2025 (11) TMI 959 - AT - IBC

Section 9 admission set aside; corporate debtor released from CIRP due to plausible pre-existing dispute over transactions

Nimish Sanghavi Suspended Director Of Clothwari Printing Pvt. Ltd. Versus Insight Print Communications Pvt. Ltd. And Mr. Dinesh Gopal Mundada

NCLAT PB, New Delhi allowed the appeal, set aside the Adjudicating Authority's admission of the Section 9 application and directed immediate release of ... Admission of section 9 application - case of established debt and default on the part of the Corporate Debtor or not - pre-existing dispute was not substantiated by the Corporate Debtor by placing on record sufficient evidence to that effect - HELD THAT:- The dispute raised by the Corporate Debtor that payment of the printer machine and printer cartridges were two distinct and disconnected transactions and hence payment of Rs. 5 Lakhs cannot be construed as part-payment for the printer does not appear to be specious. The Adjudicating Authority is only required to look into the Reply to the Section 8 Demand Notice to find out whether a pre-existing dispute was decipherable from the reply. As long as a dispute over a claim of payment is apparent from the Reply notice, as is contemplated by Section 8(2) of the IBC, that by itself is sufficient enough to thwart an application under Section 9. As long as the defence raised by the Corporate Debtor is not a moonshine dispute, it is not the remit of IBC to investigate such disputes. No Section 9 application can be raised for disputes whose adjudication would entail leading of evidence. Any such exercise would fall beyond the scope, remit and summary jurisdiction of the Adjudicating Authority under the statutory framework of IBC. The Hon’ble Supreme Court in its judgment in Mobilox Innovations Pvt. Ltd. Vs Kirusa Software Pvt. Ltd. [2017 (9) TMI 1270 - SUPREME COURT] has held that it is enough that a dispute exists. The Adjudicating Authority has to only look into the factual matrix as to whether there is a plausibility of dispute and that the defence of pre-existing dispute raised by the Corporate Debtor is not a feeble defence or unsupported by evidence without entering into adjudication of the dispute. The Adjudicating Authority has incorrectly allowed the Section 9 application filed by the Operational Creditor inspite of a plausible dispute pointed out by the Corporate Debtor in their Reply Notice of dispute. The Adjudicating Authority has committed a patent error in not appreciating the facts of the case in the correct perspective. The impugned order, therefore, cannot be sustained - The Corporate Debtor is forthwith released from the rigours of CIRP. It however goes without saying that we have not expressed any views on the merits of the dispute. Setting aside of the impugned order will however not come in the path of the Operational Creditor to seek alternative remedies before an appropriate forum in accordance with law The impugned order is set aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Adjudicating Authority was justified in admitting a Section 9 application and ordering CIRP when the Corporate Debtor had raised a pre-existing dispute in response to the Section 8 demand notice. 2. Whether the reply to the Section 8 demand notice and contemporaneous communications (two e-mails) constituted a plausible, non-spurious pre-existing dispute sufficient to bar the Section 9 application under the framework of the IBC. 3. Whether a payment of Rs. 5,00,000 made after delivery of the machine but prior to filing of the Section 9 application constituted a part-payment/acknowledgement extending the limitation period and negating the contention of non-existence of dispute. 4. Whether the Adjudicating Authority erred in failing to apply the test for 'existence of dispute' as articulated by the controlling precedent governing summary adjudication under the IBC. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of Section 9 application in presence of a pre-existing dispute Legal framework: Section 8(2) permits a Corporate Debtor served with a demand notice to raise a notice of dispute; Section 9(5)(2)(d) requires rejection of an otherwise complete Section 9 application if a notice of dispute has been received. Precedent Treatment: The Court applied the established test that a pre-existing dispute need only be plausible and not patently feeble or illusory; adjudication of merits is not required at the Section 9 stage. Interpretation and reasoning: The Corporate Debtor's reply to the demand notice contained a categorical denial of liability and specific factual averments (defective/second-hand machine, rejection elsewhere, payment was for cartridges). Those averments were framed before filing of the Section 9 application. The Tribunal is required to examine whether the notice of dispute discloses a real dispute discernible from facts stated; the impugned order failed to give due weight to the content of the reply and contemporaneous e-mails which, read together, disclosed factual contestation on performance and payment. Ratio vs. Obiter: Ratio - Where a reply to a demand notice on record discloses a plausible factual dispute, the Adjudicating Authority must reject the Section 9 application; it is unnecessary to try the dispute at that stage. Conclusion: The Adjudicating Authority erred in admitting the Section 9 application despite a bona fide pre-existing dispute being raised in the reply to the Section 8 notice; admission was unsustainable. Issue 2 - Sufficiency of the Reply to Section 8 and two e-mails as evidence of a plausible pre-existing dispute Legal framework: The statutory test focuses on existence of dispute as per Section 8(2); the Adjudicating Authority must be satisfied only as to plausibility, not ultimate success. Precedent Treatment: The Court relied on the controlling precedent that separates 'grain from chaff' and requires rejection only if the dispute is not a spurious or illusory plea. Interpretation and reasoning: The reply to demand notice expressly denied any operational debt and specifically alleged defective performance, prior rejection at a third party, and that the Rs. 5 Lakh was for cartridges. The two e-mails (dated 25.03.2022 and 24.05.2022) from the Operational Creditor acknowledged non-receipt of payment and simultaneously referred to underperformance and provision of engineering support, thereby corroborating that performance issues impacted payment. Taken holistically, these documents reveal a substratum of protracted differences on performance and payment and are not mere afterthoughts or blatantly frivolous assertions. Ratio vs. Obiter: Ratio - Contemporaneous communications by the Operational Creditor acknowledging performance issues can corroborate the existence of a pre-existing dispute; such correspondence is relevant at Section 9 stage to test plausibility. Conclusion: The reply to the Section 8 notice together with the e-mails constituted sufficient material to demonstrate a plausible pre-existing dispute; the Adjudicating Authority should have treated the dispute as capable of thwarting the Section 9 application. Issue 3 - Effect of Rs. 5,00,000 payment: acknowledgement/part-payment and limitation Legal framework: A part-payment may, in certain circumstances, operate as an acknowledgement and affect limitation; at Section 9 stage, the character of such payment must be examined only to the extent it negates or supports the claim of dispute. Precedent Treatment: The Court applied the established approach that the Adjudicating Authority must look at the reply to the demand notice to see whether the payment was pleaded as part of the disputed transaction or as a separate transaction. Interpretation and reasoning: The Corporate Debtor's reply expressly states the Rs. 5 Lakh was paid for replacement cartridges on the advice of the claimant's engineers and was not payment against the invoice for the machine. The Court found it plausible that a small payment years after delivery, when contrasted with an outstanding claim of over Rs. 3 crore, was made for a discrete remedial supply and not as acknowledgment of the principal debt. The Adjudicating Authority's conclusion that the payment constituted part-payment and extended limitation ignored the explicit averment and surrounding facts which rendered the part-payment characterization contested and not incontrovertible. Ratio vs. Obiter: Ratio - Where the reply to the demand notice specifically pleads that a payment was for a separate transaction, that pleading is sufficient to create a bona fide dispute as to character of payment for the purpose of Section 9 admissibility; detailed inquiry into limitation/acknowledgement is not appropriate at summary stage. Conclusion: The Rs. 5 Lakh payment did not conclusively operate as part-payment/acknowledgement negating the dispute; the characterization advanced by the Corporate Debtor was plausible and should have been accepted at the Section 9 threshold. Issue 4 - Application of the Mobilox test and scope of Adjudicating Authority's inquiry under IBC Legal framework: The Adjudicating Authority's summary jurisdiction under IBC is limited; it must reject applications where a plausible pre-existing dispute is on record without undertaking full adjudication. Precedent Treatment: The Tribunal expressly applied the Mobilox principle that the existence of a dispute need only be plausible and not adjudicated in extenso; the precedent was followed to require rejection of Section 9 where dispute is not a mere façade. Interpretation and reasoning: The impugned order failed to apply the Mobilox standard correctly - it overlooked contemporaneous admissions and the detailed reply which cumulatively disclosed factual contentions requiring further investigation. The Court held that it is not the remit of IBC to investigate disputes entailing evidence-heavy adjudication at the admission stage, and that the Adjudicating Authority must separate spurious defences from plausible ones; here, the defence was not spurious. Ratio vs. Obiter: Ratio - The Mobilox test governs the threshold enquiry; adherence to that test requires rejection of Section 9 where a non-spurious, fact-based dispute appears from the record. Conclusion: The Adjudicating Authority misapplied the test for existence of dispute; correct application mandated rejection of the Section 9 application. Final Disposition (legal conclusion) The impugned order admitting the Section 9 application and initiating CIRP was unsustainable because the Corporate Debtor's reply and contemporaneous communications disclosed a plausible, non-spurious pre-existing dispute (including dispute over the nature of the Rs. 5 Lakh payment). The Adjudicating Authority's failure to treat that material as sufficient at the summary threshold contravened the established test for Section 9 admissibility; accordingly, the admission was set aside and the Corporate Debtor released from CIRP (without adjudicating merits or precluding alternate remedies).