Pre-existing dispute under insolvency law bars admission of a Section 9 petition where the claim is genuinely contested.

A Section 9 insolvency petition must be rejected where the record shows a real pre-existing dispute before the demand notice. Applying the Mobilox test, the relevant enquiry is whether the defence was plausible and not spurious or illusory. Email correspondence showed that the corporate debtor had already complained of non-supply and delayed supply, linked that grievance to withholding payment, and later reiterated the same counter-claim in reply to the demand notice. The email dated 26.09.2017 was therefore not an unconditional acknowledgment of debt. Since the dispute existed before initiation of insolvency proceedings, it remained material despite the debtor's notice of dispute being issued beyond the ten-day window.

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Issues: Whether the Section 9 application was liable to be rejected for the existence of a pre-existing dispute between the parties.

Analysis: Section 8 of the Insolvency and Bankruptcy Code, 2016 requires the corporate debtor to bring any dispute to the notice of the operational creditor, and Section 9 read with Section 9(5)(ii) mandates rejection where a notice of dispute or record of dispute exists. Applying the test in Mobilox, the relevant enquiry is only whether there is a plausible dispute that existed before the demand notice and is not a patently feeble or illusory defence. The email correspondence before the assignment letter showed that the corporate debtor had already raised its claim of loss arising from non-supply and delayed supply under the earlier purchase order and had linked that dispute to withholding of payment under the later invoice. The later reply to the demand notice also reiterated the same counter-claim and challenge to the basis of liability. The email dated 26.09.2017 was therefore not an unconditional acknowledgment of debt but evidence of an ongoing commercial dispute. Since the appellant stepped into the shoes of the original supplier after that dispute had already surfaced, the existence of pre-existing dispute remained material for Section 9 scrutiny.

Conclusion: The Section 9 application was rightly rejected because a pre-existing dispute existed before initiation of the insolvency process.

Ratio Decidendi: A Section 9 petition must be rejected where the record shows a real and pre-existing dispute preceding the demand notice, even if the debtor's notice of dispute is issued beyond the ten-day window, so long as the dispute is not spurious or illusory.

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