Pre-existing dispute under insolvency law bars Section 9 admission where reconciliation and settlement issues are genuinely contested.

An operational creditor's Section 9 insolvency application is not maintainable where the corporate debtor's reply and supporting material disclose a real, pre-existing and plausible dispute arising before the demand notice. Detailed correspondence, alleged settlement, credit notes, reconciliation issues, and a pending arbitration reference showed that the claim was contractually disputed, so insolvency proceedings could not be used to resolve that controversy. The challenge based on natural justice also failed because the maintainability note was confined to the Section 9 objection, no undisclosed merits determination was made, and no prejudice was shown. The appeal therefore failed on both the existence of a genuine dispute and the absence of procedural unfairness.

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Issues: (i) Whether the notice of dispute disclosed a pre-existing dispute sufficient to bar admission of the Section 9 application; (ii) Whether the procedure adopted by the adjudicating authority in permitting a maintainability note by affidavit without further opportunity caused violation of natural justice.

Issue (i): Whether the notice of dispute disclosed a pre-existing dispute sufficient to bar admission of the Section 9 application.

Analysis: The statutory scheme permits an operational creditor to invoke insolvency proceedings only where, after service of demand notice, payment is not made and no notice of dispute is received. A notice of dispute need not establish the defence conclusively at this stage, but it must disclose a real and plausible contention existing before the demand notice. The record showed detailed correspondence, a claimed settlement, credit notes, alleged balance reconciliation, and a subsequent rejoinder disputing the finality of the settlement itself. These materials demonstrated an antecedent dispute on reconciliation and settlement, and the matter was not one for resolution in insolvency proceedings. The pending arbitration reference further reinforced that the controversy was contractual and disputed.

Conclusion: The existence of a genuine pre-existing dispute was established, and the Section 9 application was not maintainable. The finding is against the appellant and in favour of the respondent.

Issue (ii): Whether the procedure adopted by the adjudicating authority in permitting a maintainability note by affidavit without further opportunity caused violation of natural justice.

Analysis: The maintainability note was permitted only on the limited objection to the Section 9 application, after the corporate debtor had appeared on first listing. No fresh adjudication on merits was undertaken on the basis of undisclosed material. In any event, the appeal had to be decided on the pleadings and documents of the operational creditor itself, which independently showed a disputed claim. No prejudice was demonstrated from the procedure adopted.

Conclusion: No violation of natural justice was made out. This issue is against the appellant.

Final Conclusion: The appeal failed because the record disclosed a genuine pre-existing dispute and the insolvency mechanism could not be used to adjudicate the disputed contractual claims.

Ratio Decidendi: Under Sections 8 and 9 of the Insolvency and Bankruptcy Code, 2016, an operational creditor's application must be rejected where the corporate debtor's reply discloses a real, pre-existing and plausible dispute supported by material, and insolvency proceedings cannot be used to resolve contested contractual reconciliation issues.

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