NCLAT Sets Aside Section 9 IBC Admission, Finds Pre-Existing Dispute and Continuing Contract Beyond Delivery Order Validity

The NCLAT allowed the appeal and set aside the admission of the Section 9 IBC application. It held that, by conduct, the contract between the operational creditor and corporate debtor continued beyond the stated one-year validity of the delivery order, with supplies to be made against advances even after expiry. However, the Tribunal found that a clear pre-existing dispute existed within the meaning of Sections 8 and 9, evidenced both by a detailed reply to the demand notice and by disputed entries in the Information Utility. As the statutory conditions of Section 9(5)(ii)(d) were satisfied, the Section 9 application was liable to be rejected, and the Adjudicating Authority's contrary order was unsustainable.

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Issues: (i) Whether the delivery order with one year validity continued as a subsisting contract by the parties' conduct after its expiry; (ii) Whether a pre-existing dispute existed within the meaning of Sections 8 and 9 of the IBC such that the Section 9 application required rejection; (iii) Whether the corporate debtor established that it never refused to supply coal against advances received.

Issue (i): Whether the delivery order with one year validity continued as a subsisting contract by the parties' conduct after its expiry.

Analysis: The delivery order stipulated a one year validity but subsequent correspondence and continued supplies after expiry show parties acted under the same contractual terms. Communications from the corporate debtor confirming future supply and operational creditor acknowledgments of supply up to a later date demonstrate continuation of performance by conduct.

Conclusion: The contract is held to have continued by conduct after expiry of the stated validity period; conclusion is in favour of the Appellant (corporate debtor).

Issue (ii): Whether a pre-existing dispute existed within the meaning of Sections 8 and 9 of the IBC such that the Section 9 application required rejection.

Analysis: The corporate debtor raised a detailed dispute in its reply to the demand notice and authenticated a dispute status in the Information Utility (Form C / NeSL) on the same day as the debt submission. Section 9(5)(ii)(d) mandates rejection where a notice of dispute has been received by the operational creditor or there is a record of dispute in an information utility. The record shows both conditions satisfied and the Adjudicating Authority did not properly apply this statutory bar when admitting the Section 9 application.

Conclusion: A pre-existing dispute existed and the Section 9 application should have been rejected; conclusion is in favour of the Appellant (corporate debtor).

Issue (iii): Whether the corporate debtor established that it never refused to supply coal against advances received.

Analysis: Correspondence before issuance of the demand notice indicates the corporate debtor expressed willingness and reasons for temporary suspension of supply (e.g., mine waterlogging) and reiterated readiness to supply thereafter. Contractual terms provided for refund of advance if unable to supply, but available material shows willingness to perform rather than an outright refusal.

Conclusion: The material supports that the corporate debtor did not repudiatively refuse supply; conclusion is in favour of the Appellant (corporate debtor).

Final Conclusion: On the composite findingscontinuation of the contract by conduct, existence of a bonafide pre-existing dispute recorded in the Information Utility, and absence of established refusal to supplythe admission of the Section 9 application was incorrect and the impugned order is set aside in favour of the Appellant.

Ratio Decidendi: Where a notice of dispute has been received by the operational creditor or there is an authenticated record of dispute in an information utility, Section 9(5)(ii)(d) requires rejection of the Section 9 application and the Adjudicating Authority must not admit insolvency proceedings despite an operational creditor's demand notice.

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