Pre-existing dispute can bar Section 9 insolvency even where limitation is otherwise within time.

Limitation for a Section 9 insolvency application runs from the date of default under the Limitation Act as applied by the IBC, and a part payment may restart the three-year period; on the facts noted, the application was within time. Admission can still be refused where the record shows a plausible pre-existing dispute before the demand notice, including objections on commission computation and asset-related claims. A dispute supported by correspondence and prior material is not treated as illusory in summary insolvency proceedings, so the petition cannot be admitted despite limitation being satisfied.

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Issues: (i) Whether the Section 9 application was barred by limitation on the basis of the date of default shown in the demand notice. (ii) Whether there was a pre-existing dispute between the parties so as to bar admission of the insolvency petition.

Issue (i): Whether the Section 9 application was barred by limitation on the basis of the date of default shown in the demand notice.

Analysis: The date of default was initially mentioned as 27.08.2016 in the demand notice, but the record also showed a part payment on 28.04.2017. The limitation period for an application under the insolvency code is governed by the Limitation Act, 1963, as made applicable by the insolvency code, and the period runs from the date of default. On the facts recorded, the last part payment restarted the period of limitation, and the application filed on 01.10.2019 was within three years from that date. The finding of the Adjudicating Authority that the matter was time-barred was therefore not accepted.

Conclusion: The application was not barred by limitation.

Issue (ii): Whether there was a pre-existing dispute between the parties so as to bar admission of the insolvency petition.

Analysis: The correspondence and material on record showed controversy regarding commission computation and claims relating to salvageable and non-salvageable assets. The corporate debtor had raised objections before the insolvency demand notice, including reliance on the alleged arrangement reflected in the 28.08.2012 meeting minutes. The dispute was not a mere sham and required deeper examination than is permissible in summary insolvency proceedings. Applying the settled test for existence of dispute, the defence was found to be plausible and not illusory.

Conclusion: A pre-existing dispute existed, and the Section 9 petition could not be admitted.

Final Conclusion: The appeal failed because the operational creditor could not overcome the finding of prior dispute, although the limitation objection was rejected. The dismissal of the insolvency application was upheld.

Ratio Decidendi: Where a plausible pre-existing dispute on the operational debt exists before the demand notice, a Section 9 insolvency application cannot be admitted, even if the claim on limitation is otherwise within time.

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