Section 9 CIRP Petition Not Maintainable Where Invoice Liability Is Disputed and Debt Not Crystallised
- REEDLAW
- 1 day ago
- 4 min read
REEDLAW Legal News Network reports: In a decisive ruling concerning operational debt disputes under the Insolvency and Bankruptcy Code, the Appellate Tribunal clarified that a creditor cannot invoke insolvency proceedings when invoice liability remains unadjudicated and disputed. The Tribunal observed that unresolved payments, inconsistent reconciliation records, and disputed accounting treatment cannot be treated as a crystallised debt fit for CIRP initiation under Section 9.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), assessed whether insolvency proceedings could be triggered where payments were made against multiple invoices and their appropriation remained contested. The Bench held that the presence of unsettled reconciliation differences, disputed adjustments, and competing ledger positions demonstrated that liability had not achieved crystallisation. It reiterated that CIRP cannot substitute a trial-like adjudicatory mechanism for determining disputed monetary claims.
The appeal had been filed under Section 61 of the Insolvency and Bankruptcy Code, 2016, challenging the order by which the Section 9 application had been dismissed. The Appellant, engaged in providing transportation services, had raised several invoices over a period and claimed that payments remained outstanding despite fulfilment of service obligations. After alleging default and issuing a demand notice, the Appellant proceeded to initiate proceedings under Section 9. The Adjudicating Authority, however, refused admission of the petition, holding that the debt was not crystallised and that the dispute between the parties preceded the initiation of proceedings.
Before the appellate forum, it had been asserted that the invoices forming the subject matter of the claim were never disputed at any stage prior to service of the demand notice. The Appellant contended that the Corporate Debtor had acknowledged liability through multiple communications, including confirmation of an outstanding sum, and failed to respond to the statutory notice within the period contemplated under Section 8(2). Consistent payments made earlier, according to the Appellant, were wrongly treated as settlements towards later invoices, and since the Corporate Debtor never specified the appropriation of those payments, the Appellant exercised its discretion to apply them against older dues.
On the contrary, the Respondent disputed the quantum, nature and validity of the invoices relied upon in the Section 9 petition. Payments aggregating to a substantial sum had been made over the relevant period, which, according to the Respondent, were meant specifically towards invoices forming part of those relied upon in the petition. It had been argued that the Appellant sought to unilaterally appropriate payments in breach of Section 59 of the Contract Act. The Respondent further pointed out defects in the invoices, lack of supporting documentation, allegations of inflated charges and absence of agreed terms relating to interest. Consistent requests had been made for reconciliation of accounts, and payments had continued over an extended period, demonstrating that insolvency proceedings were being used as a recovery mechanism.
The appellate authority noted that although there had been no reply to the demand notice because service was disputed, the Corporate Debtor had placed a detailed response on record at the stage of Section 9 proceedings. In that reply, the liability had been categorically denied, supported by references to payment records, correspondence asking for reconciliation, and allegations surrounding inappropriate appropriation of payments. Since both sides had presented conflicting positions regarding the appropriation of substantial payments and the outstanding liability, the existence of a dispute had become evident. The authority observed that such a dispute was not superficial and required proper adjudication, thereby rendering the claim incapable of summary determination through insolvency proceedings.
Based on the pleadings on record, the appellate forum concluded that the operational debt could not be regarded as crystallised and that a genuine dispute existed regarding quantum, supporting documentation, payment application and interest liability. As the matter involved contested factual aspects requiring examination beyond the limited scope of Section 9 proceedings, dismissal of the original petition did not warrant interference.
Mr. Pai Amit and Ms. Bhavana Duhoon, Advocates, represented the Appellant.
Mr. Arun Sri Kumar, Advocate, appeared for the Respondent.
This is premium content available to our subscribers.
To access the full content related to this article — including the complete judgment, detailed legal analysis, ratio decidendi, headnotes, cited case laws, and updates on relevant statutes and notifications — we invite you to subscribe to REEDLAW’s premium research platform.
Click here to Subscribe and unlock exclusive access to structured legal analysis, judicial summaries, and a comprehensive legal research database.
REEDLAW Legal Intelligence & Research is India’s most trusted legal publishing and research platform, empowering professionals with structured judicial insights and authoritative legal intelligence since 1985.
The platform offers comprehensive resources spanning Corporate Insolvency, Bankruptcy, Company Law, SARFAESI, Debt Recovery, Contract, MSMEs, Arbitration, Banking, and Commercial Laws. Through curated journals like IBC Reporter and Bank CLR, and an advanced Online Legal Research Database, REEDLAW simplifies complex legal research for professionals, institutions, and academia across India.
Comments