Facts of the case:
The appellant (Mobilox innovations pvt. Ltd) was conducting tele-voting process
for a program in Star TV which is named as NachBaliye
. The appellant
engaged the respondent company (Kirusa software pvt. ltd) for providing various
services relating to the TV program, and both the parties executed a
The non-disclosure agreement stipulated certain conditions such as
confidentiality obligations towards Mobilox innovations pvt. Ltd. During the
time period of contract Kirusa software pvt. ltd raised necessary monthly
invoices for the rendered services.
However, Mobilox innovations pvt. Ltd informed Kirusa software pvt. Ltd about
the payments that were subsequently withheld due to breach of the non-disclosure
agreement obligations. Due to the non-payment of the monthly invoices by Mobilox
innovations pvt. Ltd, Kirusa software pvt. Ltd sent a demand notice to Mobilox
innovations pvt. Ltd under Section 8 of the Insolvency and Bankruptcy Code.
Mobilox innovations pvt. Ltd’s response to the demand notice stated that there
was a bona fide and serious dispute between the parties, inclusive of the breach
of obligations mentioned under the non-disclosure agreement.
Kirusa subsequently filed an application before the NCLT, Mumbai under section 9
for the initiation of Corporate Insolvency Resolution process (CIRP) of Mobilox.
NCLT rejected the application on the grounds that Mobilox had issued a notice of
dispute to the operational creditor.
An appeal against the order of NCLT was subsequently filed by Kirusa stating
that mere dispute to the demand notice by the operational creditor does not
amount to a valid ground for rejection of application under Section 9 of the
Insolvency & Bankruptcy Code’.
The question before the Appellate Tribunal was with respect to the clarification
of meaning of dispute and existence of dispute for the purposes of application
under Section 9 of the Insolvency and Bankruptcy Code.
NCLAT allowed Kirusa’s appeal on the ground that the reply to the demand notice
by the Mobilox cannot be seen within the purview of Section 8(2) and Section
5(6) of the Insolvency and Bankruptcy Code. It stated that the defence raised
by Mobilox was vague and motivated as the debt demanded was not in connection
with the non-disclosure agreement.
Further NCLAT stressed upon the interpretation of dispute
stating that a
dispute would not be limited to only arbitration proceedings or suits but shall
include any proceedings initiated before any tribunal, consumer court, labour
Mobilox filed an appeal to the Supreme Court against the order passed by NCALT.
The Supreme Court allowed the appeal by Mobilox, while interpreting the
expression existence of a dispute under Section 8(2) (a) of the Insolvency and
Bankruptcy Code. The Supreme Court was of the opinion that the breach of
non-disclosure agreement was sufficient to construe the existence of a dispute
to invalidate the CIRP application filed by the operational creditor. The court
looked into an Australian High Court case, Spencer Constructions Pvt Ltd. V.
G & M Aldridge Pvt Ltd
. in regard to interpret the expression existence
of the dispute
Interpretation of Section 8 (2) (a):
The word and occurring in Section 8 (2) (a) must be read as or. The Supreme
Court was of the opinion that such an understanding shall lead to great hardship
as the corporate debtor would then be able to stave off the bankruptcy process
provided a dispute is already pending in a suit or arbitration proceedings.
The Supreme Court also stated that, if and is mentioned under Section 8(2)(a),
it is not read as or, such persons shall be excluded from the ambit of Section 8
(2) and application of CIRP shall be easily obtained which was not the intent of
The Court relied on few cases, Semee Khan V. Bindu Khan, Maharshi Mahesh Yogi
Vedic Vishwavidyalaya V. State of M.P while interpreting the words ‘and’ &
The Supreme Court held that the existence of the dispute and/or suit or
arbitration proceeding necessarily be pre-existing
, that is to say, it
should exist prior to receipt of the Demand Notice.
The Supreme Court while deciding the matter scrutinized the background of IB
Code. It observed that the Insolvency and Bankruptcy Bill 2015 defined
as a bona fide suit or arbitration proceedings
However, when the Bill was passed the term dispute under Section 5 (6) was
dropped from the definition. The Supreme Court stressed upon the interpretation
that the previous jurisprudence with respect to the definition dispute
does not apply to the current Insolvency & Bankruptcy code. Instead the Supreme
Court provided a new test plausible contention to determine the existence of
The Supreme Court holds that while determining existence of a dispute
all that the NCLT is to see 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.
While opining that a spurious defence which is mere bluster
rejected, the Supreme Court adds a word of caution – while determining whether
dispute exists or not, the NCLT is not required to satisfy itself that the
defence is likely to succeed or to examine the merits of the dispute. So long as
a dispute truly exists in fact and is not spurious, hypothetical or illusory,
the application of an operational creditor must be rejected by the NCLT.
Questions to be seen by the Adjudicating Authority while examining any
application under Section 9 of the Insolvency & Bankruptcy Code are as follows:
- Whether there is an operational debt of more than One Lakh?
- Whether the documentary evidence provided with the application shows the
debt is due and payable and has not yet been paid?
- Whether there is an existence of a dispute between the concerned parties
or any record of pendency of suit or arbitration proceeding filed before the
receipt of Demand Notice?
If any one of the conditions is not satisfied, NCLT must reject the
On the facts of the case, the Supreme Court holds that the correspondence
between the parties showed that on 30 January 2015, Mobilox had clearly informed
Kirusa that on account of breach of the NDA by it, payments were being withheld
till the time the matter was resolved. This was followed by further exchange of
correspondence between the parties.
Further, the Demand Notice sent by Kirusa was disputed in detail by Mobilox in
its reply where it again referred to its e-mail of 30 January 2015. Going by the
test of existence of a dispute
, the Supreme Court held that without going
into the merits of the dispute, it was clear that Mobilox had raised a
plausible contention requiring further investigation which was not a patently
feeble legal argument or an assertion of facts unsupported by evidence.
Mobilox’s defence was not spurious, mere bluster, plainly frivolous or vexatious
but a dispute truly existed in fact between the parties, which may or may not
There appears to be no doubt that the interpretation with respect to dispute and
existence of a dispute has been quite in debate since the inception of IB Code.
Conflicting interpretations have been provided by different benches of NCLT.
However, a conclusive ruling by the Supreme Court has finally provided a settled
position.Thus the supreme court recognised that there is an existence of dispute
between kirusa and mobilox as mobilox raised a plausible contention as specified
by the supreme court in the judgement.
In the present case, the main issues before the court is the existence of
dispute between the parties of the case and what constitutes a dispute in any
matter. The supreme court in its judgement referred to plausible contention
according to which contention which requires further investigation and that the
dispute is not a patently feeble legal argument or an assertion of fact
unsupported by evidence.
The issue really was that the word and in Section 8 (2)(a) of IBC suggests that
a dispute between the operational creditor and the corporate debtor will be in
existence only if a suit or an arbitration proceeding on the dispute is pending
before receipt of Demand Notice. The Supreme Court held that such an
interpretation would lead to a great hardship and anomalous situations as the
corporate debtor would then be able to stave off the bankruptcy process only if
a dispute is already pending in a suit or arbitration proceedings and not
To highlight the hardship, the Supreme Court cited an example that in case of a
dispute that arises a few days before triggering of the CIRP, there would be no
time to approach either an arbitral tribunal or a court even though a dispute
This judgement by the supreme court makes the functioning of the judicial sysyem
of the country easier as the requirements for the existence of a dispute is well
laid in mobilox v. kirusa info solutions pvt. ltd
. Prior to the judgement,
there is reference to the clear definition of dispute between the parties
thereby creating a burden on the lower courts to interpret the laws.
The disputes between the parties clogs the movement of money as a part of
payment that is supposed to be paid by the corporate debtor to the corporate
creditor for the services provided by the corporate creditor. If there are such
cases in a nation-wide scale, there would be a effect of late payments which
will be affected by the judgement by the courts and even might lead to
non-payment of the bills by the corporate debtors.
This will not only affect the corporate creditor but also the economy as a
whole. The stagnation of the flow of the money will affect the small business
enterprises as they may not be able to meet the running expenses of the business
enterprises as a result of this stagnation. This will affect the economic status
of the organisation. This also affects the GDP of the nation as a whole as the
stagnation would lead to lower profits.
Lower profits necessitate lower investments in the economy which is directly
relational to the aggregate demand in the nation. Thus, when investments reduce,
there would be a situation of under equilibrium in the nation as there is
under-utilization of resources, thereby reducing the aggregate supply in the
economy which will finally reduce the GDP of the nation. Fall in GDP is not a
good sign of the economic condition of the nation thereby reducing the FDI as
there would be less incentive to invest money in a economy with a failing GDP.
Thus, due to the judgement by the supreme court in Mobilox Innovations Pvt.
Ltd. V. Kirusa Software Pvt. Ltd
has given a insight into the existence of
dispute between the parties thereby reducing the time taken by the judicial
process and the effects thereof. Therefore, the incidents of late payments of
bills by the corporate debtor will be reduced to minimum levels as the judicial
process is faster and efficient than before as there is a clear cut definition
of dispute and existence of dispute making it easier for the regulating
authorities to deal with such cases when raised. Thus this judgement by the
supreme court not only passed the judgement in the case but also created a
precedent for such cases of similar in nature.
This judgement efficient in nature as it is reducing the judicial process and
also reducing the delay of payments by the corporate debtors thereby creating a
positive impact on the economy and increasing the GDP of the economy. 
- Section 9 enshrines the right to file an application for the initiation
of corporate insolvency resolution process after the expiry of 10 days from
the date of delivery of demand notice.
- Section 8(2) emphasises that once the demand notice is served upon the
corporate debtor by the operational creditor, the corporate debtor needs to
inform the creditor about the payment of the debt or dispute if any, within
10 days of receiving the notice.
- The section states as follows, dispute includes a suit or arbitration
proceedings relating to-(a) he existence of the amount of debt; (b) the
quality of goods or services; or (c) the breach of a representation or
- Spencer Constructions Pvt Ltd. V. G & M Aldridge Pvt Ltd, 1997 FCA 681
- Semee Khan V. Bindu Khan , 1998 7 SCC 59 at 64
- Maharshi Mahesh Yogi Vedic Vishwavidyalaya V. State of M.P ,2013 15 SCC
677 at 718
- The economic impact of late payments, William conn el, http://ec.europa.eu/economy_finance/publications/economic_paper/2014/pdf/ecp531_en.pdf
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