Operational debt repayment before admission defeats Section 9 insolvency, and fresh unpleaded claims cannot sustain CIRP on appeal.

Corporate insolvency under the IBC depends on a subsisting default, and a Section 9 admission cannot stand once the operational debt pleaded in the Section 8 notice and application has been repaid before admission. The tribunal held that subsequent payment, if brought on record, extinguishes the foundational default and the insolvency process cannot continue on an already satisfied claim. It further held that a fresh GST or input tax credit claim not pleaded in the demand notice or Section 9 application cannot be introduced for the first time at appeal to sustain CIRP, because insolvency proceedings cannot be expanded into a recovery forum. The admission was set aside and the corporate debtor was released from CIRP.

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Issues: (i) Whether the admission of the Section 9 application could be sustained when the operational debt reflected in the demand notice and application had already been repaid before the order was passed and the subsequent development was not considered; (ii) Whether a claim not included in the Section 8 demand notice or the Section 9 application could be introduced at the appellate stage to sustain insolvency proceedings.

Issue (i): Whether the admission of the Section 9 application could be sustained when the operational debt reflected in the demand notice and application had already been repaid before the order was passed and the subsequent development was not considered?

Analysis: The statutory scheme of the Insolvency and Bankruptcy Code permits initiation of corporate insolvency resolution process only on proof of default. In an operational creditor's proceeding, the demand notice and the application must disclose the crystallised unpaid operational debt, and admission under Section 9 follows only if no payment of such debt exists. The record showed that the amount claimed in the demand notice and in the application had been remitted before the impugned order, and the pending applications placing this development before the adjudicating authority were not considered. Once the debt as pleaded in the proceeding stood satisfied, the foundational default no longer subsisted.

Conclusion: The admission order could not be sustained and was set aside in favour of the appellant.

Issue (ii): Whether a claim not included in the Section 8 demand notice or the Section 9 application could be introduced at the appellate stage to sustain insolvency proceedings?

Analysis: The operational creditor had not included the additional GST or input tax credit-related claim in the demand notice or in the Section 9 application. Insolvency proceedings cannot be expanded on appeal by introducing a fresh claim that was never pleaded as part of the operational debt before the adjudicating authority. Permitting such enlargement would convert insolvency proceedings into a recovery mechanism, which is inconsistent with the object of the Code.

Conclusion: The additional claim could not be relied upon to sustain the insolvency admission and this issue was decided in favour of the appellant.

Final Conclusion: The appeal succeeded, the insolvency admission was annulled, the corporate debtor was released from CIRP, and the respondent was left to pursue other remedies available in law.

Ratio Decidendi: Where the operational debt pleaded in a Section 8 notice and Section 9 application is fully paid before admission, no subsisting default remains and CIRP cannot be continued or sustained on the basis of fresh claims not originally pleaded in the insolvency application.

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