2026 (1) TMI 274 - AT - IBC

Information Utility record and demand-notice reply showing pre-existing payment dispute led to rejection of s.9 IBC application.

A s.9 IBC application was admitted despite an Information Utility record reflecting a dispute. The NCLAT held that s.9 proceedings are summary and, under ... Admission of section 9 application - notice of dispute has been received by the Operational Creditor - existence of record of dispute in the information utility - HELD THAT:- The Operational Creditor itself brought on the record, the Record of Information Utility. Section 9 proceedings are summary proceedings, which an Operational Creditor can initiate on there being existence of debt and default having been committed by the CD. Section 9, sub- section (5)(ii) requires the Adjudicating Authority to reject the application, if any of the circumstances from (a) to (e) are found. When there is record of dispute in the Information Utility, the Adjudicating Authority is obliged to reject the application. The legislative scheme of Section 9 is not for resolving any dispute between the Operational Creditor and the CD and when the record of Information Utility contains mention of dispute, the Adjudicating Authority is obliged to reject the application. The learned Counsel for the Appellant has rightly relied on the judgment of this Tribunal in Bhawani Prasad Mishra vs. Armaco Infralinks Pvt. Ltd. & Anr. [2025 (5) TMI 163 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, PRINCIPAL BENCH, NEW DELHI - LB] where it was held that 'The application filed by the Operational Creditor did not deserve admission and was liable to be rejected as required by Section 9(5)(ii)(d) of the IBC. Adjudicating Authority neither adverted to Section 9(5)(ii)(d) nor addressed itself to the said condition and proceeded to admit the application which order cannot be sustained.' It is also relevant to notice that Records of the Information Utility was produced and annexed by the Operational Creditor itself in its Section 9 application and in the reply to Section 9 application, the CD referring to the Record of Dispute in Information Utility has clearly pleaded that Section 9 application deserves rejection on this ground alone - The Adjudicating Authority in the impugned order has noticed in paragraph 7 (x) record of financial information and Form-D. However, in its consideration has not adverted to Record of Dispute as captured in the Certificate of Information Utility. Thus, there being Record of Dispute in the Information Utility, the Adjudicating Authority was obliged to reject Section 9 application as required by Section 9, sub-section (5)(ii)(d) and the order of admission of Section 9 application, cannot be sustained on this ground alone. Pre-existing dispute between the parties - HELD THAT:- The CD has supplied the giga pipes to Operational Creditor sourced from Giga Pipe Systems. Payments were made by the Operational Creditor to the CD and last payment was received by the CD on 24.08.2021. There was complete silence from Operational Creditor regarding excess payment made to the CD and it was for the first time in October 2023, when Statement of Account of Financial Year 2020-21 was sent by Operational Creditor to the CD, requiring confirmation - Section 9 application also deserved rejection under Section 9(5)(ii)(d) on the first ground that is notice of dispute having received by the Operational Creditor. The reply to Demand Notice on 20.07.2024 was clearly notice of dispute received from the CD. In view of above discussions, the order of the Adjudicating Authority admitting Section 9 application is unsustainable and deserves to be set aside. The impugned order dated 31.07.2025 is set aside. Section 9 application is rejected - appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the existence of a record of dispute in the Information Utility (showing the default status as 'DISPUTED') mandated rejection of the operational creditor's application under Section 9(5)(ii)(d). (ii) Whether a notice of dispute and other material on record conclusively established a pre-existing dispute between the parties, requiring rejection of the application under Section 9(5)(ii)(d) and rendering insolvency adjudication inappropriate for deciding the underlying accounting/set-off controversy. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Effect of 'record of dispute' in Information Utility on maintainability of Section 9 application Legal framework: The Court examined Section 9(5)(ii)(d), which obliges rejection of an application if either (a) notice of dispute has been received by the operational creditor, or (b) there is a record of dispute in the information utility. Interpretation and reasoning: The record of default (Form D) filed by the operational creditor itself showed that the corporate debtor disputed the default upon authentication, and the status was 'DISPUTED'. The Court held that Section 9 proceedings are summary and are not meant to resolve disputes; therefore, once the Information Utility record reflects a dispute, the Adjudicating Authority cannot ignore it and must reject the application. The Court found fault with the Adjudicating Authority for noticing the Information Utility material but not addressing the statutory consequence of the 'DISPUTED' status. Conclusion: Since there was a record of dispute in the Information Utility, the Adjudicating Authority was obliged to reject the Section 9 application under Section 9(5)(ii)(d). Admission of the application was unsustainable on this ground alone. Issue (ii): Whether a 'notice of dispute' and surrounding facts established a pre-existing dispute requiring rejection under Section 9(5)(ii)(d) Legal framework: The Court applied Section 9(5)(ii)(d) and evaluated whether a notice of dispute had been received by the operational creditor and whether the dispute was of a kind that barred insolvency admission. Interpretation and reasoning: The operational creditor's own pleadings and emails showed that, upon receiving the corporate debtor's ledger on 27.10.2023, the operational creditor objected on 30.10.2023 to two ledger entries reflecting amounts adjusted/set-off towards a third party. This exchange demonstrated a live dispute regarding reconciliation of accounts and the propriety of set-off. The Court further held that the corporate debtor's reply to the demand notice dated 20.07.2024 constituted a notice of dispute within the meaning of the Code, as it denied liability and asserted an existing dispute based on earlier correspondence. The Court emphasized that the controversy-whether the set-off/adjustment was permissible and whether any 'excess payment' was refundable-required adjudication on evidence and could not be determined in Section 9 summary proceedings. Conclusion: The Court held that (a) the 20.07.2024 reply was a notice of dispute, and (b) the October 2023 correspondence evidenced a pre-existing dispute over ledger entries/set-off. Therefore, the Section 9 application also deserved rejection under Section 9(5)(ii)(d) on the 'notice of dispute' ground, and the admission order was set aside and the application rejected.