Operational debt and pre-existing dispute principles defeated a Section 9 insolvency claim on maintainability grounds.

An operational creditor's Section 9 insolvency claim was held unsustainable beyond the admitted principal amount because interest was not provided for in the governing agreement, the MoU claim lacked privity, and the Sales and Marketing Agreement claim could not be maintained by a non-party. The invoices were also treated as insufficiently supported in the absence of GST return or payment records despite opportunity. The record further showed complaints and communications about service deficiencies, financial mismanagement, unauthorized cash transactions and revenue issues before the demand notice, establishing a real pre-existing dispute rather than a moonshine defence. The insolvency application was therefore not maintainable.

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Issues: (i) Whether the operational creditor's claim, including interest and amounts said to arise under the MoU and the Sales and Marketing Agreement, satisfied the minimum threshold and constituted an admissible operational debt under the Insolvency and Bankruptcy Code, 2016. (ii) Whether there was a pre-existing dispute between the parties that barred admission of the Section 9 application.

Issue (i): Whether the operational creditor's claim, including interest and amounts said to arise under the MoU and the Sales and Marketing Agreement, satisfied the minimum threshold and constituted an admissible operational debt under the Insolvency and Bankruptcy Code, 2016.

Analysis: The monthly management fee under the Franchisee and Management Agreement was accepted only to the extent of the principal amount, while the claimed interest was found unsustainable because the agreement did not provide for interest on service fees. The claim under the MoU was rejected because the operational creditor was not a signatory and there was no privity of contract for that claim. The claim under the Sales and Marketing Agreement was also rejected because the operational creditor was not a party to that agreement. The invoices were found to be proforma invoices carrying GST particulars, but no supporting GST return or payment record was produced despite opportunity and the requirement under Regulation 2B.

Conclusion: The claim beyond the admitted principal amount was not maintainable, and the debt as pleaded did not cross the statutory threshold on a sustainable basis.

Issue (ii): Whether there was a pre-existing dispute between the parties that barred admission of the Section 9 application.

Analysis: The record disclosed complaints and communications regarding poor services, operational deficiencies, financial mismanagement, unauthorized cash transactions, revenue issues, and related counter-claims well before the demand notice. The materials also referred to a meeting held before the demand notice in which defects and deficiencies were raised. Although arbitration was invoked after the Section 9 filing, the earlier communications and contemporaneous material showed a real dispute existing prior to the insolvency action. The dispute was therefore not a mere moonshine defence.

Conclusion: A pre-existing dispute was established, and the Section 9 application was not maintainable.

Final Conclusion: The appeal failed because the impugned rejection of the insolvency application was sustained on both the maintainability of the claim and the existence of a prior dispute.

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