New Delhi, April 23 -- Law firms are closely watching a potentially precedent-setting case before India's bankruptcy courts that could have far-reaching implications for companies dealing with entities facing international sanctions.

At the heart of the dispute lies a key question: can companies legitimately withhold payments to a sanctioned supplier, or can the supplier initiate insolvency proceedings over non-payment? Whichever way this question is ultimately settled is likely to reshape bankruptcy disputes in India.

The issue has surfaced after the National Company Law Tribunal (NCLT) Ahmedabad, in a 26 March order, held that foreign sanctions cannot be used as a defence to avoid payment of dues to operational creditors such as suppl...