The Bengaluru Bench of the National Company Law Tribunal (NCLT) has held that a petition under Section 9 of the IBC is not maintainable where the material on record establishes bona fide and plausible pre-existing disputes requiring detailed adjudication, particularly where the claim arises out of a running account involving multiple projects, the petitioner seeks to isolate one component of an interconnected commercial relationship after disputes have arisen, and the disputes relate to reconciliation of accounts, internal management issues, fiduciary obligations, related party transactions and commercial dealings.
The Tribunal reaffirmed that the IBC cannot be used as a substitute for debt recovery or as a forum for adjudicating seriously disputed contractual and commercial claims. Accordingly, it held that the operational creditor had failed to establish that the alleged operational debt was free from genuine pre-existing disputes within the meaning of Sections 8 and 9 of the Code.
The Division Bench comprising Sunil Kumar Aggarwal (Judicial Member) and Radhakrishna Sreepada (Technical Member) observed that the law governing Section 9 proceedings stood settled by the Supreme Court in Mobilox Innovations Private Limited v. Kirusa Software Private Limited [(2018) 1 SCC 353], namely that the Adjudicating Authority is only required to determine whether there exists a plausible contention requiring investigation and whether the dispute is not a patently feeble legal argument or an assertion unsupported by evidence. It also reiterated that disputed questions of fact are not to be adjudicated in Section 9 proceedings.
On the facts, the Tribunal found that immediately after receipt of the demand notice, the corporate debtor had issued a detailed reply disputing the claim and alleging deficiencies in execution, disputes concerning payments, reconciliation of accounts, and irregularities in the transactions. The Tribunal noted that the operational creditor was not an independent third-party vendor but a shareholder and director of the corporate debtor during the relevant period, and had resigned only on May 06, 2025 citing “Management Dispute” as the reason for resignation.
The Tribunal further observed that the allegations raised by the corporate debtor regarding conflict of interest, breach of fiduciary obligations, and related party transactions arose from the very substratum of the transactions forming the subject matter of the petition. It held that whether those allegations were ultimately sustainable was not required to be adjudicated in the Section 9 proceedings, but they could not be overlooked because they were supported by contemporaneous documents and surrounding circumstances.
The Tribunal accepted, prima facie, the contention that the accounts were maintained as a common running account covering multiple projects. It observed that the petitioner, being at the helm of affairs on both sides at the relevant time, was fully aware that the accounts were not maintained project-wise, and that only for the purpose of the petition had he unilaterally chosen to segregate Project No. 5 – KRIES after disputes had arisen. According to the Tribunal, such segregation required examination of reconciliation of accounts, allocation of payments, project-wise liabilities and contractual arrangements, all of which involved disputed questions of fact incapable of adjudication in summary insolvency jurisdiction.
The Tribunal also noted that while the Completion Certificate may indicate physical completion of work for Project No. 5, the disputes raised by the corporate debtor extended beyond physical completion and involved comprehensive entitlement across all projects, internal approvals, pricing, reconciliation of accounts, alleged related party dealings and fiduciary obligations. It further recorded that the financial statements for 2022–23 and 2023–24 filed by the petitioner himself described his proprietorship concern as a related party having significant influence on the company, and the subject transactions as related party transactions.
The Tribunal lastly observed that although the Record of Default from the Information Utility and the post-demand-notice payments may prima facie support existence of debt and some admitted liabilities, proof of debt and default alone is insufficient where a genuine pre-existing dispute exists. It held that mere part-payments or reconciliation payments do not conclusively establish absence of dispute when the transactions arise out of a continuous running account and the quantum of liability remains disputed.
Briefly, the petition was filed by Ramareddy Devraj, proprietor of M/s Rama Enterprises, under Section 9 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of CIRP against IC India Pvt Ltd. for alleged default in payment of operational debt of Rs. 4.05 crores. The petitioner stated that the parties had longstanding business dealings across eight projects pursuant to purchase orders and one work order, under which invoices aggregating to Rs. 55.05 crores were raised between Apr 01, 2020 and Feb 24, 2025, out of which substantial payments were made, leaving a balance outstanding. Although the original Section 8 demand notice claimed Rs. 6.06 crores across multiple projects, the petition was confined only to Project No. 5 – KRIES, after accounting for post-notice payments and disputes allegedly raised for other projects.
The petitioner relied on invoices, reconciliation statements, ledger accounts, calculation sheets and a Project Completion Certificate issued in relation to Project No. 5 – KRIES, contending that the Government department had recorded satisfactory performance and had already cleared the dues of the corporate debtor under that project. The petitioner’s case was that no dispute survived in relation to that project and that the debt was due and payable.
The corporate debtor opposed the petition on the ground of pre-existing dispute and lack of maintainability. It contended that the petitioner was formerly a director and continued to be a shareholder of the company, and that the insolvency proceedings were being used as a pressure tactic arising out of internal shareholder and management disputes. The corporate debtor further alleged deficiencies in execution, disputes regarding payments and reconciliation, and asserted that the petitioner had allotted Project No. 5 to his own proprietorship concern while acting as director of the company, without following the procedure for related party transactions, and had approved inflated quotations and invoices for his own benefit.
The corporate debtor also contended that the accounts between the parties were maintained as a common running account across several projects and not project-wise, and that after reconciliation and certain payments, no further amount remained payable. It additionally objected that the claim in the Section 8 demand notice materially differed from the claim in the petition, since the demand notice covered multiple projects whereas the petition was restricted to only Project No. 5 – KRIES.
