Operational debt under an toll collection agreement still fails insolvency admission where a genuine pre-existing dispute exists.

An amount claimed under a toll tax and ECC collection arrangement was treated as an operational debt because it arose from a contractual arrangement for services linked to the municipal levy and collection function. The tribunal also found a genuine pre-existing dispute, noting that objections over remittances, revenue loss, force majeure, and the contractual basis of payment had been raised before the demand notice in prior proceedings. Applying the section 9 standard, the existence of that antecedent, non-spurious dispute barred insolvency admission and justified rejection of the application.

---

---

Issues: (i) Whether the amount claimed by the municipal corporation in connection with the Toll Tax and ECC agreement is an operational debt under the Insolvency and Bankruptcy Code, 2016; (ii) Whether a pre-existing dispute existed between the parties so as to justify rejection of the section 9 application.

Issue (i): Whether the amount claimed by the municipal corporation in connection with the Toll Tax and ECC agreement is an operational debt under the Insolvency and Bankruptcy Code, 2016

Analysis: The agreement for collection of toll tax and ECC was entered into pursuant to the municipal corporation's statutory power to levy and collect toll tax and to entrust collection to a private agency. The amount payable by the contractor arose from the contractual arrangement connected with the provision and collection-related services, and the definition of operational debt under section 5(21) turns on a claim in respect of goods or services without confining the enquiry to who is the supplier or receiver. The debt was therefore treated as falling within the statutory concept of operational debt.

Conclusion: The amount claimed was held to be an operational debt.

Issue (ii): Whether a pre-existing dispute existed between the parties so as to justify rejection of the section 9 application

Analysis: The record showed repeated disputes raised by the contractor before the municipal authorities and in writ proceedings long before issuance of the section 8 demand notice. Those disputes concerned reduction in remittances, loss of revenue, force majeure, and the contractual basis of the payment obligation. The disputes were considered by the High Level Committee, by the Commissioner, and in proceedings before the High Court, showing that they were real and antecedent to the demand notice. Applying the settled standard under section 9, the adjudicating authority was required to reject the application once a genuine pre-existing dispute existed and the dispute was not merely spurious, hypothetical, or illusory.

Conclusion: A pre-existing dispute was held to exist, and the section 9 application was correctly rejected.

Final Conclusion: The debt was recognised as operational, but the existence of an antecedent genuine dispute barred insolvency admission, so the appellate challenge failed and the order refusing section 9 relief was sustained.

Ratio Decidendi: Even where the claimed amount qualifies as operational debt, a section 9 application must be rejected if a genuine pre-existing dispute existed before the demand notice and the dispute is not spurious, hypothetical, or illusory.

---