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, an insolvency petition under Section 9 must be rejected without undertaking final adjudication on the merits; the adjudicating forum need only be satisfied the dispute is real and not patently feeble. Applying that principle to the record-credit note and prior communications asserting coercion-the Section 9 petition was properly rejected on the ground of a pre-existing dispute, and the appeal against that rejection was dismissed, leaving the rejection operative.

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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.

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