Pre-existing dispute bars Section 9 IBC relief where contemporaneous records show genuine objections to debt and supply performance.
An operational creditor's Section 9 IBC application was found untenable where the corporate debtor had raised a genuine pre-existing dispute before the demand notice on reconciliation of accounts, the claimed debt, delayed supplies, defective goods, non-supply of materials, and alleged contractual non-compliance. Contemporaneous communications supported these objections, showing that the dispute was real and not a sham. Subsequent arbitration steps did not negate that position because they arose after the demand notice and could not create the dispute afresh. A later communication was not treated as an unambiguous admission of liability or as extinguishing the earlier objections. The Section 9 petition was therefore rejected.
Issues: Whether the operational creditor's application under Section 9 of the Insolvency and Bankruptcy Code, 2016 was maintainable in view of a pre-existing dispute regarding the quantum of debt and the quality and performance of supplies.
Analysis: The Corporate Debtor had, before the demand notice, raised disputes regarding reconciliation of accounts, the existence of the claimed amount, delays in supplies, defective goods, non-supply of materials, and non-compliance with contractual obligations. The record showed contemporaneous communications predating the demand notice that substantiated these objections. The later arbitration applications did not alter the position, as they were initiated after the demand notice and therefore could not themselves create the pre-existing dispute. The communication of 24.04.2020 did not amount to an unambiguous admission of liability or extinguish the earlier disputes. Applying the settled test for a real dispute, the defence was found to be supported by material and not a mere sham.
Conclusion: The Section 9 application was rightly rejected because a pre-existing dispute existed before issuance of the demand notice, and the appeal failed.
TaxTMI 
AI Drafter ✕
TaxTMI 
