Factual Matrix 

In the Matter of SFO Technologies Ltd. v. Vanu India Ltd. The respondent-Corporate Debtor received a quote from the appellant-Operational Creditor that said an early payment was necessary. On September 25, 2018, the respondent issued a purchase order, but the items were not delivered, therefore an invoice was not prepared. According to the appellant, the respondent denied having any obligation to provide advance payments. The Adjudicating Authority rejected the appellant’s application for an insolvency proceeding under Section 9 of the IBC because there was no debt and there had been no default. Angered, the appellant filed an appeal with the NCLAT, contesting the judgement.

Contention from parties 

The appellant claimed that the respondent received a Purchase Order from Himachal Futuristic Communications Limited, who then sent the same order to the appellant. The appellant asserted that the Corporate Insolvency Resolution Process order should have taken into account the corporate debtor’s default, which the adjudicating authority should have done. The appellant stated that there was no pre-existing disagreement to deny an application under Section 9 of the IBC because the conditions of payment were agreed to in the Quotations.

The respondent contended that the appellant’s application was deficient and that since no invoice had been issued, no payment was necessary. They maintained that only NRE costs are payable for advance payments and that payment is only due after the invoice has been verified. Because the NRE balance is less than $1 million, the application cannot be maintained. The respondent further asserted that the disparity between the amounts asked and payable between the parties constituted a prior disagreement.

Analysis of Tribunal order 

An application submitted under Section 9 of the IBC is not maintainable when there is a pre-existing dispute, according to a Division bench made up of Justice M. Venugopal and Justice Shreesha Merla Technical Member of NCLAT. Additionally, in order to consider a Section 9 application, the Adjudicating Authority demands precise proof of “debt” and default. The NCLAT dismissed the current appeal, finding that the appellant had failed to establish that the Corporate Debtor had committed a default and that as a result, the ruling of the Adjudicating Authority was not legally flawed.

The NCLAT noted that any application submitted under Section 9 of the IBC needs precise proof of “debt” and “default,” and the application is unmaintainable if there is a pre-existing dispute. “A’strict evidence’ of ‘Debt and Default’ is required for an application under Section 9 of the Code. The ‘Corporate Insolvency Resolution Process’ cannot be started at the request of an ‘Operational Creditor’ if there is a ‘Pre-existing Dispute’.

CASE NAME – SFO Technologies (P) Ltd. v. Vanu India (P) Ltd., Comp. App (AT) (CH) (INS) No. 436 / 2022