Section 9 insolvency petition not maintainable where operational debt is disputed and arbitration is the agreed remedy

An application under section 9 of the Insolvency and Bankruptcy Code was held not maintainable because the claimed operational debt was not shown to be undisputed and the underlying contract provided a negotiated dispute-resolution process followed by arbitration. The tribunal found that invoices and email exchanges showed only an asserted liability to pay, not the absence of a real dispute requiring insolvency intervention. It further held that the Code cannot be used as a debt-recovery mechanism where the parties have an agreed contractual remedy. The petitioner was directed to pursue the arbitral process, and insolvency proceedings were not admitted.

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Issues: Whether an application under section 9 of the Insolvency and Bankruptcy Code, 2016 was maintainable when the operational debt was not shown to be undisputed and the underlying agreement contained an arbitration clause.

Analysis: The operational creditor relied on invoices and email exchanges to show outstanding dues, but the record also showed that the parties' agreement provided for dispute resolution through mutual negotiations and, failing that, arbitration. The admitted correspondence indicated only a promise to pay and did not establish, to the required standard, that there was no dispute requiring adjudication outside the insolvency framework. The Adjudicating Authority held that the Code is not a mechanism for recovery of money where the dispute can be resolved through the contractual dispute-resolution process. It also noted that the petitioner had not exhausted the agreed alternative remedy and could invoke the arbitration clause.

Conclusion: The section 9 insolvency application was not maintainable for initiation of corporate insolvency resolution process; the petitioner was relegated to the contractual arbitration remedy.

Final Conclusion: The petition was disposed of without admission of insolvency proceedings, and the parties were directed to pursue resolution through the agreed arbitral mechanism.

Ratio Decidendi: A section 9 insolvency petition cannot be used as a debt-recovery tool where the claimed dues are not established as an undisputed operational debt and the contract provides an effective dispute-resolution mechanism such as arbitration.

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