The Tax Publishers

Existence of A Dispute Under IBC

Pragya Bhandari

The Supreme Court of India has provided clarification on what constitutes existence of a dispute in the context of the Insolvency and Bankruptcy Code, 2016 (IBC) via providing the judgement in Mobilox Innovations Private Limited v Kirusa Software Private Limited. The learned author attempts at enlightening the readers about the case under this article.

The expressions dispute and existence of a dispute had lead to conflict interpretations from different benches of the NCLT. While the NCLAT ruling in Kirusa Software Private Limited v. Mobilox Innovations Private Limited brought uniformity in interpretation but a conclusive ruling by the Supreme Court had finally settled the issue.

In Mobilox Innovations Private Limited v Kirusa Software Private Limited, an appeal was filed in the context of applications filed by operational creditors for initiation of corporate insolvency resolution process (CIRP) of corporate debtors under the Insolvency and Bankruptcy Code, 2016 (IBC). The case assumed significant as the Supreme Court of India has brought finality on the meaning of dispute under IBC.

1. Facts of the case

The Mobilox Innovations Private Limited (i.e. appellant) was engaged by Star TV for conducting tele-voting for the Nach Baliye programme on Star TV. The appellant in turn subcontracted the work to the Kirusa Software Private Limited (i.e. respondent). The respondent provided the requisite services and raised monthly invoices and also followed up with the appellant for payment of pending invoices. A non-disclosure agreement (NDA) was executed between the parties.

In year 2013-14, respondent raised a invoices of Rs. 20,08,202.55. However, appellant did not release the money and withheld the payment as the respondent had disclosed on their website that it had worked for the Nach Baliye programme run by Star TV. A declaration aimed at acquiring more business. It had, thus, breached the NDA.

Therefore, respondent i.e. operational creditor sent a demand notice to appellant i.e. corporate debtor under section 8(1) of the IBC on 23 December 2016. Appellant responded to demand notice mentioning, inter alia, that there was existence of serious and bona fide disputes between the parties, including breach of NDA.

Subsequently, respondent filed an application with the NCLT under sections 9 of the IBC stating that the appellant owed an operational debt. Therefore, CIRP should be initiated. NCLT dismissed such application on the ground that appellant had issued a notice of dispute, further, the appellant had disputed the claim of debt alleged by the respondent.

Thus, respondent filed an appeal before the National Company Law Appellate Tribunal (NCLAT), which set aside the order of NCLT. Appellate Tribunal stated that appellants response to the demand notice did not raise a dispute within the meaning of section 5(6) or section 8(2) of the IBC. In addition thereof, it stated that the defence raised by appellant was vague, got up and motivated.

SUBSCRIBE TaxPublishers.inSUBSCRIBE FOR FULL CONTENT

TaxPublishers.in

'Kedarnath', 7, Avadh Vihar, Near Nirali Dhani,

Chopasni Road

Jodhpur - 342 008 (Rajasthan) INDIA

Phones : 9785602619 (11 am - 5 pm)

E-Mail : mail@taxpublishers.in / mail.taxpublishers@gmail.com