Section 9 insolvency petition cannot be used as a recovery tool where the operational debt is disputed and parallel cheque proceedings are pending.

A section 9 Insolvency and Bankruptcy Code petition was held not maintainable where the insolvency process was being used as a recovery mechanism rather than to trigger genuine corporate insolvency resolution. The tribunal noted that the operational debt was disputed, substantial payments had already been made, cheques had been issued, and cheque-dishonour proceedings under the Negotiable Instruments Act were already pending on the same transactions. Because the claim involved contested balance and interest issues, the matter was not a clear undisputed default suitable for summary admission under the Code. The petition was therefore rejected at the admission stage.

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Issues: (i) whether a petition under section 9 of the Insolvency and Bankruptcy Code, 2016 was maintainable when the proceedings were used primarily for recovery of the alleged dues rather than for initiation of corporate insolvency resolution process; (ii) whether the pending cheque-dishonour proceedings and surrounding dispute negatived admission of the petition.

Issue (i): whether a petition under section 9 of the Insolvency and Bankruptcy Code, 2016 was maintainable when the proceedings were used primarily for recovery of the alleged dues rather than for initiation of corporate insolvency resolution process.

Analysis: The petition arose from operational transactions and the respondent had already made substantial payments, issued cheques, and disputed the balance and interest claim. The record showed that criminal proceedings under section 138 of the Negotiable Instruments Act, 1881 had already been initiated in respect of the same set of cheques. In these circumstances, the petition was viewed as an attempt to pressurise the corporate debtor and recover the alleged dues through insolvency machinery. The Code was held not to be a substitute for a recovery forum, especially in a section 9 proceeding where the process is summary in nature.

Conclusion: The petition under section 9 was not maintainable as it was effectively invoked for debt recovery rather than for a genuine insolvency remedy, and the conclusion was against the appellant.

Issue (ii): whether the pending cheque-dishonour proceedings and surrounding dispute negatived admission of the petition.

Analysis: The existence of cheque-related proceedings under the Negotiable Instruments Act, 1881, together with the contested balance and interest, showed that the claim was not a straightforward undisputed default fit for admission under the Code. The Adjudicating Authority held that it could not resolve these disputed questions in summary insolvency proceedings and that the pendency of parallel proceedings reinforced the conclusion that the matter was essentially disputed.

Conclusion: The pending parallel proceedings and dispute barred admission of the petition, and the conclusion was against the appellant.

Final Conclusion: The petition failed at the admission stage because the insolvency process was being used as a recovery device in a disputed claim, and the corporate insolvency remedy was held unavailable on these facts.

Ratio Decidendi: A section 9 insolvency petition is not maintainable where it is employed as a recovery mechanism in a disputed claim, particularly when the claim is already the subject of pending proceedings and does not disclose a clear, undisputed operational debt fit for admission.

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