Section 9 Petition Liable to be Dismissed if Pre-existing Dispute on Quantum and Quality of Claim Exists Before Demand Notice
- REEDLAW
- 7 days ago
- 3 min read
NCLAT held that a Section 9 petition under the IBC is liable to be dismissed if there exists a pre-existing dispute regarding the quantum and quality of the claim prior to the issuance of the demand notice.
On 08-04-2025, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, reviewed an appeal along with a connected interlocutory application and held that the existence of a genuine pre-existing dispute between the parties—evidenced by prior correspondence challenging the quantum and quality of the claim—renders a Section 9 application under the IBC non-maintainable, in accordance with the test laid down in Mobilox Innovations Private Limited v. Kirusa Software Private Limited, REEDLAW 2017 SC 09545.
The Appellant had filed an appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 before the National Company Law Appellate Tribunal (NCLAT), challenging the order passed by the Adjudicating Authority (NCLT, Ahmedabad Bench) on 14 November 2024 in CP (IB) No. 180 (AHM) of 2022. The original petition under Section 9 of the IBC was filed by the Operational Creditor—Tirupati Enterprises—against the Corporate Debtor—Sadbhav Engineering Ltd.—for initiation of the Corporate Insolvency Resolution Process (CIRP) on account of unpaid operational dues. The NCLT had dismissed the petition on the ground of the existence of pre-existing disputes between the parties before the issuance of the Demand Notice.
The facts revealed that the Corporate Debtor was awarded a contract by Uranium Corporation of India Ltd. for mining activities and, in turn, had subcontracted drilling work to the Appellant under a Work Order dated 1 July 2017, which was extended till 31 March 2020. The Appellant raised invoices for the work done between November 2018 and February 2020. However, payments were allegedly not made by the Respondent, leading to the issuance of a Legal Notice and subsequently a Demand Notice under Section 8 of the IBC on 31 December 2021. The Appellant contended that there was no genuine dispute and that the denial of liability by the Respondent was merely a sham, unsupported by any credible evidence, and was only raised post-facto to avoid payment. It was submitted that the Adjudicating Authority failed to correctly apply the test laid down by the Hon’ble Supreme Court in the case of Mobilox Innovations Private Limited v. Kirusa Software Private Limited, REEDLAW 2017 SC 09545, and ignored the admissions made by the Respondent in their affidavit regarding receipt of invoices and lack of objection at the time of receipt.
On the other hand, the Respondent argued that there existed a pre-existing dispute much prior to the issuance of the Demand Notice. Reliance was placed on various communications exchanged from 2015 to 2020, wherein the Respondent had raised issues concerning the quality of work and discrepancies in billing. Specifically, the Respondent had replied to the Appellant’s legal notice dated 18 February 2020, contesting the claimed amount and stating that only ₹62,42,709 was due after adjustments and withholding of security deposit. The Respondent further contended that this amount fell below the monetary threshold prescribed under the IBC for initiation of CIRP, thereby rendering the petition not maintainable. Additionally, it was contended that there was no provision for interest in the original Work Order or invoices, and the demand for interest was therefore unfounded.
Upon consideration, the NCLAT noted that the communication dated 2 March 2020, wherein the Corporate Debtor disputed the amount and cited misrepresentation by the Appellant, constituted a clear case of pre-existing dispute. The Tribunal observed that the dispute on quantum and quality of services had been raised consistently through written correspondence well before the issuance of the Demand Notice under Section 8. It was held that the Adjudicating Authority had rightly dismissed the application under Section 9 due to the existence of such a dispute. Therefore, the NCLAT upheld the Impugned Order, concluding that the Appeal was devoid of merit and liable to be dismissed.
Mr. Abhijeet Sinha, Sr. Advocate with Mr. Shaunak Mitra, Mr. Saikat Sarkar, Mr. Biswajit Kumar, Mr. Indradeep Basu and Ms. Bhavya Khatreja, Advocates, represented the Appellant.
Mr. Navin Pahwa Sr. Advocate with Mr. Rohan Talwar, Mr. Nilay Gupta and Mr. Uday P., Advocates, appeared for the Respondent.
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