Pre-existing dispute test under insolvency law: belated objections and retained goods did not bar section 9 admission.

An application under section 9 of the Insolvency and Bankruptcy Code was found complete because invoices, delivery proof, payment records and follow-up emails showed supply of goods, receipt by the corporate debtor and outstanding operational debt. The asserted pre-existing dispute was rejected because no contemporaneous objection on quality, rejection or non-acceptance appeared in the demand notice reply; a belated denial was treated as spurious, and goods retained without timely rejection were treated as accepted under the sale-on-approval principle. Limitation was also found not to bar the claim. The application was admitted, moratorium was ordered, and an interim resolution professional was appointed.

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Issues: (i) whether the application under section 9 of the Insolvency and Bankruptcy Code, 2016 was complete and the operational debt and default were proved; (ii) whether there was a pre-existing dispute sufficient to bar admission of the application; (iii) whether the claim was within limitation.

Issue (i): whether the application under section 9 of the Insolvency and Bankruptcy Code, 2016 was complete and the operational debt and default were proved.

Analysis: The invoices, delivery proof, payment trail, balance confirmations and follow-up emails established supply of rough diamonds, receipt of goods by the corporate debtor, and outstanding dues. The material on record showed that the debt was operational in nature and that payment had not been made on the due dates.

Conclusion: This issue was answered in the affirmative and in favour of the petitioner.

Issue (ii): whether there was a pre-existing dispute sufficient to bar admission of the application.

Analysis: The reply to the demand notice did not disclose any prior dispute on quality, rejection, or non-acceptance of the goods. The objection that the diamonds were only given for polishing and not for sale was raised belatedly after the demand notice and after the goods had been utilised. Applying the standard of a real and plausible dispute, the defence was held to be spurious and unsupported by prior contemporaneous material. Section 24 of the Sale of Goods Act, 1930 was applied to hold that goods retained beyond a reasonable time without rejection do not prevent passing of property in the transaction.

Conclusion: This issue was answered against the corporate debtor and in favour of the petitioner.

Issue (iii): whether the claim was within limitation.

Analysis: The dates of default reflected in the invoices and the application showed that the claim was filed within the prescribed period, and no limitation bar was made out.

Conclusion: This issue was answered in favour of the petitioner.

Final Conclusion: The application under section 9 was admitted, moratorium was ordered under section 14, and an interim resolution professional was appointed for commencement of the corporate insolvency resolution process.

Ratio Decidendi: For admission of a section 9 application, the adjudicating authority must reject the petition only if there is a genuine pre-existing dispute supported by contemporaneous material; a belated and unsupported denial does not bar insolvency proceedings, and goods retained without timely rejection may amount to acceptance under the sale-on-approval principle.

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