Debabrata Ray vs The State Trading Corporation Of India ...

IN THE MATTER OF: Debarata Ray Choudhuri, 2, Siri Fort Road New Delhi-110049 E-Mail ID: r.rrc16@gmail.com Mob: +91 8800821578 ...Appellant

Versus

The State Trading Corporation of India Ltd. Through its Managing Director CIN: l74899dl1956GOI002674 Jawahar Vyapar Bhawan Tolstoy Marg, New Delhi, Delhi, India - 110001 E-mail id: co@stclimited.co.in Tel: 91-11-23313177 ...Respondent

Present: For Appellant : Ms. Stuti Jain and Mr. Akshu Jain, Advocates Mr. D.R. Choudhuri, Appellant in Person

For Respondent : Mr. Uday Gupta, Sr. Advocate with Ms. Shivani Lal, Mr. Hiren Dasan, Mr. Sanam Singh, Mr. Unmukt Gera and Mr. Ajay Sharma, Advocates.

JUDGMENT

(Hybrid Mode)

[Per: Arun Baroka, Member (Technical)] That the present Appeal has been preferred under Section 61 of the

Insolvency and Bankruptcy Code, 2016 (hereinafter 'IBC') against the Final

Order dated 26.07.2024 passed by the Adjudicating Authority, in CP No. (IB)

242(PB)2020, whereby the Adjudicating Authority dismissed the Application

filed under Section 9 of the IBC seeking initiation of Corporate Insolvency Resolution Process ('CIRP') against the Corporate Debtor erroneously on the

ground of pre-existing disputes in the instant case.

Brief facts of the case

2. The Appellant, a senior advocate, filed an Application for the initiation

of the CIRP against State Trading Corporation of India Ltd., citing a default

in the payment of professional fees amounting to Rs 6,26,90,985/-. This

amount comprised a principal sum of Rs 3,93,55,110/- and an interest

component of Rs 2,33,35,875/-. However, the Adjudicating Authority

dismissed the Application filed under Section 9 of the Insolvency and

Bankruptcy Code, 2016.

Submissions of the Appellant/Operational creditor (OC) - Debarata Ray Choudhuri

3. The Operational Creditor asserts that, starting in 2006, the Respondent

engaged his services for recovering various amounts and handling multiple

suits and legal proceedings arising from various contracts. The Respondent

entrusted him with high-stakes and significant matters, following which the

Appellant submitted a schedule of fees. The Respondent issued multiple

schedules of fees on the following dates: 07.06.2006, 11.08.2006,

05.06.2008, 17.09.2010, 20.09.2010, and 12.12.2014.

4. The Appellant asserts that all submitted bills were prepared in

accordance with the various fee schedules issued by the Respondent. In

particular, for matters involving Global Steel Holdings Ltd. and Adani

Enterprises Ltd., the Appellant applied special fees due to the high-stakes

and the substantial volume of documents requiring review. This arrangement

Company Appeal (AT) (Insolvency) No. 1985 of 2024 2 of 19 had been communicated to and agreed upon by the Respondent. Additionally,

an email dated 24.07.2017, regarding the claim for special fees in the Adani

Group arbitration, was placed on record as evidence of this understanding.

However, this evidence was overlooked.

5. The Appellant raised bills for all litigation and arbitration matters

between STC and these corporate groups. For cases related to the Mittal

Group, he charged Rs 55,000/- per appearance, and the bills were submitted

accordingly. Not a single bill was ever returned with an objection regarding

the validity of the applicable fee schedule. There was never any dispute that

the Appellant provided legal services to the Respondent; however, his

payments remained unpaid.

6. The Operational Creditor addressed a letter to the Director of Law,

Director of Marketing, Director of Finance, and General Manager (Law),

highlighting the issues of non-payment, short payment, and arbitrary

deductions of professional bills from 2009 onwards. Another letter dated

21.05.2011 was sent to the Chairman-cum-Managing Director and other

directors, bringing these concerns to their attention. Between 2012 and 2017,

multiple letters were sent to the CMD, directors, and GM (Law), demanding

payment of outstanding bills. However, no response was received to any of

these letters or communications.

7. By 2019, the running account maintained by the Operational Creditor

reflected a debit balance of Rs 3,93,55,110/- as due and outstanding against

the Corporate Debtor.

Company Appeal (AT) (Insolvency) No. 1985 of 2024 3 of 19

8. In the email dated 07.02.2017, the Respondent acknowledged the bills

submitted by the Appellant, raising concerns only about 23 bills due to the

absence of Order Sheets. However, the Respondent did not dispute the

validity of these bills. The total amount of the bills allegedly lacking Order

Sheets amounts to Rs 30,47,500/-. Even after deducting both the payments

made by the Respondent to the Appellant and the amount corresponding to

the bills without Order Sheets, the outstanding amount remains Rs

3,63,07,610/- [that is, Rs 3,93,55,110 (-) Rs 30,47,500]. This amount, as

admitted by the Respondent, remains payable to the Appellant.

9. Due to the Respondent's inaction, the Appellant (Operational Creditor)

issued a Form 3 Demand Notice to the Corporate Debtor on 08.01.2019,

seeking recovery of the outstanding amount. However, this Notice contained

several calculation errors, rendering it redundant, and the Respondent

responded to it on 18.01.2019.

10. To rectify these errors, the Appellant issued a fresh Demand Notice

under Form 3, pursuant to Section 8 of the IBC, on 26.07.2019, claiming

dues amounting to Rs 3,93,55,110/-. The Respondent duly replied to this

Demand Notice via a letter dated 08.08.2019. The Respondent in the said

Reply has categorically admitted that:

"It is surprising that your Client has alleged that payments were not made to your Client from the year 2007 onwards by STC, but your Client has still continued to appear and represent STC before different legal forums upto the year 2018. It is also astonishing that your Chent never raised any such grievance over the past 10 years regarding non-payment of Bills, but now, your Client has suddenly raised the alleged demands, after STC chose to discontinue taking legal services from your Client sometime in the 3rd quarter of 2018."

Company Appeal (AT) (Insolvency) No. 1985 of 2024 4 of 19 .....

"You are therefore requested to withdraw the Demand Notice dt.26.07.2019 and advise your Client appropriately to ensure that all Bills that your Client claims as due are properly submitted as per STC instructions dt.17.05.2017, the Bills carry the necessary particulars alongwith the Order sheets with amount of Professional fee strictly as per STC's schedule of fee to avoid any cutting / overwriting, as cutting / overwriting on bills lead to Audit/ Finance objections, thereby delaying the process of clearance of Bills"

11. In the email dated 07.06.2017, the Respondent explicitly acknowledged

receipt of four bills--Bill Nos. 318, 317, 304, and 303--dated 20.05.2017 and

24.05.2017. Furthermore, in a trailing email dated 08.06.2017, the

Respondent confirmed that the services corresponding to these bills were

indeed provided by the Appellant but cited technical reasons for delaying their

processing. In an email dated 24.07.2017, the Respondent addressed the

issue of 'special fees' related to the Adani Group, recognising the substantial

claims and extensive work involved. The email explicitly stated that the

Respondent had agreed to consider the Appellant's fee claims for the

submitted bills. Additionally, emails from June 2016 indicate that the

Arbitral Tribunal had officially recorded the Appellant's presence, yet his bills

remained unprocessed and unpaid. The Respondent's emails dated

14.03.2017 and 26.11.2016 further confirm the Appellant's appearances in

arbitration matters concerning the Adani Group.

12. Subsequently, aggrieved by the Respondent's inaction and failure to

pay the pending and admitted debt despite the issuance of a Demand Notice,

the Appellant was compelled to file an Application under Section 9 of the IBC,

bearing CP No. (IB) 242 (PB) 2020, before the Adjudicating Authority in Delhi

on 16.12.2019.

Company Appeal (AT) (Insolvency) No. 1985 of 2024 5 of 19

13. In 2022, the Appellant filed Writ Petition (C) No. 6146/2022 against the

Respondent before the Hon'ble High Court of Delhi, seeking the processing of

his bills. This Petition remains pending. In the same matter, the Respondent

explicitly admitted that a sum of Rs 5,00,000/- was payable to the Appellant,

as per its own calculations, and this admission was recorded by the Hon'ble

Delhi High Court in its Order dated 30.05.2023. The Hon'ble High Court has

repeatedly emphasised that advocates' bills should be paid within one month,

including directing the government and its departments to ensure timely

payments so that advocates are not subjected to undue hardship and forced

to file petitions. Writ Petition (C) No. 6146/2022 was filed before the Hon'ble

High Court of Delhi while the Appellant's Application under Section 9 of the

IBC was pending before the NCLT. The reliefs sought in these proceedings

were distinct: the Section 9 IBC Application sought insolvency resolution,

whereas the Writ Petition challenged the Respondent's arbitrary refusal to

process the Appellant's bills, despite being a government company. On

26.07.2024, the Adjudicating Authority dismissed the Section 9 IBC

Application without considering the documents submitted by the Appellant,

the admissions made by the Respondent, the Appellant's written

submissions, or the compilation of judgments relied upon by the Appellant.

14. The Respondent was not making payments for all the Appellant's bills

but instead provided ad hoc payments from time to time, citing financial and

other difficulties while assuring that the remaining payments would be made

soon. The Appellant filed the Petition solely based on unpaid bills and did not

include any bills that had already been settled. Furthermore, the Respondent

Company Appeal (AT) (Insolvency) No. 1985 of 2024 6 of 19 repeatedly requested the submission of fresh bills with updated dates after

keeping the original bills pending, purportedly to facilitate payment. For

instance, in an email dated 11.05.2016, the Respondent specifically asked for

resubmission of bills with current dates. This clearly indicates that the

Respondent never disputed the validity of the Appellant's bills but, instead,

sought fresh replacement bills as a means to circumvent delays in processing

payments while maintaining its records.

15. The Appellant sent an email dated 05.07.2019, claiming fees under five

bills for defending 84 criminal revision cases. Additionally, a reminder was

sent on 11.05.2016 regarding payment for arbitration matters before a panel

of three Hon'ble retired Supreme Court Judges. The Appellant consistently

raised invoices over time, and the Respondent never disputed these invoices.

16. Between 2009 and 2018, the Appellant submitted over 200

bills/invoices for professional services, totalling Rs 4,84,70,481/-. Out of this

amount, the Respondent made payments amounting to Rs 91,15,371/-

(including TDS of Rs 11,80,109/-), with Rs 79,35,262/- transferred via RTGS.

The remaining balance of Rs 3,93,55,110/- remains unpaid. In an email

dated 07.02.2017, the Respondent admitted the bills submitted by the

Appellant, raising concerns only about 23 bills due to the absence of Order

Sheets, though the validity of these bills was not disputed. The amount

corresponding to these 23 bills was Rs 30,47,500/-. Even after deducting the

payments already made and the amount related to bills lacking Order Sheets,

the outstanding due remains Rs 3,63,07,610/- [that is, Rs 3,93,55,110 (-) Rs

Company Appeal (AT) (Insolvency) No. 1985 of 2024 7 of 19 30,47,500], which the Respondent has admitted as payable to the Appellant.

The claim, which constitutes a right to payment, was never disputed by the

Respondent. Moreover, under Section 3(6) of the IBC, the Respondent did not

deny the existence of the claim. In line with the Respondent's admissions, the

provisions of the IBC become applicable as soon as the default amount

exceeds Rs 1 lakh.

17. The mere non-processing of the Appellant's bills on technical grounds

does not establish the existence of a pre-existing dispute. The Adjudicating

Authority erred in concluding that the Respondent had raised a dispute

qualifying as a 'pre-existing dispute,' thereby justifying the dismissal of the

Appellant's Application under Section 9 of the IBC at the threshold.

18. The Adjudicating Authority failed to recognise that the Demand Notice

under Section 8 of the IBC was issued on 26.07.2019, and the Application

under Section 9 was filed before the NCLT on 16.12.2019. Therefore, the

pecuniary threshold applicable to the present case under Section 4 of the IBC

is Rs 1,00,000/-. The Appellant rendered professional services amounting to

Rs 4,84,70,481/- and submitted corresponding bills to the Respondent. Out

of this amount, the Respondent paid Rs 91,15,371/-, which includes TDS of

Rs 11,80,109/- and an RTGS transfer of Rs 79,35,262/-. Consequently, the

outstanding amount payable by the Corporate Debtor to the Appellant stands

at Rs 3,93,55,110/-.

19. The Respondent paid a sum of Rs 79,35,262/- to the Appellant and

deposited TDS amounting to Rs 11,80,109/- with the Income Tax Department

Company Appeal (AT) (Insolvency) No. 1985 of 2024 8 of 19 in the Appellant's name. Under Section 194J of the Income Tax Act, 1961,

TDS is deducted at 10% on the amount paid or credited to the rightful

beneficiary. This indicates that the Respondent acknowledged the Appellant's

professional services for a total of Rs 1,18,01,090/-. Based on this, the

outstanding amount payable to the Appellant is at least Rs 26,85,719/- [that

is, Rs 1,18,01,090 - (79,35,262 + 11,80,109)].

20. For the financial year 2016-17, as per Form 26AS, which stands

admitted, the Respondent recorded that the Appellant provided services worth

Rs 39,47,300/- and deposited TDS of Rs 3,94,730/-. However, instead of

paying the full Rs 39,47,300/-, the Respondent paid only Rs 27,18,441/-,

including TDS (that is, Rs 23,23,711 + Rs 3,94,730). Without prejudice, the

remaining admitted amount of Rs 12,28,859/- is yet to be paid to the

Appellant.

21. The Appellant has relied on various orders of the Adjudicating Authority

dated 23.11.2021, 15.02.2022, and 22.04.2022, wherein the attempts at

resolution were acknowledged in the Order Sheets.

22. The Appellant, a senior advocate, consistently appeared alongside a

briefing advocate. While the bills of the briefing advocate and the advocate-

on-record (AOR) were duly cleared, the Appellant's bills remained

unprocessed. The Order noting discrepancies in the bills effectively defames

a senior advocate who has upheld the highest standards of integrity while

representing the government, its clients, and various government companies.

It unjustly questions the authenticity of the invoices based on delays in filing

Company Appeal (AT) (Insolvency) No. 1985 of 2024 9 of 19 legal proceedings, despite the fact that even the Respondent never raised such

concerns. The Appellant has maintained an unblemished record throughout

his 55-year legal career, which led to his appointment as a Special Public

Prosecutor by the Enforcement Directorate in several cases. Given these facts,

the remarks in the order should be expunged.

23. The Adjudicating Authority appears to have exhibited bias by

repeatedly stating in open court that the Appellant, being a lawyer, should

not have approached the Tribunal for relief. This stance disregards the fact

that the Hon'ble Delhi High Court has consistently ruled that advocates' bills

must be paid within a month and that they should not be compelled to file

petitions for their dues. Moreover, the NCLT itself has, in certain cases,

appointed Interim Resolution Professionals against companies for failing to

pay advocates' bills.

24. As a government company engaged in high-stakes litigation involving

thousands of crores, the Respondent must be held to a higher standard of

accountability, particularly regarding the timely payment of legal fees. There

should be no distinction in the standards applied to private and government

companies when it comes to fulfilling financial obligations. The serious lapse

and deliberate avoidance of payment by the Respondent should not result in

the Appellant being penalised simply for having represented a government

company.

Company Appeal (AT) (Insolvency) No. 1985 of 2024 10 of 19

25. The Appellant respectfully requests that the present Appeal be allowed

and that the Impugned Order dated 26.07.2024, passed by the Adjudicating

Authority in Company Petition No. (IB) 242 (PB) 2020, be set aside.

Submissions of the Respondent/Corporate Debtor - The State Trading Corporation of India Ltd.:

26. A senior advocate should not be permitted to file an Application under

Section 9 of the IBC, read with Rule 6 of the Insolvency and Bankruptcy

(Adjudicating Authority) Rules, 2016, against a client, as such a petition could

push the client toward insolvency. Before being designated as a senior

advocate, the Applicant/Petitioner practiced as an advocate, and in both

capacities, it is his fundamental duty to safeguard the interests of his client.

Allowing such proceedings to continue at the instance of a senior advocate

would contravene the core principles of ethics and morality that govern the

legal profession.

27. The Appeal is liable to be dismissed by this Hon'ble Tribunal because,

after filing the Petition before the NCLT in September 2019, the Appellant

subsequently approached the Hon'ble High Court of Delhi by filing Writ

Petition (C) No. 6146/2022. In the Writ Petition, inter alia the prayer made

was:-

"(a) Issue a writ of Mandamus commanding the Respondents to process the invoices of the Petitioner which have been submitted to Respondent No. 1 and determine the amount and to pay the amount payable and convey the same to the Petitioner within three weeks;"

28. The Petition before the NCLT sought the initiation of the CIRP

concerning the alleged debt claimed by the Appellant against the Respondent.

Meanwhile, before the Hon'ble High Court, the Appellant initially sought a

Company Appeal (AT) (Insolvency) No. 1985 of 2024 11 of 19 determination of the amount payable and subsequently requested payment

from the Respondent. In other words, the alleged debt had not yet been

quantified or determined by the Appellant. Furthermore, by filing the Writ

Petition, the Appellant implicitly treated the Respondent as a solvent entity.

In the above issue Writ Petition (C) No. 6146/2022 the Appellant himself

pleaded as under:-

"...The Petitioner states that NCLT proceedings is not equally efficacious alternative remedy as the said proceeding raised the question of solvency of the respondent no. 1 in any event, without prejudice, the said proceedings has been made virtually infructuous by taking adjournments after adjournments and since the petitioner is about 82 years old and has survived from corona recently, hence, the petitioner has approached to his Hon'ble High Court by filing this writ as there is no any other alternative. "

29. The proceedings before the NCLT in any case were virtually given up by

the Appellant.

30. In the first Demand Notice, the Appellant claimed an amount of Rs

6,48,17,455/-. However, in its Reply dated 18.01.2019, the Respondent

unequivocally denied the existence of such debt. Additionally, the Respondent

argued that the proceedings before the NCLT were barred by limitation, as the

invoices in question pertain to the period from 11.12.2006 to 21.01.2018,

while the Petition was filed in September 2019. Consequently, the Petition,

insofar as it relates to invoices and bills dated between 11.12.2006 and

31.08.2015, was clearly time-barred. In support of this argument, the

Respondent relies on the judgment of the Hon'ble Supreme Court in 'B.K.

Educational Services Pvt Ltd vs Parag Gupta and Associates' (AIR 2018

Company Appeal (AT) (Insolvency) No. 1985 of 2024 12 of 19 SC 5601), particularly paragraph 27, which affirms that the Petition was

barred by limitation.

31. For the invoices and bills covering the period from September 2016 to

January 2018, the Respondent had raised a valid pre-existing dispute. In its

Reply dated 18.01.2019, the Respondent specifically contested the accuracy

of the bills and invoices relied upon by the Appellant. It was asserted that the

Appellant had issued invoices arbitrarily, based on his own fee structure

rather than adhering to the prescribed schedule of fees. Additionally, separate

invoices were raised for group matters and batch matters, which was

impermissible under the approved fee schedule. This schedule had been

placed on record by the Respondent in its Written Submissions before the

NCLT. Following the Respondent's Reply dated 18.01.2019, the Appellant

withdrew the first Demand Notice issued on 08.01.2019 and, subsequently,

issued a revised Demand Notice on 26.07.2019, reducing the alleged debt

amount to Rs 6,26,90,985.02/-. This reduction in the claimed amount itself

indicates a serious dispute regarding the debt. These facts clearly

demonstrate that the Respondent had successfully raised a valid pre-existing

dispute within the meaning of Section 8(2) of the IBC.

32. The alleged demand raised in the second Demand Notice dated

26.07.2019 was also contested by the Respondent in its Reply dated

08.08.2019. Furthermore, in the Written Submissions filed by the Appellant

before the NCLT, it was acknowledged that a sum of Rs 30,47,500/- could be

deducted from the claimed amount. This further underscore significant

Company Appeal (AT) (Insolvency) No. 1985 of 2024 13 of 19 uncertainties regarding the quantification of the alleged debt. The NCLT has

rightly relied on the judgment of the Hon'ble Supreme Court of India in

'Mobilox Innovations Private Limited vs Kirusa Software Pvt Ltd' [2017

INSC 975], which establishes that the initiation of the CIRP is not permissible

when there are unresolved disputes concerning the alleged debt.

33. The Appellant cannot rely on the Order dated 30.05.2023 passed by the

Hon'ble High Court in the Writ Petition, as the Order itself records that the

Respondent disputes the Appellant's calculations. The sum of Rs 5,00,000/-

was merely an outcome of discussions held with the Appellant to explore an

amicable resolution of the dispute. However, since this amount was not

acceptable to the Appellant, any discussions regarding a potential settlement

cannot be considered binding on the Respondent in any manner. Such

negotiations were conducted *without prejudice* to the Respondent's rights

and contentions.

34. In light of the aforementioned facts and circumstances, the Judgment

and Order dated 26.07.2024 passed by the NCLT in CP No. (IB) 242(PB)2020

does not warrant any interference.

Appraisal

35. Heard Counsels of both sides and perused all materials on record. The

main issue before us is whether pre-existing dispute exists or not basis which

the Section 9 Petition was rejected.

36. From the materials on record, it is observed that the Operational

Creditor initially issued a Demand Notice dated 08.01.2019 to the Corporate

Company Appeal (AT) (Insolvency) No. 1985 of 2024 14 of 19 Debtor under Section 8 of the IBC, 2016, seeking payment of outstanding

dues amounting to Rs 6,48,17,455/-. In response, the Corporate Debtor

furnished a Reply dated 18.01.2019. However, the first Demand Notice was

subsequently withdrawn due to a calculation error. Thereafter, the Applicant

issued a revised Demand Notice dated 26.07.2019 under Section 8 of the IBC,

2016, demanding payment of outstanding dues amounting to Rs

6,26,90,985.02/-. This amount comprised a principal sum of Rs

3,93,55,110/- and an interest component of Rs 2,33,35,875.02/-, calculated

at a rate of 15% per annum and this is reflected in Part-IV of Form 5 giving

particulars of the operational debt.

37. Before proceeding further to determine debt and default, we delve into

the issue of pre-existing dispute between the Operational Creditor and the

Corporate Debtor before issue of the Section 8(1) Notice, which is vehemently

being argued by the Respondent and also upheld by the Adjudicating

Authority while dismissing the Section 9 Petition.

38. The Respondent, in its Reply dated 18.01.2019, specifically challenged

the accuracy of the invoices issued by the Appellant for the period from

September 2016 to January 2018. It was contended that the invoices were

prepared arbitrarily, based on the Appellant's own fee structure rather than

the approved schedule of fees. Additionally, separate invoices were raised for

group matters and batch matters, which was impermissible under the

prescribed fee structure. The Respondent submitted the approved fee

schedule as part of its Written Submissions before the NCLT.

Company Appeal (AT) (Insolvency) No. 1985 of 2024 15 of 19

39. Following the Respondent's objections in its Reply dated 18.01.2019,

the Appellant withdrew the initial Demand Notice dated 08.01.2019 and

subsequently issued a revised Demand Notice on 26.07.2019, reducing the

alleged debt amount to Rs 6,26,90,985.02/-. This reduction in the claimed

amount itself suggests the existence of a serious dispute regarding the debt.

40. In 2022, the Appellant filed Writ Petition (C) No. 6146/2022 before the

Hon'ble High Court of Delhi, seeking the processing of his bills. In its Order

dated 30.05.2023, the Hon'ble High Court noted that the Respondent

disputed the Appellant's calculations. The amount of Rs 5,00,000/- was

merely a figure arrived at during discussions to explore an amicable

resolution, and it did not constitute an admission of liability by the

Respondent.

41. The Appellant has alleged non-payment of legal fees dating back to

2007, despite representing the Corporate Debtor in various legal proceedings

until 2018. However, no grievance regarding unpaid invoices was raised for

over a decade. As per the Respondent's submissions, the issue of outstanding

payments was brought up only after the Corporate Debtor ceased engaging

the Appellant's services in 2018.

42. Moreover, concerns regarding the need for additional supporting

documents for the invoices were raised by the Corporate Debtor in an email

dated 07.02.2017 [@148/102 APB].

43. It is evident from the earlier discussion that disputes regarding the

outstanding amount claimed by the Appellant existed even before the

Company Appeal (AT) (Insolvency) No. 1985 of 2024 16 of 19 statutory Demand Notice was issued. These disputes are genuine and

substantial, rather than being spurious, hypothetical, or illusory. Section

8(2)(a) of the IBC, 2016, stipulates that a Corporate Debtor must, within ten

days of receiving a Demand Notice or invoice under Section 8(1), inform the

Operational Creditor of the existence of a dispute, if any, or provide a record

of any pending suit or arbitration proceedings initiated before the receipt of

such Notice or invoice in relation to the dispute. In the present case, the

Corporate Debtor has complied with this requirement. Further, the

Adjudicating Authority, in line with the provisions of Section 9(5)(i)(d) of the

Code and relying on established legal precedents, has concluded that the

Corporate Debtor cannot be admitted into insolvency. In reaching this

decision, the Adjudicating Authority has placed reliance on two significant

judgments of the Hon'ble Supreme Court:

o Mobilox Innovations Private Limited vs Kirusa Software Private Limited (Civil Appeal No. 9405 Of 2017) passed on 21.09.2017

"We have also seen that one of the objects of the Code qua operational debts is to ensure that the amount of such debts, which is usually smaller than that of financial debts, does not enable operational creditors to put the corporate debtor into the insolvency resolution process prematurely or initiate the process for extraneous considerations. It is for this reason that it is enough that a dispute exists between the parties."

Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the "dispute" is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence, which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application."

o Sabarmati Gas Limited vs. Shah Alloys Limited (Civil Appeal No. 1669 of 2020) Company Appeal (AT) (Insolvency) No. 1985 of 2024 17 of 19 "It is enough that a dispute exists between the parties and in other words, what is to be seen is whether there was a plausible contention requiring investigation for the purpose of adjudication. Taking note of the nature of the dispute of the respondent as referred hereinbefore in respect of the claim made by the appellant, we do not find any reason to disagree with the concurrent findings of the Tribunals that there existed a 'pre-existing dispute' between the parties before the receipt of demand notice under Section 8, IBC. In other words, the dismissal of the application under Section 9, IBC on the ground of 'pre-existing dispute' cannot be held to be patently illegal or perverse. We also do not find any reason, in the facts and circumstances, to hold that the case set up by the respondent was a patently feeble legal argument. At any rate we are not inclined to brush aside the case of the respondent as spurious. We may hasten to add here that we shall not be understood to have held that the dispute set by the respondent regarding the dues is ultimately to be upheld. Certainly, when the expression 'pre-existing dispute' is used it will only indicate the existence of a dispute prior to the receipt of a demand notice under Section 8, IBC, and the correctness or its truthfulness is a matter of evidence. In short, the respondent has succeeded in raising a dispute describable as 'pre-existing dispute'. In that view of the matter once we find that the Tribunals have rightfully held that there existed a 'pre-existing dispute' between the parties there cannot be an order of remand of the matter to the Tribunal for reconsideration of Section 9 application under IBC."

Both these judgments support the case of the Respondent and we do not find

any infirmity in the findings of the AA placing reliance on these judgements.

44. Upon reviewing the facts of the present case, it is evident that disputes

and conflicts existed regarding the alleged outstanding amount claimed by

the Applicant even before the issuance of the statutory Demand Notice and

the filing of the present Application. These disputes specifically pertain to the

invoices raised by the Applicant/Operational Creditor. A pre-existing dispute

is apparent, as the invoices do not align with the agreed schedule of fees.

Additionally, the discrepancies in these invoices remain unaddressed despite

prior communications highlighting the inconsistencies.

45. We make it clear that we are not expressing any opinion on non-IBC

issues of defamation raised by the Appellant and issues of ethics and morality

Company Appeal (AT) (Insolvency) No. 1985 of 2024 18 of 19 raised by the Respondent, as they are not relevant to decide on the Appeal

under the Code.

46. The issue relating to limitation has not been gone into as all the details

of the bills has not been placed on record. Moreover, since pre-existing

dispute has been clearly established in the facts of the case, we need not good

into any further issue.

Orders:

47. We concur with the finding of the Adjudicating Authority that there is

a pre-existing dispute and Section 9 Application cannot be admitted in these

conditions. Therefore, the Appeal is dismissed.

[Justice Ashok Bhushan] Chairperson

[Arun Baroka] Member (Technical) New Delhi.

March 05, 2025.

pawan

Company Appeal (AT) (Insolvency) No. 1985 of 2024 19 of 19