2026 (3) TMI 109 - AT - IBC

Pre-existing dispute with documentary indicia can bar an operational creditor's insolvency petition; application may be rejected.

Where documentary material (audit confirmations, audited balance sheet entries and ledger statements) demonstrated a dispute existing prior to or ... Existence of pre existing dispute - notice of dispute under Section 8 - plausible contention requiring further investigation - undisputed operational debt. Existence of pre existing dispute - notice of dispute under Section 8 - plausible contention requiring further investigation - Whether the Section 9 application filed by the operational creditor was liable to be rejected on account of a pre existing dispute and an effective notice of dispute. - HELD THAT: - The Tribunal found that the corporate debtor had, prior to and upon receipt of the demand, communicated a clear notice of dispute and raised a substantive defence supported by materials on record. The record included the operational creditor's own audit confirmation/ledger communications and audited balance sheet entries indicating amounts allegedly payable by the operational creditor to the corporate debtor, which together raised a plausible contention that required further investigation and was not a patently feeble or illusory defence. Applying the settled principle that an operational creditor's Section 9 application must be rejected where a real dispute exists (so long as the dispute is not mere bluster) and that admission is appropriate only for an undisputed operational debt, the Tribunal concluded that the present claim was contested on admissible materials and therefore the application could not be admitted under Section 9. [Paras 7, 8, 12, 17] Section 9 application is rejected because a pre existing dispute was shown by notice of dispute and supporting materials raising a plausible defence. Final Conclusion: The appeal is dismissed; the Section 9 petition was rightly rejected on the ground that the corporate debtor had raised a pre existing dispute and given a notice of dispute supported by documentary material, precluding admission of the insolvency application. Issues: Whether the Section 9 application filed by the operational creditor should be rejected on the ground that a pre-existing dispute and plausible defence existed between the parties.Analysis: The record contained an earlier written communication and replies evidencing a dispute prior to or contemporaneous with the demand notice, including an audit confirmation and balance sheet entries showing amounts allegedly payable by the operational creditor to the corporate debtor. The adjudicating authority noted these materials and a prior proceeding in which overlapping invoices had been rejected. Relevant statutory tests require rejection of a Section 9 application if a notice of dispute exists or there is a plausible contention that requires further investigation (as reflected in Section 8 and Section 9(5) of the Insolvency and Bankruptcy Code, 2016 and the controlling authorities on operational debt). The materials on record raised a defence that was not patently feeble or illusory and included documentary indicia (audit confirmation, audited balance sheet entries and ledger statements) sufficient to constitute a pre-existing dispute or a plausible contention requiring adjudication outside the insolvency process.Conclusion: The Section 9 application was rightly rejected because a pre-existing dispute and a plausible defence were shown on the record, warranting dismissal of the insolvency petition.