An application under Section 9 of the IBC is not maintainable where there exists a plausible pre-existing dispute between the parties prior to issuance of the demand notice; the adjudicating authority is only to ascertain the existence of such dispute and not to adjudicate its merits.

advocatemmmohan

Insolvency and Bankruptcy Code, 2016 — Section 9 — Operational debt — Pre-existing dispute — Scope —

Where material on record discloses existence of disputes between parties prior to issuance of demand notice, including correspondence, claims of defective supply, debit notes, and demand for reconciliation of accounts — Application under Section 9 not maintainable — Adjudicating Authority must reject such application.

(Paras 15–17, 21)

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Section 9 IBC — Test of “pre-existing dispute” —

Adjudicating Authority is required only to examine whether there exists a plausible dispute requiring investigation — It is not required to adjudicate merits or determine success of defence — Even a genuine dispute as to quality of goods or reconciliation of accounts suffices.

(Paras 19–21)

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Pre-existing dispute — Evidence — Correspondence prior to demand notice —

Existence of prior correspondence raising issues regarding defective supplies, demand for reconciliation, and police complaint before issuance of demand notice establishes pre-existing dispute.

(Paras 6, 15–17)

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IBC — Proceedings — Not recovery mechanism —

Proceedings under Section 9 are not intended for recovery of disputed dues — Where claim involves disputed questions requiring detailed evidence, remedy lies outside IBC framework.

(Para 7)

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Interest claims — Dispute — Effect —

Unilateral levy of interest through debit notes, especially retrospectively and without clear agreement, raises triable issues — Supports existence of dispute.

(Para 12)

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NCLAT — Scope of interference — Error —

NCLAT erred in reappreciating dispute and examining merits instead of limiting inquiry to existence of dispute — Reversal of NCLT unsustainable.

(Para 21)

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Accounting disputes — Reconciliation — Relevance —

Where accounts between parties require reconciliation and there is lack of clarity regarding amount due, existence of dispute is evident — Section 9 proceedings cannot be invoked.

(Paras 13, 17)

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RATIO DECIDENDI 

An application under Section 9 of the IBC is not maintainable where there exists a plausible pre-existing dispute between the parties prior to issuance of the demand notice; the adjudicating authority is only to ascertain the existence of such dispute and not to adjudicate its merits.

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RESULT

• Appeal allowed
• NCLAT judgment set aside
• NCLT order dismissing Section 9 application restored

(Para 22)