### Reconciliation Requests and Contractual Default Clauses Establish Pre-Existing Disputes Barring Section 9 IBC Proceedings 1. Facts * Operational Debt: The Appellant (Operational Creditor), a partnership firm, executed wind energy projects for the Respondent (Corporate Debtor) under an MOU and various work orders. * The Claim: The Appellant claimed an outstanding debt of approx. ₹25.72 Crores (plus interest) based on 75 invoices raised between 2018 and 2019. * The Defense: The Respondent contended that there were pre-existing disputes regarding delays, liquidated damages (LD) paid to third parties, and tax issues. They further argued that the Section 9 petition was premature based on a contract clause (Clause 38) stating "default" only occurs 365 days after the due date. * Adjudicating Authority (AA): The NCLT Ahmedabad rejected the petition, citing pre-existing disputes evidenced by emails and the lack of a specific "date of default." 2. Issues * Whether there was a "pre-existing dispute" between the parties prior to the issuance of the Section 8 demand notice. * Whether a communication for "reconciliation" constitutes evidence of a dispute under the Insolvency and Bankruptcy Code (IBC). * Whether the Section 9 application was maintainable given the contractual definition of "default." 3. Decision * Pre-existing Dispute: The NCLAT affirmed that numerous emails exchanged between August 2018 and December 2018 (prior to the July 2019 demand notice) regarding invoice discrepancies and delay-linked losses established a "plausible contention" of dispute. * Reconciliation as Dispute: Relying on the Supreme Court’s ruling in *Sabarmati Gas Ltd. vs. Shah Alloys Ltd.*, the Tribunal held that requests for account reconciliation to adjust outstanding items (such as LD and generation losses) indicate a pre-existing dispute. * Prematurity of Default: The Tribunal noted that Clause 38 of the work order specifically defined "default" as expiring 365 days after the due date. Since the demand notice was issued before this period lapsed for several invoices, it was deemed premature. * Ongoing Arbitration: The fact that the parties were already in arbitration (where the Appellant’s counter-claim for the same amount had been rejected) further supported the existence of a substantial, non-spurious dispute. 4. Conclusion The Appellate Tribunal upheld the NCLT's dismissal, concluding that the dispute was not a "moonshine" defense but a genuine, pre-existing disagreement documented through correspondence. Section 9 proceedings cannot be used as a substitute for debt recovery when accounts remain unreconciled and subject to contractual LD claims.

The Appellant (Operational Creditor), a partnership firm, was engaged by the Respondent (Corporate Debtor) for wind energy projects in Gujarat and Maharashtra.

The Appellant claimed an outstanding debt of ₹42,49,84,942 (including interest) arising from 75 invoices raised between 2018 and 2019.

A Section 8 demand notice was issued on 02.07.2019, followed by a Section 9 application under the IBC.

The Corporate Debtor (CD) contested the claim, alleging that the Operational Creditor (OC) caused delays leading to liquidated damages (LD) and third-party losses.

The CD also raised issues regarding the lack of final reconciliation of accounts between projects in different states.

The Adjudicating Authority (NCLT Ahmedabad) rejected the Section 9 application on 13.12.2023.

During the pendency of the appeal, the parties attempted a settlement which was not finalized to the satisfaction of the Appellate Tribunal.

Whether the Section 9 application was maintainable in light of "pre-existing disputes" between the parties.

Whether the demand notice was premature based on the specific "default" timelines defined in the Work Order/MoU.

The Court primarily applied Section 9 of the Insolvency and Bankruptcy Code (IBC), 2016, regarding the initiation of CIRP by an operational creditor.

It relied on the "plausible contention" test established in Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., which requires the Adjudicating Authority to reject an application if a dispute truly exists in fact and is not spurious or moonshine.

It further applied the principle from Sabarmati Gas Ltd. v. Shah Alloys Ltd., holding that communications seeking "reconciliation" or adjustments of accounts constitute evidence of a pre-existing dispute.

The Tribunal observed that a series of emails exchanged between August and December 2018—well before the Section 8 notice—noted significant discrepancies in invoices, quality of work, and tax issues.

Specifically, an email dated 22.11.2018 noted that invoice acceptance was subject to reconciliation of Liquidated Damages (LD) and generation losses.

The Court found that the CD had suffered substantial LD from project owners like SJVNL, which it sought to set off against the OC’s claims.

Applying Mobilox, the Tribunal reasoned that these disputes were not "moonshine" but substantial, as they involved pending arbitration and counter-claims.

Furthermore, the Tribunal analysed Clause 38 of the Work Order, which stipulated that "default" only occurs 365 days after the due date; since many invoices were less than a year old at the time of the demand notice, the notice was deemed premature.

The Tribunal concluded that the ongoing requirement for reconciliation and the unresolved claims for liquidated damages constituted a "plausible contention" requiring investigation beyond the summary scope of the IBC.

The Appeal was dismissed, and the request to withdraw with liberty to revive was denied as no formal settlement agreement was produced.