When a message is undeliverable, Microsoft SMTP Service returns it to the sender with a non-delivery report (NDR). You can also designate that copies of the NDR be sent to a location of your choice. If the NDR cannot be delivered to the sender, a copy of the message is put in the Badmail directory.
All NDRs go through the same delivery process as other messages, including attempts to resend the message. If the NDR has reached the retry limit and cannot be delivered to the sender, a copy of the message is placed in the Badmail directory. Messages placed in the Badmail directory cannot be delivered or returned.