Salary dues insolvency claim under IBC s.9 rejected as pre-existing dispute shown and s.10A barred alleged defaults.

An operational creditor challenged rejection of its IBC s.9 application on the ground that no pre-existing dispute existed. Applying SC precedent in Mobilox, the AT held that the adjudicating authority must reject a s.9 application if there is a genuine dispute shown by a plausible contention requiring further investigation, and not a patently feeble or unsupported defence; here, written refutation prior to the demand notice and the reply to the demand notice constituted a "notice of dispute" under s.9(5)(ii)(d), and the creditor's prolonged silence on alleged salary dues supported the existence of dispute. The AT further held that alleged defaults from September 2020 to February 2021 were barred by IBC s.10A, and no admission beyond February 2021 was shown. The appeal was dismissed.

---

---

1. ISSUES PRESENTED AND CONSIDERED

1. Whether the operational creditor's claim for unpaid salary and allied employment-related dues was liable to be rejected under Section 9 due to the existence of a pre-existing dispute communicated prior to issuance of the Section 8 demand notice.

2. Whether the defences raised by the corporate debtor (including cessation/termination of employment upon acceptance of independent directorship in the holding company, and non-rendering of services) constituted a plausible dispute requiring further investigation, rather than a moonshine or illusory defence, thereby barring admission under Section 9.

3. Whether the email relied upon by the operational creditor amounted to an admission of liability sufficient to negate dispute and support admission, and whether the portion of claim reflected therein could sustain a Section 9 proceeding in view of Section 10A.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Rejection of Section 9 application due to pre-existing dispute

Legal framework: The Court applied the principle that a Section 9 application must be rejected if notice of dispute has been received by the operational creditor prior to the demand notice, and the adjudicating authority only examines whether the dispute is real and plausible, not whether it will ultimately succeed.

Interpretation and reasoning: The Court found that, before the Section 8 demand notice, the operational creditor had issued a legal notice claiming arrears, and the corporate debtor responded in writing disputing entitlement to salary and other claims with detailed reasons. The reply asserted that the operational creditor did not perform obligations under the employment arrangement and that the employment ceased upon acceptance of independent directorship in the holding company. The Court treated these communications as demonstrating that the claim stood contested prior to initiation under Section 9.

Conclusions: Because the claim had been refuted in a detailed written response prior to the Section 8 demand notice and reiterated thereafter, the Court held there was a pre-existing dispute, warranting rejection of the Section 9 application.

Issue 2: Whether the corporate debtor's defence was plausible (not moonshine) so as to bar Section 9 admission

Interpretation and reasoning: The Court examined the principal factual controversy: the date and effect of the operational creditor's appointment/acceptance as an independent director in the holding company, and whether that resulted in cessation of employment with the corporate debtor. The Court noted documentary material showing acceptance of the independent director offer on a stated date and a declaration in which the operational creditor described his position and indicated no employment with the company or its subsidiaries in the relevant disclosure. Although the operational creditor relied on regulatory filings showing another date, the Court held that the competing materials revealed a genuine dispute on core entitlement and period of service, not an afterthought. The Court further considered the absence of contemporaneous communications demanding salary for a substantial period as supporting the existence of a real contest over employment and salary accruals. The Court also accepted that the dispute involved matters requiring further enquiry, which cannot be undertaken in a Section 9 proceeding.

Conclusions: The Court held the corporate debtor's defence was supported by record material and involved questions needing investigation; it was therefore not a moonshine or illusory defence. This independently reinforced rejection of the Section 9 application.

Issue 3: Effect of the relied-upon email and applicability of Section 10A

Interpretation and reasoning: The Court evaluated the email relied upon as an "admission" of salary arrears. It construed the email as a proposal for resolution that also reiterated the corporate debtor's position that employment could not continue after acceptance of independent directorship. The email proposed only a limited computation of salary for an initial period and denied other heads such as IPO bonus and broader stock-related claims. The Court held the email did not acknowledge liability for the full claim asserted in the Section 9 application. Additionally, the Court held that the limited salary period referred to in the email fell within the period barred by Section 10A, and therefore could not found a Section 9 application.

Conclusions: The email did not amount to an admission sufficient to eliminate dispute for the larger claim; and, in any event, the portion reflected in the email could not sustain Section 9 due to Section 10A. The Court therefore rejected reliance on the email to seek admission of the insolvency application.

---