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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Corporate and Economic Laws

Case: Vihaan Steels Ltd, a public company, had Rs 10 crore paid-up capital and a creditor, Orbit Metals, owed Rs 3 crore. Vihaan's bank, Nation Bank, holds a secured loan of Rs 20 crore and Orbit is an operational creditor. Vihaan is being assessed under the Insolvency and Bankruptcy Code. Orbit issued a demand notice for the unpaid invoice of Rs 3 crore, and Vihaan did not reply within 10 days nor pay. Vihaan had earlier received a notice from a customer about a pre-existing dispute that was pending in arbitration over the same invoice quality. What is the likely position on Orbit's application under Section 9?

Orbit's Section 9 application is likely to be rejected if a genuine pre-existing dispute over the same invoice is shown. Silence after the demand notice does not override documents proving a dispute existed earlier, because the tribunal looks at whether a real dispute exists, not merely whether the debtor replied.

  1. AIt will be admitted because default exceeds the threshold and Vihaan did not reply
  2. BIt will be rejected if a pre-existing dispute is established, as the corporate debtor's silence to the demand notice does not defeat records showing dispute existed before the noticeCorrect
  3. CIt is automatically admitted since operational creditors can always trigger CIRP
  4. DIt must be converted into a financial creditor application

Explanation

For operational creditors, the adjudicating authority examines whether a pre-existing dispute exists; if records show a genuine dispute that predates the demand notice, the application is rejected. Failing to reply within 10 days is not conclusive when such a dispute is evidenced. The dispute here concerns the same invoice quality and is pending in arbitration. A creditor cannot convert status by choice.

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