Pre-existing dispute in insolvency petition upheld; petition rejected where debtors substantiated reply demonstrated a bona fide dispute.

Pre-existing dispute raised by the corporate debtor in response to a demand notice was treated as a bona fide factual defence supported by documentary material; because the adjudicating authority relied on that reply, the insolvency petition by the operational creditor was rejected. The Tribunal upheld that where a corporate debtor establishes a valid dispute arising before the petition, the adjudicating authority is obliged to dismiss the petition, and such dismissal does not bar the creditor from pursuing its claims by other lawful means. A directors contrary letter does not automatically negate a dispute if the reply to the demand notice is substantiated.

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Issues: Whether the Adjudicating Authority was correct in rejecting the Section 9 application on the ground of a pre-existing dispute raised by the corporate debtor in reply to the demand notice.

Analysis: The Appellate Tribunal examined the reply to the demand notice issued by the corporate debtor and the letter dated 16.08.2024 referenced therein. The letter, signed by a director of the operational creditor, acknowledged that most invoices had been settled and quantified a remaining outstanding amount. The Tribunal treated the corporate debtor's reply as a valid notice of dispute within the meaning of Sections 8 and 9 of the Insolvency and Bankruptcy Code, 2016. The Tribunal observed that where such a notice of dispute exists, Section 9(5)(ii)(d) requires the Adjudicating Authority to reject the Section 9 application. The Tribunal found that the reply was supported by material (the director's letter) and was not a frivolous or sham defence; therefore the Adjudicating Authority's conclusion of a pre-existing dispute was sustainabl e.

Conclusion: The Adjudicating Authority's rejection of the Section 9 application on the ground of a pre-existing dispute is upheld; decision is in favour of the Respondent.

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