TaxTMI 
TaxTMI 
2026 (4) TMI 1163
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....or Sangh seeking initiation of the Corporate Insolvency Resolution Process ('CIRP' in short) against the Respondent/Corporate Debtor-National Textile Corporation Ltd. Aggrieved by the impugned order, the Appellant has preferred the present appeal. 2. Coming to the salient facts of the case which are relevant to be noticed for consideration of the matter at hand, we find that Section 9 application has been filed by the Appellant-Rashtriya Mill Mazdoor Sangh, Bombay ('RMMS' in short), in its capacity as a registered trade union. The Appellant is the recognised representative union of the workmen employed in three mills of the Corporate Debtor- National Textile Corporation Limited ('NTC' in short), which has a total of 26 mills under its fold. The Corporate Debtor is a government company within the definition of "Corporate Person" under Section 3(7) of the IBC. Due to shutdown of operations, from 18.05.2020 the Corporate Debtor had reduced wages payable to workmen to 50% of the normal till resumption of operations, which arrangement was conditionally accepted by the workmen in expectation of reopening of mills. However, due to continued non-payment of full wages, Complaint No. 160 ....
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....ing dispute. It was emphatically asserted that for any dispute to qualify as pre-existing dispute as per the statutory requirements of IBC, the dispute must exist prior to issuance of the demand notice and must relate to the existence of the debt itself. However, in this case when the admitted liability stood above the threshold limit of Rs. 1 Cr. and no dispute was even raised after issue of Section 8 Demand Notice, there was no foundational basis for the Adjudicating Authority to reject the Section 9 application on the ground of pre-existing dispute. Reliance was also placed on the judgment of the Hon'ble Supreme Court in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd. (2018) 1 SCC 353 to contend that for any dispute to be a ground for rejection of Section 9 application, the dispute must be real, substantial and bona fide and not spurious, hypothetical or illusory. The Adjudicating Authority however misapplied the time-tested principles laid down by the Mobilox judgment supra in holding partial payments and related reconciliation endeavors and pending proceedings before other fora of law as pre-existing dispute between the two parties. When the outstanding liability wa....
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....d also disbursed payments accordingly. It was also asserted that the Corporate Debtor on their part had consistently disclosed all payments made by them before the Adjudicating Authority and clarified that discrepancies arose due to inclusion of already paid employees, category mismatches, unverified beneficiaries and inconsistencies in wage data, thereby rendering the remaining claim as disputed. While admitting that the Respondent on the instructions of the Adjudicating Authority had submitted on record an affidavit dated 29.01.2025 reflecting payment made by them, it was misconceived on the part of the Appellant to hold this compliance document to be an admission of liability particularly when they have consistently sought for reconciliation by sending repeat communications to the Appellant in this regard but the Appellant had failed to cooperate. Accordingly, it was submitted that the appeal deserved to be dismissed as the claim stood substantially discharged and the remaining amount is disputed and a subject matter of reconciliation. The existence of discrepancies in the wage payment data and pending requests for reconciliation when seen cumulatively with parallel proceedings ....
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....econciliation issue, the Adjudicating Authority erroneously held that there was a pre-existing dispute surrounding the operational debt. Argument was canvassed that reconciliation of accounts is merely an exercise for quantification of the outstanding debt which in itself implicitly presupposes an admitted liability. In such circumstances, there is no foundational basis for the Adjudicating Authority to hold reconciliation of accounts as a ground for pre-existing dispute. The issue of reconciliation having been raised after the Section 9 application was filed also shows that this defence was an afterthought. Reliance was placed on the judgment of this Tribunal in Narayan Singh Pathania Vs Valuelabs LLP in CA(AT)(Ins) No. 1415 of 2019 in which it has been held that mere pendency of reconciliation without denial of the amount due and payable fails the test of pre-existing dispute. It was also pointed out that the default of the Corporate Debtor is a continuing default within the meaning of Section 3(12) of IBC. The admitted unreconciled balance of Rs. 4.25 Cr. was the Corporate Debtor's liability as on June 2023 which has since aggregated into a much higher figure. The Corporate Debt....
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....ad sent back the matter to the labour forum inter alia for determination and recovery of dues and the matter is pending consideration of the Industrial Court, the Adjudicating Authority has not committed any error in not entertaining the Section 9 petition as proceedings under the IBC are not recovery proceedings and that too for the recovery of an amount which is disputed. Reliance was placed on the judgment of the Hon'ble Supreme Court in Mobilox judgement supra, wherein it has been held that where there exists a plausible dispute, a petition under Section 9 must be rejected. Attention was also adverted to the judgment of Hon'ble Supreme Court in M/s S.S. Engineers vs Hindustan Petroleum Corporation Ltd. And Ors. in Civil Appeal No. 4583 OF 2022 wherein it has been emphasised that insolvency proceedings cannot be used as a substitute for recovery of disputed claims and that IBC is not intended to be invoked where the claim itself is disputed or requires adjudication. It was pressed that the impugned order of the Adjudicating Authority is in line with the approach which ensures that the IBC mechanism must remain true to its primary goal of aiding in the resolution of genuine insol....
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.... and treat the reconciliation issue as pre-existing dispute. This issue has been well settled by judicial precedent laid down by this Tribunal in M/s Brand Realty Services Ltd. Vs M/s Sir John Bakeries India Pvt. Ltd. in CA(AT)(Ins) No. 958 of 2020 wherein it was held that even if the Corporate Debtor for whatever reasons does not reply to the Section 8 Demand Notice, it can still bring to the notice of the Adjudicating Authority of pre-existing dispute thereafter. The relevant excerpts from the said judgment are as reproduced below: "12.... Section 8(2) when read with Section 9(1), it is clear that Section 9(1) enables the Operational Creditor to file Section 9 application if no payment has been received by the Operational Creditor form Corporate Debtor or no notice of the dispute under sub-section (2) of section 8 has been received. The statutory scheme under Section 8 and 9 does not indicate that in an event Reply to Notice is not filed within 10 days by Corporate Debtor or no Reply to Notice under Section 8(1) have been given, the Corporate Debtor is precluded from raising the question of dispute. 13..... . Further in Reply to Section 9 Corporate Debtor can br....
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....ills the management is still paying 50% to the workers till now. 14. It is also submitted that in the month of June 2020 the matter was discussed with the Rashtriya Mill Mazdoor Sangh (RMMS) letter dated 24.06.2020 from NTC and the RMMS vide letter dated 25.06.2020 agreed for the 50 % wages, The copy of the letters are enclosed as Annexure B. 15. It is submitted that Rashtriya Mill Mazdoor Sangh, Mumbai has previously sought similar relief from the Industrial Court, Mumbai. In a ruling dated 30.10.2021, the Court granted relief, directing the respondents (i.e the corporate debtor) herein to compensate the workers based on settlements in force and ensuring payment before the 7th day of each month. The order dated 30.10.2021 from the Industrial Court Mumbai is herein enclosed and annexed as Annexure - C. 16. It is submitted that the dispute herein pertains to an Industrial Dispute and is distinct from IBC proceedings which has been initiated by RMMS. Moreover, it is emphasized that Rashtriya Mill Mazdoor Sangh, Mumbai is engaging in Forum shopping as it has already agitated the same issue by approaching the Industrial Court, Mumbai. 17. It is furth....
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....in the reply to the Section 9 application clearly reflects that there were differences between the Appellant and the Respondent on calculation of wages and statutory dues and that the same had also been the basis for negotiations between the two parties as can be seen at paras 14 and 16 of the reply affidavit. In such circumstances, we are also of the view that the Adjudicating Authority did not commit any infirmity in holding that the wage related disputes between the parties is apparent from the reply to the Section 9 notice. 14. The Appellant has however contested the above finding returned by the Adjudicating Authority that proceedings pending before the Industrial Court and the Bombay High Court constituted pre-existing dispute. It was contended that the Adjudicating Authority had wrongly applied the Mobilox judgment by treating pendency of collateral proceedings as a ground of pre- existing dispute. It is the case of the Appellant that these proceedings before the Industrial Court could not bar initiation of CIRP of the Corporate Debtor since Section 238 of the IBC being of overriding nature, it prevailed over other remedies provided by labour legislations. Moreover, the L....
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....ere was pre-existing dispute regarding the quantum of dues and entitlement. 16. It is sufficiently clear from the pleadings made by the Respondent in their reply affidavit that it had notified the Adjudicating Authority about the pre-existing dispute. When we apply the ratio of the Mobilox judgment supra, it does not lie in the scope of the Adjudicating Authority to decide as to whether the defence taken is ultimately going to succeed. The correctness or truthfulness of any such pre-existing dispute is a matter of evidence and cannot be examined by the Adjudicating Authority which only enjoys summary jurisdiction. All that Adjudicating Authority is required to look into is whether there is a plausible contention which has been raised to show a dispute. In the facts of the present case, we find that plausible contention was raised by the Corporate Debtor in the reply to the Section 9 application of there being pre-existing dispute between the parties. When the Respondent has already raised a dispute in the reply to the Section 9 application, the impugned order by rejecting the Section 9 application on the ground of pre- existing dispute cannot be faulted. The dispute raised not b....