Operational debt and pre-existing dispute defeat Section 9 insolvency admission where contractual liability is unproved.

A Section 9 insolvency application failed because the claimed operational debt was not proved from the contractual record and a genuine pre-existing dispute existed before the demand notice. The employment documents covered salary and some reimbursements, but they did not establish any agreed liability for leave encashment or imprest account claims, and later correspondence did not show consensus on those heads. The record also indicated settlement of other dues and counter-claims by the respondent. Correspondence on leave encashment, salary-related claims, service performance, medical fitness, and accommodation issues showed a dispute well before notice, barring admission of the application.

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Issues: (i) Whether any operational debt was due and unpaid by the corporate debtor. (ii) Whether there was a pre-existing dispute before issuance of the demand notice.

Issue (i): Whether any operational debt was due and unpaid by the corporate debtor.

Analysis: The claimed dues were examined against the appointment letters and subsequent communications. The employment documents provided for salary and certain reimbursements, but they did not contain any agreed clause for leave encashment or imprest account claims. The later correspondence also did not establish consensus on those heads of claim. The record further showed that other dues had been settled and counter-claims had also been raised by the respondent.

Conclusion: No proved operational debt or default was established on the claimed heads, and this issue was decided against the appellant.

Issue (ii): Whether there was a pre-existing dispute before issuance of the demand notice.

Analysis: The correspondence between the parties showed disagreement on leave encashment, salary-related claims, service performance, medical fitness, and accommodation issues well before the demand notice. Applying the settled test for Section 9 proceedings, the existence of a genuine dispute prior to the demand notice was sufficient to bar admission of the insolvency application.

Conclusion: A pre-existing dispute existed before the demand notice, and this issue was decided against the appellant.

Final Conclusion: The insolvency petition was not maintainable on the facts found, and the dismissal of the Section 9 application was sustained.

Ratio Decidendi: A Section 9 application must fail where the claimed operational debt is not established from the contractual record and a genuine dispute existed before the demand notice.

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