Pre-existing dispute and no operational debt can bar Section 9 insolvency admission under a profit-sharing contract.

A Section 9 insolvency application is barred where contemporaneous material shows a real pre-existing dispute, including prior demand notices, an earlier Section 9 proceeding by the corporate debtor, and settlement controversy reflected in termination and balance documents. An Operation and Management Agreement will not create operational debt merely because one party manages a plant and receives profit-linked fees; where the contract reflects a profit-sharing structure, with no invoices and termination terms inconsistent with a debt claim, no operational creditor relationship is established for the claimed amount.

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Issues: (i) Whether a pre-existing dispute existed so as to bar admission of the Section 9 application under the Insolvency and Bankruptcy Code, 2016. (ii) Whether the Operation and Management Agreement created an operational debt and a corresponding operational creditor relationship.

Issue (i): Whether a pre-existing dispute existed so as to bar admission of the Section 9 application under the Insolvency and Bankruptcy Code, 2016.

Analysis: The record showed that the corporate debtor had issued a prior demand notice and had already initiated its own Section 9 proceeding before the operational creditor issued its demand notice. The termination agreement and balance settlement materials also indicated a prior settlement controversy regarding liabilities between the parties. At the stage of admission, the existence of a real and plausible dispute, supported by contemporaneous material, is sufficient to attract the bar under the insolvency framework.

Conclusion: The pre-existing dispute stood established and the Section 9 application was not maintainable.

Issue (ii): Whether the Operation and Management Agreement created an operational debt and a corresponding operational creditor relationship.

Analysis: The agreement described the arrangement as one where the operator was to run the plant, pay usage fees to the owner, and receive service fees only out of profits after deductions. The contractual clauses showed a profit-sharing structure rather than a transaction for supply of goods or rendering of services that would generate operational debt payable by the corporate debtor. The absence of invoices and the termination terms further supported the view that no debt was due from the corporate debtor to the appellant under the agreement.

Conclusion: The agreement did not create an operational debt, and the appellant was not shown to be an operational creditor for the claimed amount.

Final Conclusion: The rejection of the Section 9 petition was upheld, as the claim was barred by a pre-existing dispute and no operational debt recoverable from the corporate debtor was shown.

Ratio Decidendi: A Section 9 insolvency must be rejected where contemporaneous material shows a genuine pre-existing dispute, and the underlying contract does not disclose an operational debt payable by the corporate debtor.

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