Supreme Court affirms dismissal of Section 9 application due to pre-existing dispute

The Supreme Court upheld the decision to dismiss the Section 9 application due to a pre-existing dispute between the parties. The Corporate Debtor had disputed the claim and raised various counterclaims against the Operational Creditor, totaling Rs.3,45,59,139. Despite the undisputed Distributorship Agreement, the Tribunal found that the dispute raised did not justify initiating Section 9 proceedings under the I&B Code. Consequently, the Adjudicating Authority's dismissal of the Section 9 application was affirmed, leading to the dismissal of the appeal.

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Issues involved: Dismissal of Section 9 application based on pre-existing dispute between parties.

Summary:
The appeal was filed against the order dismissing the Section 9 application due to a pre-existing dispute, as per the judgment of the Honorable Supreme Court. The Corporate Debtor had responded to the Section 8 notice disputing the claim and raising various claims against the Operational Creditor. The Adjudicating Authority concluded that there was indeed a pre-existing dispute between the parties.

The Appellant's counsel argued that the pre-existing dispute raised by the Corporate Debtor was unfounded, as per the Distributorship Agreement between the parties. The counsel contended that no liability could be imposed based on the agreement, and no claim could be raised under the circumstances.

After hearing the arguments, the Tribunal examined the record, including the reply to the Section 8 notice, where the Corporate Debtor denied the claim and raised various counterclaims totaling Rs.3,45,59,139. The issues raised included non-reimbursement of GST claims, unpaid additional discounts, uncredited amounts for stock purchases, defective stocks, and unfulfilled promises regarding stock returns.

The Tribunal noted that the reply to the Section 8 notice highlighted a pre-existing dispute between the parties. It was observed that while the Distributorship Agreement was undisputed, the Appellant had claims against the Corporate Debtor. However, the Tribunal found that the dispute raised in response to the notice did not warrant the initiation of Section 9 proceedings under the I&B Code. Therefore, the Adjudicating Authority's decision to dismiss the Section 9 application was upheld, and the appeal was subsequently dismissed.

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