2025 (12) TMI 1007 - AT - IBC

Section 9 IBC claim rejected due to pre-existing dispute recorded in NeSL, following Mobilox principles on disputes

The NCLAT upheld the rejection of the operational creditor's application under Section 9 of the IBC, holding that a pre-existing dispute was clearly ... Rejection of Section 9 application filed by the Appellant - dispute exists between the parties or not - moonshine dispute - notice of dispute has been received by the operational creditor or not - record of dispute in the information utility exists or not - HELD THAT:- There cannot be any dispute that record of information utility contains a dispute which is noted in Part B in Column “status of authentication by debtor”. Thus, when information of dispute given by the Operational Creditor was communicated to the Corporate Debtor, Corporate Debtor has disputed the debt which is recorded in the NeSL record. The Hon’ble Supreme Court in Mobilox Innovations Private Limited [2017 (9) TMI 1270 - SUPREME COURT] held that “it may also reject the application if the notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility [Section 9(5)(ii)(d)]. Section 9(5)(ii)(d) refers to the notice of an existing dispute that has so been received, as it must be read with Section 8(2)(a). Also, if any disciplinary proceeding is pending against any proposed resolution professional, the application may be rejected [Section 9(5)(ii)(e)]”. The submission which has been pressed by the Appellant is that there was no genuine dispute since the proceeding which was initiated by Respondent No.1 for quashing the criminal complaint filed by the Appellant under Section 138 of NI Act has also been dismissed by the High Court. The dismissal of the petition for quashing the complaint has also been noticed by the Adjudicating Authority. The effect of dismissal by the High Court is that the criminal complaint filed by the Appellant against the Respondent No.1 is still pending before the Learned Magistrate where offence under Section 138 of the NI Act is alleged against the Operational Creditor. In the record of dispute, Respondent No.1 has said false information and wrong claim and further claim that “no such debt existed”. The debt is clearly denied by the Corporate Debtor which is captured by the NeSL in Part B - Present is a case where there is a record of dispute in the information utility. Section 8(2)(a) is a provision which provides that the corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub- section (1) bring to the notice of the operational creditor existence of a dispute, if any, or record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute. Section 8(2)(a) does not in any manner dilute the requirement of Section 9(5)(ii)(d). The initiation of insolvency against the Corporate Debtor has a serious consequences and when there are sufficient material to indicate that condition as mentioned in Section 9(5)(ii)(d) are in existence, Adjudicating Authority cannot proceed to ignore the same. There can be no dispute to the proposition laid down by the Hon’ble Supreme Court in Mobilox Innovations Private Limited vs. Kirusua Software Pvt. Ltd. [2017 (9) TMI 1270 - SUPREME COURT] that dispute which is contemplated in Section 8(2)(a) has to be a bonafide dispute. In the facts of the present case, in the record of information utility, the Corporate Debtor has disputed the debt which is recorded in the information utility. The proceeding under Section 9 is a proceeding which clearly contemplates that in event, when the notice of dispute has been received by the operational creditor and there is a record of dispute in the information utility, application is to be rejected - Section 9 proceeding is not a proceeding for deciding various contractual dispute between the parties and insolvency proceeding against the Corporate Debtor can proceed only in accordance with the statutory scheme under Section 9 and the statutory scheme under Section 9 itself contemplate that when there is a record of dispute in the information utility, the Adjudicating Authority had to reject the application. In the facts of the present case, the Adjudicating Authority did not commit any error in rejecting Section 9 application filed by the Appellant - appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the existence of a 'record of dispute' in the information utility, as reflected in the NeSL certificate, attracts Section 9(5)(ii)(d) of the Insolvency and Bankruptcy Code and mandates rejection of the Section 9 application. 1.2 Whether, in light of the principles laid down in the judgment interpreting Sections 8 and 9 of the Insolvency and Bankruptcy Code, the dispute recorded in the information utility can be disregarded as a 'moonshine' or non-genuine dispute for the purpose of admitting a Section 9 application. 1.3 Whether the rejection of the petition under Section 482 CrPC filed by the corporate debtor in relation to criminal complaints under Section 138 of the Negotiable Instruments Act negates the existence of a dispute for the purposes of Section 9 proceedings. 1.4 Whether the Adjudicating Authority was justified in rejecting the Section 9 application filed by the operational creditor in the facts and statutory scheme of the Insolvency and Bankruptcy Code. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Effect of 'record of dispute' in information utility under Section 9(5)(ii)(d) IBC Legal framework 2.1 The Court reproduced and relied on Section 9(5)(ii)(d) of the Insolvency and Bankruptcy Code, which requires the Adjudicating Authority to reject the application if 'notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility.' 2.2 The Court referred to the legislative scheme of Sections 8 and 9 as explained by the Supreme Court, including that the Adjudicating Authority 'may also reject the application if the notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility [Section 9(5)(ii)(d)].' Interpretation and reasoning 2.3 The Court noted that in the present case the NeSL record (Part B) showed the 'Status of Authentication by Debtor' as 'DISPUTED' and captured the corporate debtor's reasons: 'No such debt existed, Remarks- False information & wrong claim. We have already got stay order from honourable high court, Gujarat. This is already judicial matter.' 2.4 The Court held that this constituted a 'record of dispute in the information utility' within the meaning of Section 9(5)(ii)(d), as the information submitted by the operational creditor was expressly disputed by the corporate debtor and that dispute status was recorded in NeSL. 2.5 The Court emphasised that Section 9(5)(ii)(d) uses two distinct conditions in the alternative: (i) notice of dispute has been received by the operational creditor, or (ii) there is a record of dispute in the information utility. In the present case, the Court confined itself to the second condition. 2.6 Referring to an earlier decision of the Tribunal, the Court reiterated that when there is record of dispute in the information utility, the statutory condition under Section 9(5)(ii)(d) is 'fully in existence' and the Adjudicating Authority 'had to reject the application.' 2.7 The Court underscored that initiation of insolvency has serious consequences and that, given the statutory bar, the Adjudicating Authority cannot ignore the existence of a record of dispute in the information utility. Conclusions 2.8 The Court concluded that the NeSL entry showing the debt as 'disputed' with reasons given by the corporate debtor is a sufficient 'record of dispute in the information utility' under Section 9(5)(ii)(d). 2.9 On this ground alone, the statutory scheme required rejection of the Section 9 application, and the Adjudicating Authority acted in conformity with Section 9(5)(ii)(d). Issue 2: Nature and genuineness of dispute in light of the Supreme Court's interpretation of Sections 8 and 9 IBC Legal framework 2.10 The Court relied on the Supreme Court's exposition of Sections 8 and 9, particularly: (a) That Section 9(5)(ii)(d) refers to notice of an 'existing dispute', read with Section 8(2)(a); and (b) That the Adjudicating Authority must reject a Section 9 application if notice of dispute has been received or there is a record of dispute in the information utility, and that the Authority's task is to determine whether there is a 'plausible contention which requires further investigation' and whether the dispute is not 'spurious, hypothetical or illusory.' Interpretation and reasoning 2.11 The Appellant argued, relying on the Supreme Court judgment, that only a 'genuine' dispute, and not a 'moonshine' defence, can bar admission and that the dispute recorded in NeSL was not credible. 2.12 The Court noted that under the Supreme Court's test, the Adjudicating Authority does not examine the merits of the dispute in depth but is to see whether there is a plausible contention requiring further investigation and whether the dispute is not patently feeble or unsupported by evidence. 2.13 The Court held that Section 9 embodies a legislative scheme that a Section 9 application is not to be entertained when the debt is disputed and that, in particular, the existence of a record of dispute in the information utility is a specific statutory bar to admission. 2.14 Referring to the earlier Tribunal decision, the Court reaffirmed that Section 8(2)(a) 'does not in any manner dilute the requirement of Section 9(5)(ii)(d)' and that it is enough that a dispute exists; the Code intends to prevent operational creditors from using insolvency as a debt recovery tool where a dispute exists. 2.15 In the present case, the Court found that the corporate debtor has categorically denied the debt in NeSL ('no such debt existed', 'false information & wrong claim'), which is sufficient to establish the existence of a dispute for the limited purpose of Section 9(5)(ii)(d), without the Adjudicating Authority needing to go into detailed contractual adjudication. Conclusions 2.16 The Court rejected the Appellant's contention that the NeSL-recorded dispute was a mere 'moonshine' defence that could be ignored. Once a plausible dispute is recorded in the information utility, Section 9(5)(ii)(d) is triggered. 2.17 The Adjudicating Authority was not required to adjudicate the underlying contractual issues or the correctness of the denial; the existence of a recorded dispute itself barred admission of the Section 9 application. Issue 3: Effect of dismissal of the corporate debtor's petition under Section 482 CrPC concerning Section 138 NI Act proceedings Interpretation and reasoning 2.18 The Appellant contended that the corporate debtor's unsuccessful attempt to quash the criminal complaints under Section 138 of the Negotiable Instruments Act before the High Court demonstrated that the dispute raised by the corporate debtor was not genuine. 2.19 The Court noted that the dismissal of the quashing petition resulted in the continuation of the criminal complaints before the Magistrate, where offences under Section 138 are alleged. 2.20 The Court observed that in the NeSL record, the corporate debtor has still denied the very existence of the debt, describing the claim as 'false information & wrong claim' and stating 'no such debt existed.' 2.21 The Court held that the continued pendency of Section 138 proceedings and dismissal of the quashing petition do not negate the existence of a dispute for the purposes of Section 9; nor do they override the explicit statutory consequence of a recorded dispute in the information utility under Section 9(5)(ii)(d). Conclusions 2.22 The criminal proceedings under the Negotiable Instruments Act and the High Court's refusal to quash them do not eliminate or nullify the dispute recorded in NeSL. 2.23 For the limited, threshold inquiry under Section 9, the existence of the recorded dispute in the information utility remains decisive notwithstanding the status of the Section 138 proceedings. Issue 4: Validity of the Adjudicating Authority's rejection of the Section 9 application Interpretation and reasoning 2.24 The Court noted that the Adjudicating Authority had explicitly taken note of the NeSL record showing the debt as 'disputed' and had also given liberty to the operational creditor to file an affidavit clarifying the reason for the 'dispute' status. 2.25 Upon consideration of the NeSL certificate and the statutory language of Section 9(5)(ii)(d), the Court held that the conditions for rejection of the application were met, since there was a record of dispute in the information utility. 2.26 The Court reiterated that proceedings under Section 9 are not intended to resolve contractual disputes and that insolvency proceedings can be initiated only in strict compliance with the statutory requirements, which expressly bar admission where a record of dispute in the information utility exists. Conclusions 2.27 The Court held that the Adjudicating Authority did not commit any error in rejecting the Section 9 application in view of the recorded dispute in NeSL and the mandate of Section 9(5)(ii)(d). 2.28 The appeal was dismissed, with clarification that such dismissal does not preclude the operational creditor from pursuing any other remedies in law as permissible.