Section 9 application for recovery of unpaid invoices of supplied goods upheld, default found and CIRP initiation affirmed.

Maintainability of a Section 9 application concerned whether invoices for supplied goods constituted an operational debt, whether default had occurred, and whether pre-existing disputes barred recovery. The tribunal found undisputed delivery of 346 ovens and admitted only part payments, establishing an outstanding operational debt and consequent default; outcome: admission of the Section 9 application and initiation of CIRP. The plea of a pre-existing exclusivity dispute based on a separate agreement with a sister concern was rejected as not genuine or relevant, and foreign injunction proceedings were held distinct from the invoices and not a bar to the claim.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the unpaid amounts under the six invoices constituted an operational debt due and payable by the Corporate Debtor, and whether default was established for admission under Section 9.

(ii) Whether the defences raised by the Corporate Debtor disclosed any genuine pre-existing dispute so as to bar admission of the Section 9 application.

(iii) Whether the alleged disputes based on (a) proposed buy-back of unsold goods, (b) alleged exclusivity under a separate agreement, (c) a commercial suit filed after the demand notice, and (d) foreign injunction proceedings involving a different entity, could be treated as pre-existing disputes connected to the invoice debt.

(iv) Whether, upon dismissal of the appeal, directions were required regarding continuation/completion of the insolvency process and payment of outstanding CIRP costs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Existence of operational debt and default based on invoices

Legal framework (as discussed): The Court examined whether the claim fell within "operational debt" arising from supply of goods and whether the debt had become due and payable, with default, for admission under Section 9.

Interpretation and reasoning: The Court treated the six invoices as primary evidence of the transaction and found they were raised in the Corporate Debtor's name, reflecting a seller-buyer relationship. The Corporate Debtor did not dispute receipt of 346 ovens, did not dispute quality/quantity/price, and had made only part-payments, leaving an outstanding principal amount. The Court rejected the plea that payment was contingent on resale by dealers, holding this to be contrary to the invoices' stipulated 180-day payment term and interest clause, and unsupported by documentary proof. The Court also noted the Corporate Debtor's admission that sale proceeds were received from dealers and payments were thereafter made to the Operational Creditor (after certain deductions), reinforcing that the Corporate Debtor received and dealt with the goods as buyer.

Conclusions: The Court upheld the finding that an operational debt was established and that default occurred, as the outstanding invoice amount had become due and payable and remained unpaid.

Issue (ii) & (iii): Whether any genuine pre-existing dispute existed barring Section 9 admission

Legal framework (as applied): The Court applied the principle that admission under Section 9 is barred where there is a real and bona fide pre-existing dispute; illusory or "moonshine" disputes do not suffice.

Interpretation and reasoning: On the alleged buy-back of 25 unsold ovens, the Court held that even assuming non-buyback, it represented a small fraction of total supplied goods and did not negate the large outstanding amount. The Court found the Corporate Debtor's stance internally inconsistent: asserting it was merely a facilitator and not purchaser, yet claiming the Operational Creditor agreed to "buy back" goods, which presupposes a prior sale to the Corporate Debtor. This defence was held to be lacking substance and characterised as a moonshine dispute.

On alleged breach of exclusivity due to the Operational Creditor's steps to establish presence in India, the Court held that the exclusivity claim was founded on an agreement executed with a different entity and not with the Corporate Debtor. As the Corporate Debtor was not a signatory/executant, it could not selectively rely on that agreement to assert exclusivity. The Court therefore found this dispute frivolous and not a tenable pre-existing dispute.

On the commercial suit filed in India, the Court agreed that it was instituted after receipt of the Section 8 demand notice and therefore could not qualify as a pre-existing dispute for purposes of Section 9.

On the foreign injunction proceedings, the Court held that the proceedings were between the Operational Creditor and a different legal entity, and the Corporate Debtor was not a party. The Court emphasised the distinct corporate identities and held that litigation involving one entity could not be treated as a dispute with another. It further noted absence of reference to those proceedings in the reply to the demand notice and found the reliance on them to be an afterthought. Additionally, the subject matter of those proceedings was held not to pertain to the unpaid invoices, and therefore not connected to the invoice default.

Conclusions: The Court concluded that none of the asserted disputes were genuine, bona fide, and pre-existing in relation to the invoice debt; accordingly, admission of the Section 9 application was not vitiated on the ground of dispute.

Issue (iv): Consequential directions upon dismissal of the appeal

Interpretation and reasoning: After affirming admission and dismissing the appeal, the Court considered the request concerning continuation of the insolvency process and noted that no resolution plan had been put to vote and that the process timeline had expired, while the resolution professional had continued managing the Corporate Debtor as a going concern.

Conclusions: The Court dismissed the appeal, vacated the interim stay, granted an additional 60 days to complete the process, and directed payment of outstanding CIRP costs to the resolution professional subject to approval of the committee of creditors and in accordance with law.

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