NCLAT upholds rejection of Section 9 insolvency petition over disputed operational debt from defective pump supplies

NCLAT dismissed the appeal challenging rejection of Section 9 application by the Adjudicating Authority. The operational creditor's insolvency petition was rejected due to pre-existing disputes regarding defective pump sets supplied under a tender. The tribunal held that once plausibility of pre-existing dispute is established, the Adjudicating Authority need not conduct detailed investigation as it has only summary jurisdiction under IBC. The corporate debtor's defense regarding quality issues was not spurious or illusory, making the operational debt disputed and unsuitable for Section 9 proceedings.

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Issues Involved:

1. Whether the Section 9 application was maintainable given the alleged pre-existing disputes.
2. Evaluation of evidence regarding the existence of pre-existing disputes.
3. The role of the Adjudicating Authority in determining the existence of disputes under the IBC framework.

Issue-wise Detailed Analysis:

1. Maintainability of Section 9 Application:

The primary issue was whether the Section 9 application filed by the Operational Creditor was maintainable, given the claim of pre-existing disputes by the Corporate Debtor. The Adjudicating Authority dismissed the application, citing the presence of pre-existing disputes. The Operational Creditor argued that the disputes were fabricated and not genuine, asserting that the Corporate Debtor's financial incapacity was the actual reason for non-payment. However, the Tribunal upheld the Adjudicating Authority's decision, emphasizing that the existence of disputes prior to the demand notice was sufficient to reject the Section 9 application under the IBC framework.

2. Evidence of Pre-existing Disputes:

The Tribunal evaluated the evidence presented to determine the existence of pre-existing disputes. The Corporate Debtor had communicated issues regarding delayed and defective supplies through emails and WhatsApp messages. While the Adjudicating Authority did not consider WhatsApp messages as evidence due to authenticity concerns, it relied on an email dated 07.01.2020, which highlighted issues with the pump-sets supplied by the Operational Creditor. This email, sent before the Section 8 demand notice, was deemed by the Tribunal as evidence of pre-existing disputes. The Tribunal also noted that the third-party inspection reports provided by the Operational Creditor were conducted before installation and did not verify the operational functionality of the pump-sets.

3. Role of Adjudicating Authority:

The Tribunal reiterated the limited jurisdiction of the Adjudicating Authority under the IBC, which is not to conduct a detailed investigation into disputes but to ascertain if a plausible dispute exists. Citing the Supreme Court's guidance in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., the Tribunal emphasized that the Adjudicating Authority's role is to identify whether the dispute is genuine and not spurious or illusory. The Tribunal agreed with the Adjudicating Authority's finding that the dispute required detailed inquiry by an appropriate forum, which was beyond the scope of the summary jurisdiction provided under Section 9 proceedings of the IBC.

Conclusion:

The Tribunal concluded that the defence raised by the Corporate Debtor was not spurious or illusory, and the existence of pre-existing disputes was established. Consequently, the Section 9 application was rightly dismissed by the Adjudicating Authority. The Tribunal dismissed the appeal, affirming that the Operational Creditor could pursue other legal remedies outside the IBC framework.

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