NCLAT upholds dismissal of Section 9 IBC application due to pre-existing dispute over software services

NCLAT Principal Bench dismissed an appeal challenging rejection of Section 9 IBC application. The Adjudicating Authority correctly found pre-existing dispute between parties regarding software development services. Email exchanges from June-July 2021 showed end client's dissatisfaction with product delivery and quality before demand notice was issued in October 2021. Appellant raised consolidated invoice for undelivered milestones, adding to dispute. Respondent sent indemnity notice citing faulty services and initiated mediation under Commercial Courts Act. NCLAT held sufficient evidence existed of pre-existing dispute regarding e-wallet product delivery and incorrect invoicing, justifying dismissal under Section 9(5)(ii)(d) IBC.

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Issues Involved:
1. Whether there is a pre-existing dispute between the parties.
2. Whether the appeal can be allowed.

Summary:

Issue 1: Pre-existing Dispute
The Appellant, M/s Kellton Tech Solutions Limited, entered into a "Software Development and Service Agreement" with the Respondent, M/s Actas Technologies Private Limited, for developing a customized e-wallet platform. The Appellant provided services and raised invoices, but the Respondent failed to pay the last two invoices. The Appellant claimed no pre-existing dispute existed as per the agreed mechanism in Clause 3.4 of the agreement. However, the Respondent argued there was a genuine pre-existing dispute regarding the quality and delivery of the work, supported by various emails and an indemnity notice. The Tribunal noted several key events indicating disputes, such as emails from the Respondent and the end client raising concerns about the quality and delay of the project. The Tribunal concluded there was sufficient evidence of a pre-existing dispute, citing the judgment of the Hon'ble Apex Court in Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited.

Issue 2: Allowance of Appeal
The Appellant claimed the Adjudicating Authority wrongly dismissed their application under Section 9 of the IBC. However, the Tribunal found no error in the Adjudicating Authority's decision, which was based on the evidence of pre-existing disputes. The Tribunal emphasized that the Appellant's participation in pre-institution mediation proceedings further supported the existence of a dispute. Consequently, the Tribunal upheld the dismissal of the application under Section 9(5)(ii)(d) of the IBC and dismissed the appeal.

Conclusion:
The Tribunal dismissed the appeal, affirming the Adjudicating Authority's finding of a pre-existing dispute and the dismissal of the Company Petition filed by the Operational Creditor.

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