the figure is variable (linked to sales, inflation or external indices), the calculation methodology should be self-contained and auditable.

Second, the contract should specify whether invoices are required as a precondition to payment or are merely administrative. Lyka Labs establishes that invoices are not jurisdictionally required, but contracting parties remain free to make invoicing a contractual condition precedent — in which case the failure to invoice may give the debtor a contractual defence even if the Section 9 jurisdictional threshold is met.

Third, dispute-resolution clauses (arbitration, expert determination, mediation) should be drafted with attention to the IBC timing question. A pre-existing arbitration reference or formally crystallised dispute will defeat a Section 9 application; the corporate debtor that anticipates non-performance should consider invoking such mechanisms before a Section 8 notice arrives, rather than scrambling to manufacture a dispute afterwards.

After the judgment

Modi Lifecare's path forward narrows to two options: deposit ₹63 lakh within the 30-day window, or face CIRP admission. An SLP to the Supreme Court is possible — particularly to test the invoice-as-evidentiary-device characterisation and the harass-or-embarrass filter — but the Supreme Court's repeated affirmation of the Mobilox framework makes a reversal unlikely on these facts.

For NCLAT jurisprudence, Lyka Labs sits alongside the Principal Bench's other 2026 operational-creditor decisions — including the Akshay Kumar Bhatia v. CueLearn line on celebrity endorsement contracts and the Embassy Developments line on threshold maintainability discipline — as part of a coherent body of doctrine sharpening Section 9 admission standards.

The Insolvency and Bankruptcy Board of India may consider clarificatory guidance on Regulation 7 of the CIRP Regulations to specify that contract-anchored debts without periodic invoicing qualify for Section 9 documentary sufficiency. Until such guidance issues, operational creditors should rely on the Lyka Labs ratio and ensure their Section 9 applications are accompanied by the executed contract, a calculation worksheet, and the Section 8 demand notice as the core documentary package.

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Sources

1. LiveLawBiz — "'Not Filed To Harass Or Embarrass': NCLAT Sets Aside Rejection Of Lyka Labs CIRP Plea Against Modi Lifecare": https://www.livelawbiz.com/ibc/not-filed-to-harass-or-embarrass-nclat-sets-aside-rejection-of-lyka-labs-cirp-plea-against-modi-lifecare-534969
2. IBC Laws case digest — Lyka Labs v. Modi Lifecare (Comp. App. (AT) (Ins) 726/2024): https://www.indialaw.in/blog/insolvency-bankruptcy/invoice-requirements-section-9-ibc-nclat/
3. Cyril Amarchand Blogs — NCLAT 2026 operational-creditor jurisprudence overview: https://corporate.cyrilamarchandblogs.com/category/insolvency-bankruptcy-code/
4. BarandBench — NCLAT operational-creditor coverage: https://www.barandbench.com/news/litigation