Existence of a plausible pre-existing dispute and audit confirmations of counter-dues mandate rejection of Section 9 application.

The Appellant (Operational Creditor) entered into a Master Agreement with the Respondent (Corporate Debtor) on 05.02.2016 for the sale and purchase of goods

The Appellant issued a Section 8 demand notice on 06.12.2019 claiming a default of ₹6,94,33,151

The Respondent replied on 14.12.2019, denying the claim and asserting that no dues existed

The Appellant filed a Section 9 application on 22.07.2020.

During proceedings, the Respondent produced the Appellant’s own audit confirmation letter dated 23.04.2018 and audited balance sheets for F.Y. 2017-18, which showed that the Appellant actually owed the Respondent ₹5.88 Crores

The Adjudicating Authority (NCLT) dismissed the Section 9 application on 14.09.2023, noting allegations of fraud and a previous dismissal of a related case against an entity called Essline Engineers

The Appellant challenged this dismissal.

The court primarily applied Sections 8 and 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) regarding the initiation of CIRP by an operational creditor

It relied on the landmark principle from *Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd.*, which mandates that an adjudicating authority must reject a Section 9 application if a notice of dispute has been received or if a "plausible contention" or "pre-existing dispute" exists that is not a mere "moonshine" defense

It further applied *Transmission Corporation of Andhra Pradesh Limited v. Equipment Conductors and Cables Limited*, reiterating that IBC is not a recovery forum

and *M/s. S.S. Engineering vs. Hindustan Petroleum Corporation Ltd.*, which held that CIRP can only be triggered when the debt is undisputed

The Appellate Tribunal observed that although the NCLT’s order was brief, there was ample evidence of a pre-existing dispute between the parties

The court highlighted a legal notice sent by the Appellant on 02.06.2020 which was replied to by the Respondent on 19.06.2020—prior to the filing of the Section 9 application—expressly denying the debt

Most significantly, the court found that the Respondent raised a "plausible defense" by presenting the Appellant's own audited financial statements and audit confirmation letters, which indicated that the Appellant was actually the debtor to the Respondent to the tune of ₹5.88 Crores

The court noted that the Appellant failed to disclose or explain these contradictory financial records in its Section 9 application

Applying the *Mobilox* standard, the court reasoned that the dispute was truly existent and not "spurious, hypothetical, or illusory"

Consequently, the Section 9 application was liable to be rejected.

The Appellate Tribunal upheld the dismissal of the Section 9 application, albeit providing more detailed findings than the Adjudicating Authority

The Appeal was dismissed