2026 (3) TMI 991 - AT - IBC

Pre-existing dispute: a genuine operational dispute raised before a demand notice bars admission of a Section 9 insolvency petition.

Where a genuine pre-existing dispute over operational warranty claims is demonstrable from contemporaneous communications raised before the demand notice, ... Rejection of the Operational Creditor's Section 9 application by the NCLT - pre-existing dispute raised prior to issuance of the Section 8 demand notice - genuine dispute test - claims arising from sale of batteries - Existence of a pre-existing dispute raised prior to issue of notice under Section 8 of the IBC, 2016 and its effect on admission of an application under Section 9 - HELD THAT: - The Tribunal found that the Corporate Debtor had, by email dated before the Section 8 demand notice, disputed liability and alleged economic coercion in issuance of the credit note; therefore a dispute existed prior to the demand notice. Applying the settled test that the adjudicating authority need only determine whether a plausible, non-spurious dispute is discernible from the reply (without resolving merits or assessing likelihood of success), the Tribunal concluded that the defence was not illusory or mere bluster. The Tribunal noted that the Adjudicating Authority is not to enter final adjudication but must separate grain from chaff; because the Corporate Debtor's plea raised a real controversy antecedent to the notice, the Section 9 petition was properly rejected for being founded on a disputed operational debt. [Paras 6, 8, 10] The NCLT's rejection of the Section 9 application on the ground of a genuine pre-existing dispute raised prior to the Section 8 notice was correct. Final Conclusion: The appeal is dismissed; the NCLT's order refusing admission of the Section 9 petition on account of a genuine pre-existing dispute raised before issuance of the Section 8 notice is affirmed. Issues: Whether the NCLT was correct in rejecting the Section 9 application filed by the operational creditor on the ground of a pre-existing dispute raised prior to issuance of the Section 8 demand notice.Analysis: The dispute concerns warranty claims arising from sale of batteries and whether those claims constituted a genuine pre-existing dispute prior to the demand notice dated 28.12.2022. Relevant communications include a credit note dated 07.11.2019 and an email dated 08.12.2022 asserting coercion in issuance of the credit note, which preceded the demand notice. The admitted jurisprudential tests require the adjudicating forum to determine if a real, non-spurious dispute is discernible from the reply and records, without entering into final adjudication on merits or assessing likelihood of success. Applying those tests to the record, the facts disclose material communications and contentions between the parties showing a live controversy about liability that was raised before the Section 8 notice.Conclusion: The rejection of the Operational Creditor's Section 9 application by the NCLT on the ground of a genuine pre-existing dispute raised prior to the issuance of the Section 8 notice is upheld; the appeal is dismissed in favour of the Respondent.Ratio Decidendi: Where a genuine dispute on an operational claim is shown to exist prior to the issuance of the demand notice, the adjudicating authority must reject a Section 9 application without entering into a final adjudication of the dispute; it is sufficient that the dispute is real and not patently feeble.