Pre-existing dispute under Section 9 prevents admission of an insolvency petition when the defence is bona fide, so petition rejected.

The note addresses maintainability of an insolvency petition under Section 9 where a pre-existing dispute exists; it applies the standard that a defence must be bona fide rather than spurious, and treats contemporaneous communications, legal notices and correspondence as capable of constituting a record of dispute. Applying that standard, the pre-existing dispute threshold was met and the Section 9 application could not be admitted, with the operative effect that an adjudicating authority may reject an operational creditor's petition where a genuine pre-existing dispute is shown by the record.

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Issues: Whether the Adjudicating Authority erred in rejecting the Section 9 application on the ground that a pre-existing dispute existed between the parties, thereby rendering the Section 9 application not maintainable.

Analysis: The Appellate Tribunal examined the record of communications, demand notices and emails exchanged between the parties and the submissions on whether the disputes pleaded by the Corporate Debtor existed prior to the issuance of the demand notice. The Tribunal considered the effect of Section 9(5)(ii)(d) of the Insolvency and Bankruptcy Code, 2016 regarding rejection where a notice of dispute has been received by the Operational Creditor or there is a record of dispute. The Tribunal evaluated whether the disputes raised by the Corporate Debtor were spurious or bona fide, having regard to the standard that a defence must truly exist and not be mere bluster or a moonshine defence; it found that the legal notice and correspondence constituted a pre-existing dispute and were not frivolous or merely evasive, and hence the Section 9 application could not be admitted.

Conclusion: The Adjudicating Authority correctly found a pre-existing dispute and rightly rejected the Section 9 application; the appeal is dismissed (decision in favour of the Respondent).

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