Pre-existing dispute defeats Section 9 insolvency application where the debt is genuinely contested before the demand notice.

An operational creditor's Section 9 insolvency application must be rejected where the corporate debtor shows a pre-existing dispute before the demand notice or where the information utility records the debt as disputed. The settled test is whether the dispute is real and plausible, not spurious or illusory. On the materials recorded, the corporate debtor had raised disputes before the notice and repeated them in reply, and the information utility also reflected the debt as disputed. The existence of a genuine pre-existing dispute made the application not maintainable and required rejection.

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Issues: Whether the Section 9 application was liable to be rejected in view of the pre-existing dispute raised by the corporate debtor before issuance of the demand notice and the record of dispute reflected in the information utility.

Analysis: The corporate debtor had communicated the existence of disputes before the demand notice and again replied to the notice disputing the claim. The record from the information utility also showed the debt as disputed. Under the statutory scheme governing initiation of corporate insolvency by an operational creditor, the adjudicating authority must reject the application where notice of dispute has been received or where there is a record of dispute in the information utility. Applying the settled test that the dispute must be a real and plausible one, and not a spurious or illusory defence, the materials on record showed a genuine pre-existing dispute rather than a moonshine objection.

Conclusion: The Section 9 application was not maintainable and ought to have been rejected.

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