2025 (10) TMI 276 - AT - IBC

Admission of Section 9 petition set aside where pre-existing civil suit and plausible defense exist under Sections 8-9 and Mobilox

Rajjath Goel Versus Maxworth Infrastructure Pvt. Ltd. & Anr.

NCLAT, Principal Bench allowed the appeal and set aside the adjudicating authority's admission of the Section 9 application. The Tribunal held a ... Admission of Section 9 application filed by the operational creditor - debt arising from Term Sheet between the parties is an operational debt or not - pre-existing dispute between the parties - requirement to deliver a demand notice of unpaid operational debt - HELD THAT:- There is no denial to the fact Civil Suit has been filed by the operational creditor prior to issuance of demand notice. The record of pendency of the Suit was very much brought into the notice of adjudicating authority in reply to demand notice as well as in reply to Section 9 application. The pleadings in the suit clearly indicate that in the suit also the operational creditor who was plaintiff has pleaded that amount of ₹ 12.76 crore is due on the defendant i.e., the operational creditor and due to non-payment of said amount, the mandatory injunction be issued against the defendant. The demand notice is also for the same amount of ₹ 12.76 crore which, according to the operational creditor is due. The written statement was filed in the suit and the claim of the plaintiff was refuted. The pre-existing dispute has arisen between the parties which is adjudication before the Civil Court. The scheme of Sections 8 & 9 indicate that if any Suit or arbitration proceedings have been filed before the receipt of the demand notice and notice of dispute has been issued by the corporate debtor, the adjudicating authority is to reject the Section 9 application by virtue of Section 9(5)(ii)(d). In the present case, both notice of dispute has been received by the operational creditor and in the reply to the demand notice, it was brought into the notice of the operational creditor about the pendency of suit as contemplated by Section 8(2)(a) thus as per legislative scheme under Sections 8 & 9 where a Civil Suit is pending between the parties in which the same amount is claim by the operational creditor as amount in default for which demand notice has been issued, there was clearly a pre-existing dispute between the parties. Hon’ble Supreme Court in Mobilox Innovations Pvt. Ltd. [2017 (9) TMI 1270 - SUPREME COURT] has held that it is enough that a dispute exists. The observation which has been given in Mobilox Innovations Pvt. Ltd. that adjudicating authority has to look into as to whether there is a plausible contention which must be preceded and the defence is not patently feeble unsupported by any evidence. Present is a case where defence raised by the corporate debtor cannot be said to be a feeble defence or unsupported by evidence. The above judgement of the Hon’ble Supreme Court clearly supports the submission of the appellant in the present case. Thus, present is a case where pre-existing dispute between the parties was writ large, more so Civil Suit had already been filed by the operational creditor where same amount was treated to be due on the corporate debtor for which demand notice has been subsequently issued. The Suit was filed more than one and a half year before issuance of demand notice in which Suit written statement was also filed, disputing the claim set up in the plaint. The present is a clear case of pre-existing dispute between the parties - Present was a case where there was pre-existence of dispute and Civil Suit was filed by the operational creditor itself, much prior to giving demand notice which is pending in the Civil Court. It was not the case where adjudicating authority could have admitted Section 9 application. Adjudicating authority committed an error in admitting Section 9 application in the facts of the present case. The adjudicating authority has noticed the contention of the corporate debtor regarding pendency of Civil Court. Adjudicating authority has brushed aside the said argument observing that the Suit cannot be come in the way of prosecuting Section 9 petition. The order passed by the adjudicating authority is thus unsustainable. The order passed by the adjudicating authority admitting Section 9 application is unsustainable and deserves to be set aside. In the result appeal is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the adjudicating authority erred in admitting an application under Section 9 of the IBC when there existed a pre-existing dispute between the parties and a civil suit relating to the same claim was pending prior to issuance of the demand notice. 2. Whether reliance by the adjudicating authority on observations made in an anticipatory bail proceeding of a High Court (including statements recorded of counsel) can be treated as an admission of debt for the purpose of admitting a Section 9 application. 3. Whether the amount claimed under the Term Sheet constitutes an operational debt capable of being the subject of a Section 9 application (not decided as a separate major issue but raised in submissions). ISSUE-WISE DETAILED ANALYSIS - Issue 1: Pre-existing dispute and pending civil suit Legal framework: Sections 8 and 9 of the IBC require an operational creditor to serve a demand notice and the corporate debtor to raise any dispute within 10 days; Section 9(5)(ii)(d) mandates rejection where notice of dispute is received or there is record of pre-existing suit/arbitral proceedings filed before receipt of demand notice. Precedent treatment: The Court applied the principles in the Supreme Court decisions establishing that an adjudicating authority must examine (i) existence of operational debt, (ii) documentary evidence of debt and non-payment, and (iii) whether a pre-existing dispute or a suit/arbitration pending before receipt of demand notice exists; the test for 'existence of dispute' is whether a plausible contention requiring further investigation (not a patently feeble defence) is raised. Interpretation and reasoning: The Court reviewed the demand notice, the corporate debtor's reply to the demand notice, prior communications (including earlier notices and responses in 2021), the plaint of a civil suit filed before issuance of the demand notice, and the written statement filed in that suit well before the demand notice. The reply to the demand notice specifically pleaded (i) denial of any operational debt, (ii) prior notices and responses, (iii) pendency of a criminal FIR, and (iv) pendency of the civil suit. The plaint in the civil suit expressly sought relief premised on non-payment of the same balance claimed in the demand notice and quantified the outstanding amount; the defendant's written statement denied liability and asserted that 'nothing remains due.' The Court concluded these pleadings disclose a real and substantial pre-existing dispute determinable in civil proceedings and thus trigger Section 9(5)(ii)(d). Admission of the Section 9 application would convert an insolvency summary proceeding into adjudication of contractual disputes contrary to the statutory scheme. Ratio vs. Obiter: Ratio - where a civil suit relating to the same claimed amount is filed before issuance of a demand notice and the corporate debtor has filed a written statement disputing the claim, the adjudicating authority must treat the matter as a pre-existing dispute and reject the Section 9 application under Section 9(5)(ii)(d). Obiter - general remarks distinguishing certain tribunal precedents where no pre-existing suit or where alternative fora (e.g., MSME authority) did not amount to pre-existing dispute. Conclusion: The adjudicating authority erred in admitting the Section 9 application because the operational creditor had instituted a civil suit before issuing the demand notice and the corporate debtor had, prior to the demand notice, raised a plausible, non-spurious dispute in the suit and in its reply to the demand notice; Section 9 admission was therefore unsustainable and the Section 9 application was to be dismissed. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Reliance on High Court anticipatory bail order as admission of debt Legal framework: Adjudicating authority must base admission decisions on statutory criteria in Sections 8-9 and documentary/material evidence showing debt, default and absence of pre-existing dispute; orders in unrelated criminal proceedings are not per se documentary admissions of civil liability. Precedent treatment: The Court relied on the statutory scheme and on principles requiring a material to amount to an admission of debt rather than incidental observations recorded in criminal or bail proceedings; prior case law requires that findings relied upon must sufficiently address the statutory tests for Section 9 admission. Interpretation and reasoning: The Court examined the High Court order in the anticipatory bail matter and observed that the High Court had explicitly stated it was not expressing any opinion on merits and had noted that the dispute between the parties related to contractual rights to be adjudicated by civil courts. The High Court's recorded observation that a payment was 'yet to come' was not an unequivocal admission of debt; rather it recognized the existence of contractual disputes and the civil forum's role. The adjudicating authority's conclusion that the High Court order constituted an admission of the specific debt was therefore unfounded. Ratio vs. Obiter: Ratio - an order in criminal proceedings, where the court expressly refrains from commenting on merits and notes the existence of a dispute founded on documentary material, cannot be treated as an admission of civil liability for the purposes of admitting a Section 9 application. Obiter - cautionary comments on the evidentiary weight to be attached to statements made by counsel and to other court records outside the civil adjudicatory context. Conclusion: The adjudicating authority erred in treating the High Court anticipatory bail order (and statements in that proceeding) as an admission of the alleged debt; such reliance cannot substitute for absence of a pre-existing dispute under Sections 8-9. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Characterisation of the claimed sum as operational debt Legal framework: Section 4 defines 'operational debt'; Section 9 contemplates an operational creditor invoking insolvency resolution for unpaid operational debt. Precedent treatment: The Court noted submissions on whether the Term Sheet/sale transaction constituted operational debt but did not make a separate dispositive finding against the creditor on this ground because the appeal was decided on pre-existing dispute; prior jurisprudence recognises sale obligations can constitute operational debt where they fall within statutory definitions. Interpretation and reasoning: The Court observed the Term Sheet quantified consideration and the operational creditor alleged outstanding balance. However, given the existence of the civil suit and pleadings denying liability, the Court did not need to resolve the deeper question of characterisation of the debt for Section 9 admission once pre-existing dispute was established. Ratio vs. Obiter: Obiter - the issue of whether the sum is an operational debt was noted but not authoritatively decided because the appeal was disposed of on the ground of pre-existing dispute. Conclusion: The Court did not adjudicate the operational-debt characterisation as the admitted error (admission despite pre-existing dispute) was sufficient to set aside the Section 9 admission; the parties remain free to pursue substantive claims and defences in the pending civil suit. FINAL CONCLUSIONS AND RELIEF 1. The Court concluded there was a pre-existing dispute: a civil suit claiming the same amount preceded the demand notice and a written statement denying liability was on record; the corporate debtor had given timely notice of dispute under Section 8(2). 2. The adjudicating authority's reliance on the High Court anticipatory bail order as an 'admission' of debt was unsustainable. 3. Admission of the Section 9 application was therefore wrongful; the Section 9 application was dismissed and the impugned admission order set aside. The parties are permitted to pursue all contentions in the pending civil suit; each party to bear its own costs.