Holding

The Supreme Court held that the word "and" in s.8(2)(a) of the IBC must be read as "or", that a genuine dispute existed, and therefore the operational creditor's application should be rejected under s.9(5)(d).

Summary

Mobilox Innovations Pvt Ltd, an operational creditor, filed an application under the Insolvency and Bankruptcy Code, 2016 (IBC) seeking initiation of corporate insolvency against Kirusa Software Pvt Ltd for an unpaid operational debt of Rs.20,08,202.55. The corporate debtor raised a dispute, alleging breach of a non‑disclosure agreement (NDA) and withheld payment, while the operational creditor contended that a genuine dispute existed under s.5(6) and s.8(2)(a) of the IBC. The National Company Law Tribunal rejected the application, but the NCLAT set aside that order, holding that the dispute was vague and the application should be admitted. The Supreme Court examined the statutory language, holding that the word "and" in s.8(2)(a) must be read as "or" and that a real, non‑spurious dispute existed, warranting rejection of the application under s.9(5)(d). It also ruled that the absence of the IDBI certificate was not fatal at the appellate stage. Consequently, the Court set aside the NCLAT judgment and allowed the appeal, restoring the lower tribunal's dismissal of the application.

Issues considered

The correct interpretation of the word "and" in s.8(2)(a) of the IBC – whether it should be read as "or".
Whether a genuine dispute existed between the parties under the definition in s.5(6) of the IBC.
Whether the adjudicating authority was obliged to reject the operational creditor's application under s.9(5)(d) on the basis of the dispute.
The relevance of the missing IDBI certificate to the admissibility of the application.

Legislation cited

Companies Act, 2013s. 255, s. 271
Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016
Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016
Insolvency and Bankruptcy Code, 2016s. 45, s. 5(6), s. 61, s. 62, s. 64, s. 8(2)(a), s. 9(5)(d), s. 9(5)(i)(b), s. 9(5)(i)(c), s. 9(5)(i)(d)

Subjects

InsolvencyBankruptcyOperational creditorDisputeSection 8 IBCSection 9 IBCStatutory interpretationNDA breachIDBI certificateCorporate insolvency resolution process

Judgment

[2017] 10 S.C.R. 1006

A MOBILOX INNOVATIONS PRIVATE LIMITED
v.
KIRUSA SOFTWARE PRIVATE LIMITED
(Civil Appeal No. 9405 of2017)
B SEPTEMBER 21, 2017
[R. F. NARIMAN AND SANJAY KISHAN KAUL, JJ.]
Insolvency Laws - Legislative history of legislation relating
to indebtedness - Discussed.
C Insolvency and Bankruptcy Code, 2016:
Purpose of enactment - Discussed.
s.9 - Application for initiation of Corporate Insolvency
Resolution Process (CIRP) - The adjudicating authority, when
examining an application under s.9 of the Act has to determine
D whether there is an "operational debt" as defined exceeding Rs. I
lakh; whether the documentary evidence furnished with the
application shows that the aforesaid debt is due and payable and
has not yet been paid; and whether there. is existence of a dispute
between the parties or the record of the pendency of a suit or
E arbitration proceeding filed before the receipt of the demand notice
of the unpaid operational debt in relation to such dispute - If any
one of these conditions is lacking, the application has to be
rejected - Apart from that the adjudicating authority must follow
the mandate of s.9 and in particular the mandate of s.9(5) of the
Act, and admit or reject the application, as the case may be,
F depending upon the factors mentioned in s.9(5) of the Act - Jn the
instant case, correspondence between the parties showed that the
respondent had breached the terms of agreement and, therefore,
appellant withheld the payment against the invoices raised by the
respondent - This shows that the appellant had raised the plausible
G contention regarding further investigation and a dispute existed
between them - Application under s.9 is, therefore, liable to be
dismissed - Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016 - Insolvency and Bankruptcy Board of India
(l11Solvency Resolution Process for Corporate Persons) Regulations,
2016 - Regn 7.
H
1006
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1007
SOFI'WARE PRIVATE LIMITED

s.8(2)(i:1) - Word "and" - Connotation of -Held: The word A
"and" occurring in s.8(2)(a) must be read as "or" - If read as
"and", disputes would only stave off the bankruptcy process if they
are already pending in a suit or arbitration proceedings and not
otherwise - This would lead to great hardship, in that a dispute may
arise a few days before triggering of the insolvency process, in B
which case, though a dispute may exist, there is no time to approach
either an arbitral tribunal or a court - Further, given the fact that
long limitation periods are allowed, where disputes may arise and
do not reach an arbitral tribunal or a court for upto three years,
such persons would be outside the purview of s.8(2) leading to
bankruptcy proceedings commencing against therii - Such an · C
anomaly cannot possibly have been intended by the legislature nor
has it so been intended.
Companies Act, 2013:
s.271 - A company being unable to pay its debts is no longer
a ground for winding up a company - Old law contained in D
Madhusudan case no longer valid.
· Allowing the appeal, the Court
HELD: 1.1 The legislative history of legislation relating to
indebtedness goes back to the year 1964 when the 24'h Law E
Commission recommended amendments to the Provincial
Insolvency Act of 1920. This was followed by the Tiwari
Committee of 1981, which introduced the Sick Industrial
Companies Act, 1985. Following economic liberalization in the
1990s, two Narsimham Committee reports led to the Recovery
of Debts and Bankruptcy Act, 1993 and the SARFAESI Act, 2002. F
Meanwhile, the Goswami Committee Report, submitted in 1993,
condemned the liquidation procedure prescribed by the
Companies Act, 1956 as unworkable and being beset with delays
at all levels - delaying tactics employed by· the management,
delays at the' level of the Courts, delays in making auction sales . G
etc. This then led to the Eradi Committee Report of 1999, which
proposed amendments to. the Companies Act and proposed the
repeal of. SICA. ·This Committee echoed the findings of the.
Goswami Committee and recommended an overhaul of the
liquidation procedure under the Companies Act. It was for the ·
first time, in 2001, that the L.N. Mitra Committee of the RBI H
1008 SUPREME COURT REPORTS [2017] IO S.C.R.

A proposed a comprehensive Bankruptcy Code. This was followed
by the Irani Committee Report, also of the RBI in 2005, which
noted that the liquidation procedure in India is costly, inordinately
lengthy and results in almost complete erosion of asset value.
The Committee also noted that the insolvency framework did
not balance stakeholders' interests adequately. It proposed a
B
number of changes including changes for increased protection of
creditors' rights, maximization of asset value and better
management of the company in liquidation. In 2008, the Raghuram
Rajan Committee of the Planning Commission proposed
improvement to the credit infrastructure in the country, and finally
c a Committee of Financial Sector Legislative Reforms in 2013
submitted a draft Indian Financial Code, which included a
"resolution corporation" for resolving distressed financial firms.
All this then led to the Bankruptcy Law Reforms Committee, set
up by the Department of Economic Affairs, Ministry of Finance,
D under the Chairmanship of Shri T.K. Viswanathan. This
Committee submitted an interim report in February 2015 and a
final report in November of the same year. It was, as a result of
the deliberations of this Committee, that the present Insolvency
and Bankruptcy Code of 2016 was finally born. [Paras 11-13]
[1024-F-G; 1025-A-F]
E Madhusudan Gordhandas v. Madhu Woollen Industries
Pvt. Ltd. [1972] 2 SCR 201 - referred to.
1.2 In the passage of the Bills which ultimately became the
Code, various important changes have taken place. The original
definition of "dispute" has now become an inclusive definition,
F the word "bona fide" before "suit or arbitration proceedings"
being deleted. In Section 8(1), the words "through an information
utility, wherever applicable, or by registered post or courier or
by any electronic communication" have been deleted. Likewise,
in Section 8(2), the period of "at least 60 days ... through an
G information utility or by registered post or courier or by any
electronic communication" has also been deleted. In Section
9(5), the absence Of a proviso similar to the proviso occurring in
Section 7(5) was also rectified. Further, the time periods of 2
and 3 days were uniformly substituted by 7 days, so that a
sufficiently long period is given to do the needful. [Para 23] [1055-
H E-G]
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA .!009
SOFTWARE .PRIVATE LIMITED

·2.1 Under the scheme under Sections 8 and 9 of the Code, A
an operational creditor, as defined, may, on the occurrence of a
default (i.e., on non-payment of a debt, any part whereof has
become due and payable and has not been repaid), deliver a
demand notice of such unpaid operational debt or deliver the
copy of an invoice demanding payment of such_ amount to the B
corporate debtor in a prescribed form. Within a period of 10
days of such receipt, the corporate debtor must bring to the notice
of the operational creditor the existence of a dispute and/or the
. record of the pendency of a suit or arbitration proceeding filed
before the receipt of such notice or invoice in ·relation to such
dispute (Section 8(2)(a). It is only if, after the expiry of the period c
of. the said 10 days, the operational creditor does not either·
receive payment from the corporate debfor or notice of dispute,
that the operational creditor may trigger· the insolvency process
by filing an application before the adjudicating authority under
Sections 9(1) and 9(2). Under Section 9(3), alongwith the D
application, the statutory requirement is to furnish a copy of the
invoice or demand notice, an affidavit to the effect that there is
no notice given by the corporate debtor relating to a dispute of
the unpaid operational- debt and a copy of the certificate from the
financial institution maintaining accounts of the operational
creditor confirming that there is no payment of an unpaid · E
operational debt by the corporate debtor. If the adjudicating
authority finds that either there is no repayment of the unpaid
operational debt after the invoice (Section 9(5)(i)(b)) or the invoice
or· notice of payment to the corporate debtor has been delivered
by the operational creditor (Section 9(5)(i)(c)), or that no notice
of dispute has been received by the operational creditor from
F
the corporate debtor or that there is no record of such dispute in
the information utility. (Section 9(5)(i)(d)), or .that· there is no
disciplinary proceeding pending against any resolution
professional proposed by the operational creditor (Section
9(5)(i)(e)), it shall admit the application within 14 days of the G
receipt of the application, after which the corporate insolvency .
. r resolution process gets -triggered. [Para 25l [1055-H; 1056-A-·
C, E, F~H; 1057-A-C] . .
2.2 Another thing of importance is the timelines within
which the insolvency resolution process is to be triggered. The H
1010 SUPREME COURT REPORTS [2017) 10 S.C.R.

A corporate debtor is given 10 days from the date of receipt of
demand notice or copy of invoice to either point out that a dispute
exists between the parties or that he has since repaid the unpaid
operational debt. If neither exists, then an application once filed
has to be disposed of by the adjudicating authority within 14 days
of its receipt, either by admitting it or rejecting it. An appeal can
B
then be filed to the Appellate Tribunal. Section 64 of the Code
mandates that where these timelines are not adhered to, either
by the Tribunal or by the Appellate Tribunal, they shall record
reasons for not doing so within the period so specified and extend
the period so specified for another period not exceeding 10 days.
c [Paras 26, 27) [1058-C-D, E-F]
3.1 In the notes on clauses annexed to the Insolvency and
Bankruptcy Bill of 2015, "the existence of a dispute" alone is
mentioned. Even otherwise, the word "and" occurring in Section
8(2)(a) must be read as "or" keeping in mind the legislative intent
D and the fact that an anomalous situation would arise if it is not
read as "or". Further, given the fact that long limitation periods
are allowed, where disputes may arise and do not reach an arbitral
tribunal or a court for upto three years, such persons would be
outside the purview of Section 8(2) leading to bankruptcy
proceedings commencing against them. Such an anomaly cannot
E possibly have been intended by the legislature nor has it so been
intended. [Para 29] [1060-C-E]
lmwventive Industries Ltd. l'. ICICI Bank & Anr. [2018]
1 sec 407 - relied on.
F 3.2 It is settled law that the expression "and" may be read
as "or" in order to further the object of the statute and/or to
avoid an anomalous situation. Section 255 read with the Eleventh
Schedule of the Code has amended Section 271 of the Companies
Act, 2013 so that a company being unable to pay its debts is no
longer a ground for winding up a company. The old law contained
G in Madhusudan has, therefore, disappeared with the
disappearance of this ground in Section 271 of the Companies
Act. In the first Insolvency and Bankruptcy Bill, 2015 that was
annexed to the Bankruptcy Law Reforms Committee Report,
Section 5(4) defined "dispute" as meaning a "bona fide suit or
H arbitration proceedings ••. ". In its present avatar, Section 5(6)
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1011
SOFTWARE PRIVATE LIMITED

excludes the expression "bona fide" which is of significance. A
Therefore, it is difficult to import the expression "bona fide" into
Section 8(2)(a) in order to judge whether a dispute exists or not.
[Paras 30, 33, 34, 35] [1060-G; 1062-G-H; 1063-A-B]
Samee Khan v. Bindu Khan (1998) 7 SCC 59.: [1998]
1 Suppl. SCR 244; Gujarat U1ja Vikas Nigam Ltd. v. B
Essar Power Ltd. (2008) 4 SCC 755 : [2008] 4 SCR
822; Maharishi Maliesh Yogi Vedic Vishwavidyalaya 1•.
State of M.P. (2013) 15 SCC 677 : [2013] 13 SCR 464
- relied on.
Spencer Constructions Pty Ltd v. G & M Aldridge Pty C
Ltd. [1997] FCA 681; Hayes v. Hayes (2014) EWHC
2694 (Ch); In Re: Portman Provincial Cinemas Ltd.
(1999) 1 WLR 157 - referred to.
3.3 Once the operational creditor has filed an application,
which is otherwise complete, the adjudicating authority must reject D·
the application under Section 9(5)(2)(d) if notice of dispute has
been received by the operational creditor or there is a record of
dispute in the information utility. It is clear that such notice must
bring to the notice of the operational creditor the "existence" of
a dispute or the fact that a suit or arbitration proceeding relating
to a dispute is pending between the parties. Therefore, all that E
the adjudicating authority is to see at this stage 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. The C.ourt docs not
at this stage examine the merits of the dispute except to the F
extent indicated above. So long as a dispute truly exists in fact
and is not spurious, hypothetical or illusory, the adjudicating
authority has to reject the application. On the facts of this case,
it is clear that the argument for appellant that the requisite
certificate by IDBI was not given in time will have to be rejected,
inasmuch as neither the appellant nor the Tribunal raised any G
objection to the application on this score. The confirmation from
a financial institution that there is no payment of an unpaid
operational debt by the corporate debtor is an important piece of
information that needs to be placed before the adjudicating
authority, under Section 9 of the Code, but given· the fact that the H
1012 SUPREME COURT REPORTS (2017] 10 S.C.R.

A adjudicating authority has not dismissed the application on this
ground and that the appellant has raised this ground only at the
appellate stage, the application cannot be dismissed at the
threshold for want of this certificate alone. [Paras 40, 41] [1069-
B-G]
B 4.1 The definition of "dispute" is an inclusive one, and the .
word "includes" substituted the word "means" which occurred
in the first Insolvency and Bankruptcy Bill. Secondly, the present
is not a case of a suit or arbitration proceeding filed before receipt
of notice - Section 5(6) only deals with suits or arbitration
proceedings which must "relate to" one of the three sub-clauses,
c either directly or indirectly. A "dispute" is said to exist, so long
as there is a real dispute as to payment between the parties that
would fall within the inclusive definition contained in Section 5(6).
The correspondence between the parties would show that on 30'h
January, 2015, the appellant clearly informed the respondent that
D they had displayed the appellant's confidential client information
and client campaign information on a public platform which
constituted a breach of trust.and a breach of the NDA between
the partie·s. They were further told that all amounts that were
due to th1~m were withheld till the time the matter is resolved.
On lO'h February, 2015, the respondent referred to the NDA of
E 261h December, 2014 and denied that there was a breach of the
NDA. The respondent went on to state that the appellant is trying
to avoid its financial obligations, and that a sum of Rs.19,08,202.57
should be paid within one week, failing which the respondent
would be forced to explore legal options and initiate legal process
F for recovery of the said amount. This e-mail was refuted by the
appellant and the appellant went on to state that it had lost
business from various clients as a result of the respondent's
breaches. Curiously, after this date, the respondent remained
silent, and thereafter, by an e-mail the respondent wished to revive
business relations and stated that it would like to follow up for
G payments which are long stuck up. This was followed by another
e-mail to finalize the time and place for a meeting. The appellant
wrote to the respondent again to finalize the time and place.
Apparently, nothing came of the aforesaid e-mails and the
appellant then fired the last shot on 19 1h September, 2016,
H reiterating that no payments are due as the NDA was breached.
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1013
SOFTWARE PRIVATE LIMITED

· The demand notice sent by the respondent was disputed in detail A
by the appellant. [Paras 43, 44] [1070-B-H; 1071-A]
4.2 Going by the test of "existence of a dispute", it is clear
that without going into the merits of the dispute, the appellant
has raised a plausible contention requiring further investigation
which is not a patently feeble legal argument or an assertion of B
facts unsupported by evidence. The defense is not spurious, mere
bluster, plainly frivolous or vexatious. A dispute does truly exist
in fact between the parties, which may or inay not ultimately
succeed, and the Appellate Tribunal was wholly incorrect in
characterizing the defense as vague, got-up and motivated to
evade liability. Admittedly, the matter has never been resolved. C
Also, the respondent itself has not commenced any legal
proceedings after the e-mail dated 301h January, 2015 except for
the present insolvency application, which was filed almost 2 years
after the said e-mail. All these circumstances go to show that it is
right to have the matter tried out in the present case before the D
axe falls. [Paras 45, 46] [1071-G-H; 1072-A-B, C-D]
Case Law Reference
[1972]
, 2 SCR 201 referred to Para 14
[2018] 1 SCC 407 relied on Para 28
E
T1998] .1 Suppl. SCR 244 relied on Para 30
[2008] 4 SCR 822 relied on · Para 31
[20i3] 13 SCR 464 relied on Para 32
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 9405
of2017.
F
From the impugned Judgment and final Order dated 24.05.2017
passed by the National Company Law Appellate Tribunal, New Delhi in
Company Appeal (AT)(Insolvency) No.6 of2017.
Devansh Mohta, Puneet Singh Bindra, Shyam Pandya, Aslam
Ahmed, Rohan Kaushal, Advs. for the Appellant
G
R. Jawahar Lal, Sanjeev Jain, Ms. Apoorva Agarwal, Ashwani
Kumar, Advs. for the Respondents
The Judgment of the Court was delivered by
R. F. NARIMAN, J. 1. The present appeal raises questions as
to the triggering of the Insolvency and Bankruptcy Code, 2016 when it H
1014 SUPREME COURT REPORTS [2017] 10 S.C.R.

A comes to operational debts owed to operational creditors. The appellant
was engaged by Star TV for conducting tele-voting forthe "Nach Bali ye"
program on Star TV. The appellant in turn sub-contracted the work to
the respondent and issued purchase orders between October and
December, 2013 in favour of the respondent. In the "Nach Baliye"
program, the successful dancer was to be selected on various bases,
B
including viewers' votes. For this purpose, the respondent was to provide
toll free telephone numbers across India, through which the viewers of
the program could cast their votes in favour of one or more participants.
For this purpose, a software was customized by the respondent, who
then coordinated the results and provided them to the appellant. Since
c the respondent obtained toll free numbers from telephone operators in
terms of the purchase orders, the appellant was liable to make payment
of rentals for the toll free numbers, as well as primary rate interface
rental to the telecom operators. The respondent provided the requisite
services and raised monthly invoices between December, 2013 and
D November, 2014 - the invoices were payable within 30 days from the
date on which they were received. The respondent followed up with
the appellant for payment of pending invoices through e-mails sent
between April and October, 2014. It is also important to note that a non-
disclosure agreement (hereinafter referred to as the NDA) was executed
between the parties on 261h December, 2014 with effect from I''
E November, 2013.
2. More than a month after execution of the aforesaid agreement,
the appellant, on 30'h January, 2015, wrote to the respondent that they
were withholding payments against invoices raised by the respondent,
as the respondent had disclosed on their webpage that they had worked
F for the "Nach Bali ye" program run by Star TV, and had thus breached
the NDA. The correspondence between the parties finally culminated
in a notice dated 12•h December, 2016 sent under Section 271 of the
Companies Act, 2013. Presumably because winding up on the ground
of being unable to pay one's debts was no longer a ground to wind up a
company under the said Act, a demand notice dated 23'd December,
G 2016 was sent for a total of Rs.20,08,202.55 under Section 8 of the new
Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the
Code). By an e-mail dated 27'h December, 2016, the appellant responded
to the aforesaid notice stating that there exists serious and bona fide
disputes between the parties, that the notice issued was a pressure tactic,
H and that nothing was payable inasmuch as the respondent had been told
-
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1015
SOFTWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

way back on 30'h January, 2015 that no amount will be paid to the A
respondent since it had breached the NDA.
3. An application was then filed on 30'h December, 2016 before
the National Company Law Tribunal under Sections 8 and 9 of the new
Code stating that an operational debt of Rs.20,-08,202.55 was owed to
the respondent. B
4. On I 9'h January, 2017, the respondent was orally intimated to
remove a defect in the application, in that it did not contain the appellant's
notice of dispute. This was rectified by an affidavit in compliance dated
241hJanuary, 2017, by which various other documents were also supplied
by the respondent to the Tribunal. On 27'h January, 2017, the Tribunal c
dismissed the aforesaid application in the following terms:
"On perusal of this notice dated 27.12.2016 disputing the debt
allegedly owed to the petitioner, this Bench, looking at the
Corporate Debtor disputing the claim raised by the Petitioner in
this CP, hereby holds that the default payment being disputed by D
the Corporate Debtor, for the petitioner has admitted that the
notice of dispute dated 27 1hDecember 2016 has been received
by the operational creditor, the claim made by the Petitioner is
hit by Section (9)(5)(ii)(d) of The Insolvency and Bankruptcy
Code, hence this Petition is hereby rejected."
E
5. An appeal was then filed before the National Company Law
Appellate Tribunal which was decided on 24'h May, 2017. This appeal ·
was allowed in the following terms:
"39. In the present case the adjudicating authority has acted
mechanically and rejected the application under sub-section F
(5)(ii)(d) of Section 9 without examining and_ discussing the
aforesaid issue. If the adjudicating authority would have noticed
the provisions as discussed above and what constitutes 'dispute'
in relation to services provided by operational creditors then it
would have come.to a conclusion that condition of demand notice
under sub-section (2) of Section 8 has not been fulfilled by the G
corporate debtor and the defence claiming dispute was not only
vague, got up and motivated to evade the liability.
40. For the reasons aforesaid we set aside the impugned order
dated 27.1.2017 passed _by adjudicating authority in CP No.01/I
&BP/NCLT/MAH/2017 and remit the case to adjudicating H
1016 SUPREME COURT REPORTS [2017] 10 S.C.R.

A authority for consideration of the application of the appellant for
admission if the application is otherwise complete.
41. The appeal is allowed with the aforesaid observations.
However, in the facts and circumstances there shall be no order
as to cost."
B 6. Shri Mohta, learned counsel on behalf of the appellant, raised
various contentions before us. According to learned counsel, the
application should have been dismissed on the ground that the operational
creditor did not furnish a copy of the certificate from a financial institution,
viz. IDBI in the present case, that maintained accounts of the operational
c creditor, which confirmed that there is no payment of any unpaid
operational debt by the corporate debtor under Section 9(3)(c) of the
Code. This being so, the application ought to have been dismissed at the
very threshold. Apart from this, the learned counsel took us through
various committee reports and the provisions of the Code and argued
that under Section 8 of the Code, the moment a corporate debtor, within
D IO days of the receipt of a demand notice or copy of invoice, brings to
the notice of the operational creditor the existence of a dispute between
the parties, the Tribunal is obliged to dismiss the application. According
to him, under Section (8)(2)(a), the expression "existence of a dispute, if
any, and record of the pendency of the suit or arbitration proceedings
E filed ... " must be read as existence of a dispute "or" record of the .
pendency of the suit or arbitration proceedings filed, i.e. disjunctively.
According to the learned counsel, the definition of"dispute" under Section
5(6) of the Code is an inclusive one and the original draft bill not only had
the word "means" instead of the word "includes", but also the word
"bona fide" before the words "suit or arbitral proceedings", which is
F missing in the present Code. Therefore, learned counsel argu~d that the
moment there is existence of a dispute, meaning thereby that there is a
real dispute to be tried, and not a sham, frivolous or vexatious dispute,
the Tribunal is bound to dismiss the application. Learned counsel went
on to argue that there is a fundamental difference between applications
~ G filed by financial creditors and operational creditors. A financial creditor's
application is dealt with under Section 7 of the Code, in which the .
adjudicating authority has to ascertain the existence of a default on the
basis of the records of an information utility or other evidence furnished
by the financial creditor. In contrast to this scheme, all that a corporate
debtor needs to do is to file a reply within a period of l 0 days of the
H
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA . 1017
SOFTWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

receipt of demand notice or copy of invoice from an operational creditor,_ A
showing the existence of a dispute, which-then does not need to be
"ascertained" by the adjudicating authority. He was at pains to point out
that the application itself must contain all the documents that are required
by the statute and that the timelines indicated in the statute are mandatory.
For this purpose, he referred us to Sections 61, 64 and 64 in addition to B
Sections 7 to 9 of the Code. Finally, on facts, according to learned
counsel, the Tribunal was wholly incorrect in remanding the matter on
both counts - first, to find out whether the application is otherwise
complete and, second, because the Tribunal found that the dispute in the
present case was vague, got up and motivated to evade the liability,
which, according to learned counsel, was a perverse conclusion reached C
on the facts of this case.
7. Shri Jawaharlal, learned cou-nsel appearing on behalf of the
respondent, has argued in reply that the only notice given to rectify the
defects by the Tribunal was an oral notice of 191h January, 2017 and that
too only to supply the notice of dispute by the appellant. This was done D
within time and the Tribunal, therefore, dismissed the application only on
·non-fulfillment of the conditions laid down in Section 9. No plea was
ever taken before the Tribunal that the IDBI certificate was riot furnished.
This plea was taken for the first time only in appeal, and since the Tribunal
did not think it fit to dismiss the application on a technical ground, this
ground does not avail the appellants. The counstil then submitted that E
the expression "dispute" under Section 5(6) covers only three things, .
namely, existence of the amount of debt, quality of goods or services or
breach of a representation or warranty and since what was sought to be
brought as a defense was that the NOA was breached, it would not
come within the definition of "dispute" under Section 5(6). He further F
went on to state that, at best, the breach of the NOA is a claim for
unliquidated damages which does not become crystallized until legal
proceedings are filed, and none have been filed so far. Therefore, there
is no real dispute on the facts of the present case and the Tribunal ~as
correct in its finding that the dispute was a sham one.
a
. 8. Before going into the contentions of fact and law argued by
both counsel, it is alittle important to trace the background of this path-
breaking legislation viz. the Insolvency and Bankruptcy Code, 2016. The.
starting point is a Resolution of the UN General Assembly, Resolution
No.59140, passed on 2"d December, 2004, by which it was stated:
H
1018 SUPREME COURT REPORTS [2017] IO S.C.R.

A "Legislative Guide on Insolvency Law of the United
Nations Commission on International Trade Law
The General Assembly,
Recognizing the importance to all countries of strong,
effective and efficient insolvency regimes as a means of
B encouraging economic development and investment,
Noting the growing realization that reorganization regimes
are critical to corporate and economic recovery, the development
of entrepreneurial activity, the preservation of employment and
the availability of finance in the capital market,
c
Noting also the importance of social policy issues to the
design of an insolvency regime,
Noting with satisfaction the completion and adoption of
the Legislative Guide on Insolvency Law of the United Nations
D
Commission on International Trade Law by the Commission at
its thirty-seventh session, on 25 June 2004,
Believing that the Legislative Guide, which includes the
text of the Model Law on Cross-Border Insolvency and Guide
to Enactment recommended by the General Assembly in its
resolution 52/158of15 December 1997, contributes significantly
E
to the establishment of a harmonized legal framework for
insolvency and will be useful both to States that do not have an
effective and efficient insolvency regime and to States that are
undertaking a process of review and modernization of their
insolvency regimes,
F
Recognizing the need for cooperation and coordination
between international organizations active in the field of
insolvency law reform to ensure consistency and alignment of
that work and to facilitate the development of international
standards,
G Noting that the preparation of the Legislative Guide was
the subject of due deliberations and extensive consultations with
Governments and international intergovernmental and non-
governmental organizations active in the field of insolvency law
reform,
H
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1019
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

1. Expresses its appreciation to the United Nations. A
Commission on International Trade Law for the completion and
adoption of its Legislative Guide on Insolvency Law;
2. Requests the Secretary-General to publish the Legislative
Guide and to make all efforts to ensure that it becomes generally
known and available; B
3. Recommends that all States give due consideration to
the Legislative Guide when assessing the economic efficiency .
of their insolvency regimes and when revising or adopting ·
legislation relevant to insolvency;
4. Recommends also that all States continue to consider C
implementation of the Model Law on Cross-Border Insolvency
of the United Nations Commission on International Trade Law."
9. The purpose of the Legislative Guide for various nations was
stated as follows: ·
D
"The purpose of the Legislative Guide on Insolvency Law is
to assist the establishment of an efficient and effective legal
framework to address the financial difficulty of debtors. It is
intended to be used as a reference by national authorities and
legislative bodies when preparing new laws and regulations or
reviewing the adequacy of existing laws and regulations ..The E ·
advice provided in the Guide aims at achieving a balance between
the need to address the debtor's financial difficulty as quickly
and efficiently as possible and tile interest~ of the various parties
directly concerned with that financi~l difficulty, principally creditors
and other parties with a stake in the debtor's business, as well as F
with public policy concerns. The Guide dis9usses issues central
to the design of an effective and efficient insolvency law, which,
despite numerous differences in policy and legislative treatment,
are recognized in many legal systems. It focuses on insolvency·
proceedings commenced under the insolvency law and conducted
in accordance with that law, with an emphasis on reorganiiation, G
against a debtor, whether a legal or natural person, thatis engaged
in economic activity. Issues specific to the insolvency of
individuals not so engaged, such as consumers, are not
addressed."
H
1020 SUPREME COURT REPORTS [2017) 10 S.C.R.

A In stating some of the key objectives of effective and efficient insolvency
law, the Legislative Guide goes on to state:
"When a debtor is unable to pay its debts and other liabilities as
they become due, most legal systems provide a legal mechanism
to a~dress the collective satisfaction of the outstanding claims
B from assets (whether tangible or intangible) of the debtor. A range
of interests needs to be accommodated by that legal mechanism:
those of the parties affected by the proceedings including the
debtor, the owners and management of the debtor, the creditors
who may be secured to varying degrees (including tax agencies
and other government creditors), employees, guarantors of debt
c and suppliers of goods and services, as well as the legal,
commercial and social institutions and practices that are relevant
to the design of the insolvency law and required for its operation.
Generally, the mechanism must str.ike a balance not only between
the different interests of these stakeholders, but also between
D these interests and the relevant social, political and other policy
· considerations that have an impact on the economic and legal
goals of insolvency proceedings.
xxxxxxxxx
An insolvency law should be transparent and predictable. This
E will enable potential lenders and creditors to understand how
insolvency proceedings operate and to assess the risk associated
with their position as a creditor in the event of insolvency. This
will promote stability in commercial relations and foster lending
and investment at lower risk premiums. Transparency and
F predictability will also enable creditors to clarify priorities, prevent
disputes by providing a backdrop against which relative rights
and risks can be assessed and help define the limits of any
discretion. Unpredictable application of the insolvency law has
the potential to undermine not only the confidence of all
participants in insolvency proceedings, but also their willingness
G to make credit and other investment decisions prior to insolvency.
As far as possible, an insolvency law should clearly indicate all
· provisions of otheF laws that may affect the conduct of the
insolvency proceedings (e.g. labour law; commercial and contract
law; tax law; laws affecting foreign exchange, netting and set-
H
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1021
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

off and debt for equity swaps; and even, family and matrimonial A
law).
An insolvency law should ensure that adequate information is
available in respect of the debtor's situation, providing incentives
to encourage the debtor to reveal its positions and, where
appropriate, sanctions for failure to do so. The availability of this B
information will enable those responsible for administering and
supervising' insolvency proceedings (courts or administrative
agencies, the insolvency representative) and creditors to assess
the financial situation of the debtor and determine the most
appropriate solution."
c
While referring to the commencement of insolvency proceedings,
the Legislative Guide states:
"The standard to be met for commencement of insolvency
proceedings is central to the design of an insolvency law. As the
basis upon which insolvency proceedings can be commenced, D
this standard is instrumental to identifying the debtors that can
be bro~ght within the protective and disciplinary mechanisms of
the insolvency law and determining who may make an application
for commencement, whether the debtor, creditors or other parties. ,
As a general principle it is desirable that the commencement E
standard be transparent and certain, facilitating access to
insolvency proceedings conveniently, cost-effectively and quickly
to encourage financially distressed or insolvent businesses to
voluntarily commence proceedings. It is also desirable that access
be flexible in terms of the types of insolvency proceedings
available (reorganization and liquidation), and the ease with which F
the proceedings most relevant to a particular debtor can be
accessed, and that conversion. between the different types of
proceeding can be achieved. Restrietive access can deter both
debtors and creditors from commt:n~~ng proceedings, while the
effecfs of delay can be harmful to the value of assets and the G
. successful completion of insolvency proceedings, in particular in
cases of reorganization. Ease of access needs to be palanced
with proper and adequate safeguards to prevent improper USf< of
proceedings. Examples of improper use may include application
by a debtor that is not in financial difficulty in order to take
advantage of the protections provided by the insolvency law, H
-·.
1022 SUPREME COURT REPORTS [2017) 10 S.C.R.

A such as the automatic stay, or to avoid or delay payment to
creditors and application by creditors who are competitors of
the debtor, where the purpose of the application is to take
advantage of insolvency proceedings to· disrupt the debtor's
business and thus gain a competitive edge."
B 10. On the fixation of time limits and denial of an application to
commence proceedings, the Legislative Guide states:
"Where a court is required to make a decision as to
commencement, it is desirable that that decision be made in a
timely manner to ensure both certainty and predictability of the
c decision-making and the efficient conduct of the proceedings
without delay. This will be particularly important in the case of
reorganization to avoid further diminution of the value of assets
and to improve the chances of a successful reorganization. Some
insolvency laws prescribe set time periods after the application
within which the decision to commence must be made. These
D laws often distinguish between applications by debtors and by
creditors, with applications by debtors tending to be determined
more quickly. Any additional period for creditor applications is
·designed to allow prompt notice to be given to the debtor and
provide the debtor with an opportunity to respond to the
E application.
Although the approach of fixing time limits may serve the
objectives of providing certainty and transparency for both the
debtor and creditors, the achievement of those objectives may
· need to be balanced against possible disadvantages. For example,
F a fixed time period may be insufficiently flexible to take account
of the circumstances of the particular case. More generally, such
time periods may be set without regard to the resources available
to the body responsible for supervising insolvency proceedings
orofthe local priorities of that body (especially where insolvency
is only one of the matters for which it has responsibility)'. It may
G also prove difficult to ensure that the decision-making body
·.adheres to the established limit and to provide appropriate
consequences where there is no compliance. The time period
between applicatiOn and the decision to commence proceedings
should also reflect the type _of proceeding applied for, the
H application procedure and the consequences of commencement
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1023
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

in any particular regime. For example, the extent to which. A
notification of parties in interest and information gathering must
be completed prior to commencement will vary between regimes,
requiring different periods of time. For these reasons, it is desirable
that an insolvency law adopt a flexible approach that emphasizes
the advantages of quick decision-making and provides guidance B
as to what is reasonable, but at the same time also recognizes
local constraints and priorities.
(d) Denial of an application to commence proceedings
The preceding paragraphs refer to a number of instances where
it will be desirable, in those cases where the court is required to c
make the commencement decision, for the court to have the
power to deny the application for commencement, either because
of questions of improper use of the insolvency law or for technical
reasons relating to satisfaction of the commencement standard.
The cases referred to include examples of both.debtor and creditor
applications. Principal among the grounds for denial of the D
application for technical r.easons might be those cases where
.·. the debtor is found not to satisfy the commencement standard;
where the debt is subject to a legitimate dispute or off-set in an
amount equal to or greater than the amount of the debt; where
the proceedings will serve no purpose because, for example, E
secured debt exceeds the value of assets; and where the debtor
has insufficient assets to pay for the insolvency administration
and the law makes no other provision for funding the
administration of such estates.
Examples of improper use might include those cases where the F
debtor uses an _application for insolvency as a means· of
prevaricating and unjustifiably depriving creditors of prompt
·payment of debts or of obtaining relief from onerous obligations,
such as labour contracts. In the case of a creditor application. it
. might include those cases where a creditor uses insolvency as
an inappropriate substitute for debt e'nforcement procedures G
(which may not be well developed): to attempt to force a viable
business out of the market place: or to attempt to obtain
preferential payments by coercing the debtor (where such
preferential payments have been made and the debtor is insolvent.
investigation woul·d be a key function of insolvency proceedings). H
1024 SUPREME COURT REPORTS [2017] IO S.C.R.

A As noted above, where there is evidence of improper use of the
insolvency proceedings by either the debtor or creditors, the
insolvency law may provide, in addition to denial of the application,
that sanctions can be imposed on the party improperly using the
proceedings or that that party should pay costs and possibly
damages to the other party for any harm caused. Remedies may
B
also be available under non-insolvency law. Where an application
is denied, any provisional measures of relief ordered by the court
after the time of the application for commencement should
terminate (see chap. II, para. 53)."
(Emphasis supplied)
c
Ultimately, recommendation 19 of the Legislative Guide reads as
under:
"Commencement on creditor application (paras.57 and 67)
19. The law generally should specify that, where a creditor makes
D the application for commencement:
(a) Notice of the application promptly is given to the debtor;
· (b) The debtor be given the opportunity to respond to the
application, by contesting the application, consenting to the
application or, where the application seeks liquidation, requesting
E
the commencement of reorganization proceedings; and
(c) The court will promptly determine its jurisdiction and whether
the debtor is eligible and the commencement standard has been
met and, if so, commence insolvency proceedings. 1"
F 11. The legislative history of legislation relating to indebtedness
goes back to the year 1964 when the 24'h Law Commission recommended
amendments to the Provincial Insolvency Act of 1920. This was followed
by the Tiwari Committee of 1981, which introduced the Sick Industrial
Companies Act, 1985. Following economic liberalization in the 1990s,
two Narsimham Committee reports led to the Recovery of Debts and
G Bankruptcy Act, 1993 and the SARFAESI Act, 2002. Meanwhile, the
Goswami Committee Report, submitted in 1993, condemned the liquidation
1 A determination that the commencement standard has been met may involve
consideration of whether the debt is subject to a legitimate dispute or offset in an
amount equal to or greater than the amount of the debt. The existence of such a set-off
H may be a ground for dismissal of the application (see above, paras. 61-63).
/
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1025
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

procedure prescribed by the Companies Act, 1956 as unworkable and A
being beset with delays at all levels - delaying tactics employed by the
management, delays at the level of the Courts, delays in making auction
sales etc. This then led to the Eradi Committee Report of 1999, which
proposed amendments to the Companies Act and proposed the repeal of
SICA. This Committee echoed the findings of the Goswami Committee
B
and recommended an overhaul of the liquidation procedure under the
Companies Act.
12. It was for the first time, in 2001, that the L.N. Mitra Committee
of the RBI proposed a comprehensive Bankruptcy Code. This was
followed by the Irani Committee Report, also of the RBI in 2005, which
noted that the liquidation procedure in India is costly, inordinately lengthy C
and results in almost complete erosion of asset value. The Committee
also noted that the insolvency framework did not balance stakeholders'
interests adequately. It proposed a number of changes including changes
for increased protection of creditors' rights, maximization of asset value
and better management of the company in liquidation. In 2008, the D
Raghuram Rajan Committee of the Planning Commission proposed
. improvement to the credit infrastructure in the country, and finally a
Committee of Financial Sector Legislative Reforms in 2013 submitted a
draft Indian Financial Code, which included a "resolution corporation"
for resolving distressed financial firms. ·
E
13. All this then led to the Bankruptcy Law Reforms Committee,
set up by the Department of Economic Affairs, Ministry of Finance,
under the Chairmanship of Shri T.K. Viswanathan. This Committee
submitted an interim report in February 2015 and a final report in
November of the same year. It was, as a result of the deliberations of
this Committee, that the present Insolvency and Bankruptcy .Code of F
2016 was finally born.
_14. The interim report went into the existing law on indebtedness
in some detail and discussed the tests laid down in Madhusudan
Gordhandas v. Madhu Woollen Industries Pvt. Ltd (1972) 2 SCR
201, by which a petition presented under the Companies Act on the G
ground ~hat the company is "unable to pay its debts" can only be dismissed .
.. · if the debt is bona fide disputed, i.e. that the defense of the debtor is
genuine, substantial and is likely lo succeed ona point oflaw. The interim
report also adverted to an amendment made in the Companies Act, 2003,
. by which the threshold requirement ofRs.500 was replaced by Rs.1 lakh. H
1026 SUPREME COURT REPORTS [2017] 10 S.C.R.

A 15. The interim report found:
"Once the petitioning creditor has proved the inability of the debtor
company to pay debts, van Zwieten states that courts in India
have recognised a wide discretion that enabled it to give time to
the debtor to make payment or even dismiss the petition. This is
B in stark contrast with the position in the UK (from where the
law was transplanted) where once the company's inability to
pay debts has been proven, the petitioning creditor is ordinarily
held to be entitled to a winding up order (although it should be
noted that there is an alternative corporate rescue procedure,
'administration', which a debtor may be entitled to enter).
c
The effect of these abovementioned judicial developments has
been to add significant delays in the liquidation process under
CA 1956 and to add uncertainty regarding the rights of the
creditors in the event of the company's insolvency. Consequently,
this has made creditor recourse to the liquidation procedure as a
D means of debt enforcement rather difficult, and secondly,
rendered the liquidation procedure ineffective as a disciplinary
mechanism for creditors against insolvent debtors." ·
The interim report then recommended:

E "Recomme11datio11s:
• In order to re-instate the debt enforcement function of the
statutory demand test for winding up, if a company fails to
pay an undisputed debt of a prescribed value as per Section
271(2) (a), the creditor should be entitled to a winding up
F order irrespective of whether it is insolvent (in commercial or
balance sheet terms) or not. Further, the NCLT should have
the discretion to refer the company for rehabilitation under
Chapter XIX before making a winding up order on such
ground, if the company appears to be prima facie viable.
Further, in order to prevent abuse of the provision by creditors
G and ensure that it is not used to force debtor companies to
settle disputed debts, the provision should specify the factors
that the NCLT may-take into account to determine whether
the debt under consideration is disputed or not. As laid down
by the courts, a petition may be dismissed if the debt in
H question is bona fide disputed, i.e., where the following
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1027
· SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

conditions are satisfied: (i) the defence of the debtor company A
is genuine, substantial and in good faith; (ii) the defence is ·
likely to succeed on a point oflaw; and (iii) the debtor company
adduces prima facie proof of the facts on which the defence
depends. Further, as with initiation of rescue proceedings,
the NCLT should also have the power to impose sanctions/ B
costs/damages on a petitioning creditor and disallow
· reapplications on the same grounds if it finds that a petition
has been filed to abuse the process of law.
• The Government may also consider revising the present value
for triggering the statutory demand test under Section 271 C
(2) (a) from 'one lakh rupees' to a higher amount or revise
the provis.ion to state 'one lakh rupees or such amount as
may be prescribed'.
• 'Balance sheet insolvency' and 'commercial insolvency'
should be identified ~s separate grounds indicating a company's D
'inability to pay debt' in order to avoid conflicts/confusion
with the statutory demand test (as is the case of the IA 1986
where the statutory demand test, the commercial insolvency
test and the balance sheet insolvency test are alternate
grounds for determining a company's inability to pay debts
under Sections 123(1)(a), 123(l)(e) and 123(2) respectively)." E
16. By the final report dated November 2015, the
recommendation of the interim report was shelved. The Committee made
a distinction between financial contracts and operational contracts. It
stated:
"4.3.3 Information about the liabilities of a solvent entity F

Operational contracts typically involve an exchange of goods
and services for cash. For an enterprise, the latter includes
payables for purchase of raw-materials, other inputs or services,
taxation and statutory liabilities, and wages and benefits to
employees. G

xxxxxxxxx
The Code specifies that if the Adjudicator is able to locate the
record of the liability and of default with the registered IUs, a
H
1028 SUPREME COURT REPORTS [2017] JO S.C.R.

A financial creditor needs no other proof to establish that a default
has taken place.
xxxxxxxxx
The second set ofliabilities are operational liabilities, which are
more difficult to centrally capture given that the counterparties
B are a wide and heterogeneous set. In the state of insolvency, the
record of all liabilities in the IUs become critical to creditors in
assessing the complexity of the resolution required. Various
private players, including potential strategic acquirers or distressed
asset funds, would constantly monitor entities that are facing
c stress, and prepare to make proposals to the committee of
creditors in the event that an insolvency is triggered. Easy access
to this information is vital in ensuring that there is adequate interest
by various kinds of financial firms in coming up to the committee
of creditors with proposals. It is not easy to set up mandates for
the holders of operational liabilities to file the records of their
D liabilities, unlike the case of financial creditors. However, their
incentives to file liabilities are even stronger when the entity
approaches insolvency.
4.3.4 Information about operational creditors
E Once the invoice or notice is served, the debtor should be given
a certain period of time in which to respond either by disputing it
in a court, or pay up the amount of the invoice or notice. The
debtor will have the responsibility to file the information about
the court case, or the repayment record in response to the invoice
or notice within the specified amount of time. If the debtor does
F not file either response within the specified period, and the creditor
files for insolvency resolution, the debtor may be charged a
monetary penalty by the Adjudicator. However, if the debtor
disputes the claim in court, until the outcome of this case is decided,
the creditor may not be able to trigger insolvency on the entity.
G This process will act as a deterrent for frivolous claims from
creditors, as well as act as a barrier for some types of creditors
to initiate insolvency resolution."
The Committee then went on to consider as to who can trigger
the insolvency process. In paragraph 5.2. I the Committee stated:
H
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1029
SOFTWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

"Box 5.2 - Trigger for IRP A
1. The IRP can be triggered by either the debtor or the creditors
by submitting documentation specified in the Code to the
adjudicating authority.
2. For the debtor to trigger the IRP, she must be able to submit
all the documentation that is defined in the Code, and may be B
specified by the Regulator above this.
3. The Code differentiates two categories of creditors:jinancial
creditors where the liability to the debtor arises from a solely
financial transaction, and operational creditors where the
liability to the debtor arises in the form of future payments in C
exchange for goods or services already delivered. In cases where
a creditor has both a solely financial transaction as well as an ·
operational transaction with the entity, the creditor will be
considered a financial creditor to the extent of the financial debt
and an operational creditor to the extent of the operational debt D
is more than half the full liability it has wi.th the debtor.
4. The Code will require different documentation for a debtor, a
financial creditor, and an operational creditor to trigger the IRP.
These are listed in Box 5.3 under what the Adjudicator will accept
as requirements to trigger the IRP. E
5.2.1 Who can trigger the IRP?
Here, the Code differentiates between financial creditors and
operational creditors. Financial creditors are those whose
relationship with the entity is a pure financial contract, such as a·
loan or a debt security. Operational creditors are those whose F
liability from the entity comes from a transaction on operations.
Thus, the wholesale vendor of spare parts whose spark plugs
are kept in inventory by the car mechanic and who gets paid
only after the spark plugs are sold is an operational creditor.
Similarly, the lessor that the entity rents out space from is an G
operational creditor to whom the entity owes monthly rent on a
three-year lease. The Code also provides for cases where~·a
creditor has both a solely financial transaction as well as an
operational transaction with the entity. In such a case, the creditor
can be considered a financial creditor.to the extent of the financial
H
1030 SUPREME COURT REPORTS [2017] 10 S.C.R.

A debt and an operational creditor to the extent of the operational
debt.
5.2.2 How can the IRP be triggered?
An application from a creditor must have a record of the liability
and evidence of the entity having defaulted on payments. The
B Committee recommends different documentation requirements
depending upon the type of creditor, either financial or operational.
A financial creditor must submit a record of default by the entity·
as recorded in a registered Information Utility (referred to as
the IU) as described in Section 4.3 (or on the basis of other
c evidence). The default can be to any financial creditor to the
entity, and not restricted to the creditor who triggers the IRP.
The Code requires that the financial creditor propose a registered
Insolvency Professional to manage the IRP. Operational creditors
must present an "undisputed bill" which may be filed at a
registered information utility as requirement to trigger the IRP.
D The Code does not require the operational creditor to propose a
registered Insolvency Professional to manage the IRP. If a
professional is not proposed by the operational creditor, and the
IRP is successfully triggered, the Code requires the Adjudicator
to approach the Regulator for a registered Insolvency
E Professional for the case.
When the Adjudicator receives the application, she confirms the
validity of the documents before the case can be registered by
confirming the documentation in the information utility if
applicable. In case the debtor triggers the IRP, the list of
F documentation provided by the debtor is checked against the
required list. The proposal for the RP is forwarded to the Regulator
for validation. If both the documentation and the proposed RP
checks out as required within the time specified in regulations,
the Adjudicator registers the IRP.

G In case the financial creditor triggers the IRP, the Adjudicator
verifies the default from the information utility (if the default has
been filed with an information utility, it shall be incontrovertible
evidence of the existence of a default) or otherwise confirms
the existence of default through the additional evidence adduced
by the financial creditor, and puts forward the proposal for the
H
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA .1031
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN,.J.]

RP to the Regulator for validation. In case the operational creditor A
triggers the IRP, the Adjudicator verifies the documentation.
Simultaneously, the Adjudicator requests the Regulator for an
RP. If either step cannot be verified, or the proeess verification
exceeds the specified amount of time, then the Adjudicator rejects
the application, with a reasoned order for the rejection. The order B
rejecting the application cannot be appealed against. Instead,
application has to be made afresh. Once the documents are
verified within a specified amount of time, the Adjudicator will
trigger the IRP and register the IRP by issuing an order. The
order will contain a unique ID that will be issued for the case by
which all reports and records that are generated during the IRP C
will be stored, and accessed."
17. Annexed to this Committee Report is the Insolvency and
Bankruptcy Bill, 2015. Interestingly, Section 5(4) defined "dispute" as:
"5. Definitions
D
In this Part, unless the context otherwise requires-
(4) "dispute" means a bona fide suit or arbitration proceeding
regarding (a) the existence or the amount ofa debt; (b) the quality
of a good or service; or (c) the breach of a representation or·
warranty;" E
Sections 8 and 9 in the said Bill read as under:
"8. Insolvency resolution by operational creditor. ,
(1) An operational creditor shall, on the occurrence of a default,
deliver a demand notice or copy of an invoice demanding payment
F
of the amount involved in the default to the corporate debtor in
. such form as may be prescribed, through an information utility,
wherever applicable, or by registered post or courier or by any
electronic communication.
(2) The corporate debtor shall, within a period of ten days of the
receipt of the demand notice or copy of the invoice mentioned in G
sub-section ( 1) bring to the notice of the operational creditor -
(a) the existence of a dispute, ifany, and record of the pendency.
of the suit or arbitration proceedings filed at least sixty days
prior to the receipt of such invoice or notice in relation to such
H
1032 SUPREME COURT REPORTS [2017] 10 S.C.R.

A dispute through an infonnation utility or by registered post or
courier or by any electronic communication;
(b) the repayment of unpaid operational debt- (i) by sending an
attested copy of electronic transfer of the unpaid amount from
the bank account of the corporate debtor; or (ii) by sending an
B attested copy of proof that the operational creditor having
encashed a cheque issued by the corporate debtor.
Explanation. - For the purpose of this section a "demand notice"
means a notice served by an operational creditor to the corporate
debtor demanding repayment of the debt in respect of which the
c default has occurred.
9. Application for initiation of corporate insolvency
resolution process by operational creditor.
( 1) After the expiry of the period of ten days from the date of
delivery of the invoice or notice demanding payment under sub-
D section (1) of section 8, ifthe operational creditor does not receive
payment from the corporate debtorornotice of the dispute under
sub-section (2) of section 8, the operational creditor may file an
application with the Adjudicating Authority in the prescribed fonn
for initiating a corporate insolvency resolution process.
E (2) The application under sub-section (1) shall be filed in such
form and manner and accompanied with such fee as may be
prescribed.
(3) The operational creditor shall, along with the application ·
furnish-
F
(a) the invoice demanding payment or notice delivered by the
operational creditor to the corporate debtor;
(b) affidavit to the effect that there is no notice given by the ·
corporate debtor relating to a dispute of the unpaid operational
debt;
G
(c) a confirmation from the financial institutions maintaining
accounts of the operational creditor that there is no payment
of an unpaid operational debt by the corporate debtor; and
(d) such other information or as may be specified.
H
MOBILOX INNOVATIONS PRIVATE LIMITED v.-KIRUSA 1033
· SOFTWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

(4) TheAdjudicatingAuthority shall, within two days of the receipt A
of the application under sub-section (2), admit the application
and communicate such decision to the operational creditor and
the corporate debtor if, -
(a) the application is complete;
(b) there is no repayment of the unpaid operational debt; B

(c) the invoice or notice for payment to the corporate debtor •
has been delivered by the operational creditor; and
(d) no notice of dispute has been received by the operational
creditor or there is no record of dispute in the information utility. .C
(5) The Adjudicating Authority shall reject the application _and
communicate such decision to the operational creditor and the
corporate debtor if -
(a) the application made under this seeti9n is incomplete;
D
(b) there has been repayment of the unpaid operational debt;
(c) the creditor has not delivered the invoice or notice for
payment to the corporate debtor; and
(d) notice of dispute has been received by the operational
creditor and there is no record of dispute in the information E
utility.
(6) Without prejudiCe to the conditions mentioned in sub-section
(3), an operational creditor initiating a corjlorate insolvency
resolution process under this section, inay also propose a
resolution professional to act as an interim resolution professional. F
(7) The corporate insolvency resolution process shall commence
from the date of admission of the application under sub-section
(4) of this section."
18. Meanwhile, the Insolvency and Bankruptcy Bill that was
annexed to the Bankruptcy Law Reforms Committee Report underwent G
a further change before it was submitted to a Joint Committee of the
Lok Sabha. In tliis Bill, the definition of"dispute" now read as follows:
"5. Definitions.
In this Part unless the context otherwise requires,-
H
1034 SUPREME COURT REPORTS (2017] 10 S.C.R.

A (6) "dispute" includes a sttit or arbitration proceedings relating
to-- •
(a) the existence or the amount of debt;
•
(b) the quality of goods or service; or
B (c) the breach of a representation or warranty;"
Sections 8 and 9 read as follows:
"8. Insolvency resolution by operational creditor.
(I) An operational creditor may, on the occurrence of a default,
deliver a demand notice of unpaid operational debt or copy of an
c invoice demanding payment of the amount involved in the default
to the corporate debtor in such form as may be prescribed, through
an information utility, wherever applicable, or by registered post
or courier or by such electronic mode of communication, as may
be specified.
D
(2) The corporate debtor shall, within a period often days of the
receipt of the demand notice or copy of the invoice mentioned in
sub-section (1), bring to the notice of the operational creditor-
(a) the existence of a dispute, if any, and record of the pendency
of the suit or arbitration proceedings filed prior to the receipt
E
of such notice or invoice in relation to such dijJute through an
information utility or by registered post or courier or by such
electronic mode of communication as may be specified;
(b) the repayment of unpaid operational debt-

F (i) by sending an attested copy of the record of electronic
transfer of the unpaid amount from the bank account of the
corporate debtor; or
(ii) by sending an attested copy ofrecord that the operational
creditor has encashed a cheque issued by the corporate
G debtor.
Explanation.- For the purpostis of this section, a "demand
notice" means a notice served by an operational creditor to the
corporate debtor demanding repayment of the operational debt
in respect of which the default has occurred.
H
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1035
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

9. Application for initiation of corporate insolvency A
resolution process by operational creditor.
(1) After the expiry of the period of ten days from the date of
delivery of the notice or invoice demanding payment under sub-
section (l) of section 8, if the operational creditor does not receive
payment from the corporate debtor or notice of the dispute under B
sub-section (2) of section 8, the operational creditor may file an
application before the Adjudicating Authority for initiating a
corporate insolvency resolution process.
(2) The application under sub-section (1) shall be filed in such
form and manner and accompanied with such fee as may be c
prescribed.
(3) The operational creditor shall, along with the application
furnish-
(a) a copy of the invoice demanding payment or demand notice
delivered by the operational creditor to the corporate debtor; D
(b) an affidavit to the effect that there is no notice given by the
corporate debtor relating to a dispute of the unpaid operational
debt;
(c) a copy of the certificate from the financial institutions
maintaining accounts of the operational creditor confirming that E
there is no payment of an unpaid operational debt by the
corporate debtor; and
(d) such other information or as may be specified.
(4) An operational creditor initiating a corporate insolvency F
resolution process under this section, may propose a ri.solution
professional to act as an interim resolution professional.
(5) The Adjudicating Authority shall, within fourteen days of the
receipt of the application under sub-section (2), by an order-
(i) admit the application and communicate such decision to the G
operational creditor and the corporate debtor if,-
(a) the application made under sub-section (2) is complete;
(b) there is no repayment of the unpaid operational debt;
H
1036 SUPREME COURT REPORTS [2017] 10 S.C.R.

A (c) the invoice ornotice for payment to the corporate debtor
has been delivered by the operational creditor;
(d) no notice of dispute has been received by the operational
creditor or there is no record of dispute in the information
utility; and
B (e) there is no disciplinary proceeding pending against any
resolution professional proposed under sub-sectian (4), if
any.
(ii) reject the application and communicate such decision to
the operational creditor and the corporate debtor, if-
c
(a) the application made under sub-section (2) is incomplete;
(b) there has been repayment of the unpaid operational debt;
(c) the creditor has not delivered the invoice or notice for
payment to the corporate debtor;
D
(d) notice of dispute has been received by the operational
creditor or there is a record of dispute in the information
utility; or
(e) any disciplinary proceeding is pending against any
proposed resolution professional:
E
Provided that Adjudicating Authority, prior to rejecting an
application under sub-clause (a) of clause (ii) of this sub-section,
shall give a notice to the applicant to rectify the defect in his
application within three days of the date of receipt of such
notice from theAdjudicatingAuthority.
F
(6) The corporate insolvency resolution process shall commence
from the date of admission of the application under sub-section
(5)."
19. The notes on clauses annexed to the Bill are extremely
G important and read asiollows:
"Notes on Clauses
Clause 6 provides that where a corporate debtor has defaulted
in paying a debt that has become due and payable but not repaid,
the corporate insolvency resolution process under Part II may
H
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1037
SOFTWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

.be initiated in respect of such corporate debtor by a financial A
creditor, an operational creditor or the corporate debtor itself.
Early recognition of financial distress is very important for timely
resolution of insolvency. A default based test for entry into the
insolvency resolution process permits early intervention such that
insolvency resolution proceedings can be initiated at an early B
stage when the corporate debtor shows early signs of financial
distress rather than at the point where it would be difficult to
revive it effectively. It also provides a simple test to initiate
resolution process.
This clause permits any financial creditor to initiate the corporate · c
insolvency resolution process where the corporate debtor has-
defaulted in paying a debt that has become due and payable but
not repaid. Financial creditors are those creditors to Whom a
financial debt (i.e., a debt where the creditor is compensated for
the time value of the money lent) is owed.
D
Further, the Code also permits the corporate debtor itself to initiate
the insolvency resolution process once it has defaulted on a debt.
Additionally, operational creditors (i.e., creditors to whom a sum
of money is owed for the provision of goods or services or the
Central/State Government or local authorities in respect of
. payments due to them). are also permitted to initiate the insolvency E
resolution process. This will bring the law in line with international
practices, which permit unsecured creditors (including employees,
suppliers etc. who fall under the definition of operational creditors)
to file for the initiation of insolvency resolution proceedings.
Clause 7 Jays down the procedure for the initiation of the F
corporate insolvency resolution process by a financial creditor
or two or more financial creditors jointly. The financial creditor
can file an application before the National Company Law Tribunal
along with proof of default and the name of a resolution ·
professional proposed to act as the interim resolution professional G
in respect of the corporate debtor. The requirement to provide
proof of default ensures that financial creditors do not file frivolous
applications or applications which prematurely put the corporate
debtor into insolvency resolution proceedings for extraneous
considerations. The adjudicating authority/ Tribunal can, within
H
1038 SUPREME COURT REPORTS (2017) 10 S.C.R.

A fourteen days from the date ofreceipt of the application, ascertain
the existence of a default from the records of a regulated
information utility. A default may also be proved in such manner
as may be specified by the Insolvency and Bankruptcy Board of
India.
B Once the adjudicating authorityffribunal is satisfied as to the
existence of the default and has ensured that the application is
complete and no disciplinary proceedings are pending against
the proposed resolution professional, it shall admit the application.
The adjudicating authorityffribunal is not required to look into
any other criteria for admission of the application. It is important
c that parties are not allowed to abuse the legal process by using
delaying tactics at the admissions stage.
Clause 8 lays down the procedure for the initiation of the
corporate insolvency resolution process by an operational
creditor. This procedure differs from the procedure applicable to
D financial creditors as operational debts (such as trade debts. salary
or wage claims) tend to be small amounts (in comparison to
. financial debts) or are recurring in nature and may not be
accurately reflected on the records of information utilities at all
times. The possibility of disputed debts in relation to operational
E creditors is also higher in comparison to financial creditors such
as banks and financial institutions. Accordingly. the process for
initiation of the insolvency resolution process differs for an
operational creditor.
Once a default has occurred, the operational creditor has to deliver
F a demand notice or a copy of an invoice demanding payment of
the debt in default to the corporate debtor. The corporate debtor
has a period of ten days from the receipt of the demand notice
or invoice to inform the operational creditor of the existence of a
dispute regarding the debt claim or of the repayment of the debt.
This ensures that operational creditors. whose debt claims are
G usually smaller. are not able to put the corporate debtor into the
insolvency resolution process prematurely or initiate the process
for extraneous considerations. It may also facilitate informal
negotiations between such creditors and the corporate debtor,
which may result in a restructuring of the debt outside the formal
H proceedings.
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1039
SOFTWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

Clause 9 On the expiry of the period of ten days from the date A
of receipt of the invoice or demand notice under Clause 8, if the
operational creditor does not receive either the payment of the
debt or a notice of existence of dispute in relation to the debt
claim from the corporate debtor, he can file an application with
the adjudicating authority for initiating the insolvency resolution B
process in respect of such debtor. He also has to furnish proof
of default and proof of non-payment of the debt along with an
affidavit verifying that there has been no notice regarding the
existence of a dispute in relation to the debt claim. Within fourteen
days from the receipt of the application. if the adjudicating
authorityffribunal is satisfied as to (a) the existence of a default. C
and (b) the other criteria laid down in clause 9(5) being met. it
shall admit the application. The adjudicating authorityffribunal is
not required to look into any other criteria for admission of the
application. It is important that parties are not allowed to abuse
the legal process by using delaying tactics at the admissions D
stage."
(Emphasis supplied)
20. The Joint Committee in April, 2016 made certain small changes
in the said Bill, by which the Committee stated:
"17. Mode of delivery of demand notice of unpaid E
operational debt - Clause 8
The Committee find that clause 8(1) of the Code provides that
an operational creditor may, on the occurrence of a default, deliver
a demand notice of unpaid operatiogal debt or copy of an invoice
demanding payment of the amount involved in the default to the F
corporate debtor in such form as may be prescribed, through an
information utility, wherever applicable, or by registered post or
courier or by such electronic mode of communication, as may .
be specified.
The Committee are of the view that the details of the mode of G
delivery of demand notice can be provided in the rules. The
Committee, therefore; decide to substitute words "in such form
as may be prescribed, through an information utility, wherever
applicable, or by registered post or courier or by such electronic
mode of communication, as may be specified" as appearing in H
1040 SUPREME COURT REPORTS [2017] 10 S.C.R.

A clause 8(1) with the words "in such form and manner, as may be
prescribed''. Besides as a consequential amendment words
"through an information utility or by registered post or courier or
by such electronic mode of communication as may be specified"
as appearing in clause 8(2) may also be omitted."
B The Committee also revised the time limits set out in various sections of
the Code from 2, 3 and 5 days to a longer uniform period of7 days.
21. The stage is now set for setting out the relevant provisions of
the Code insofar as operational creditors and their corporate debtors are
concerned.
C ''3. Definitions.
In this Code, unless the context otherwise requires,-
xxxxxxxxx
( 12) "default" means non-payment of debt when whole or any
D part or instalment of the amount of debt has become due and
payable and is not repaid by the debtor or the corporate debtor,
as the case may be;
5. Definitions.
In this Part, unless the context otherwise requires,-
E
(6) "dispute" includes a suit or arbitration proceedings relating
to-
(a) the existence of the amount of debt;
(b) the quality of goods or service; or
F
(c) the breach of a representation or warranty;
xxxxxxxxx
(20) "operational creditor" means a person to whom an
operational debt is owed and ·includes any person to whom such
G debt has been legally assigned or transferred;
(21) "operational debt" means a claim in respect of the provision
of goods or services including employment or a debt in respect
of the repayment of dues arising under any law for the time
being in force and payable to the Central Government, any State
H Go_vernment or any local authority;
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1041
SOFTWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

8. Insolvency resolution by operational creditor. A
(1) An operational creditor may, on the occurrence of a default,
deliver a demand notice of unpaid operational debt or copy of an
invoice demanding payment of the amountfovolved in the default
to the corporate debtor in such form and manner as may be
prescribed. B
(2) The corporate debtor shall, within a period of ten days of the
. receipt of the demand notice or copy of the invoice mentioned in
sub-section (1) bring to the notice of the operational creditor~
(a) existence of a dispute, if any, and record of the pendency
of the suit or arbitration proceedings filed before the receipt of C
such notice or invoice in relation to such dispute;
(b) the repayment of unpaid operational debt-
(i) by sending an attested copy of the record of electronic
transfer of the unpaid amount from the bank account of the D
corporate debtor; or
(ii) by sending an attested copy of record that the operational
creditor has encashed a cheque issued by the corporate
debtor.
Explanation.-For the purposes of this section, a "demand E
notice" means a notice served by an operational creditor to the
corporate debtor demanding repayment of the operational debt
in respect of which the default has occurred.
9. Application for initiation of corporate insolvency
resolution· process by operational creditor. F
(1) After the expiry of the period of ten days from the date of ·
delivery of the notice or invoice demanding payment under sub-
section (1) of section 8, if the operational creditor does not receive
payment from the corporate debtor or notice of the dispute under
subcsection (2) of section 8, the operational creditor may file an a
application before the Adjudicating Authority for initiating a
corporate insolvency resolution process.
(2) The application under sub-section (1) shall be filed iit such
form and manner and accompanied with such fee as may be
prescribed. H
1042 SUPREME COURT REPORTS [2017] IO S.C.R.

A (3) The operational creditor shall, along with the application
furnish-
(a) a copy of the invoice demanding payment or demand notice
delivered by the operational creditor to the corporate debtor;
(b) an affidavit to the effect that there is no notice given by the
B corporate debtor relating to a dispute of the unpaid operational
debt;
(c) a copy of the certificate from the financial institutions
maintaining accounts of the operational creditor confirming that
there is no payment of an unpaid operational debt by the
c corporate debtor; and
(d) such other information as may be specified.
(4) An operational creditor initiating a corporate insolvency
resolution process under this section, may propose a resolution
D professional to act as an interim resolution professional.
(S)TheAdjudicatingAuthority shall, within fourteen days of the
receipt of the application under sub-section (2), by an order-
(i) admit the application and communicate such decision to the
operational creditor and the corporate debtor if,-
E (a) the application made under sub-section (2) is complete;
(b) there is no repayment of the unpaid operational debt;
(c) the invoice or notice for payment to the corporate debtor
has been delivered by the operational creditor;
F (d) no notice of dispute has been received by the operational
creditor or there is no record of dispute in the information
utility; and
(e) there is no disciplinary proceeding pending against any
resolution professional proposed under sub-section (4), if
G any.
(ii) reject the application and communicate such decision to
the operational creditor and the corporate debtor, if-
(a) the application made under sub-section (2) is incomplete;
H (b) there has been repayment of the unpaid operational debt;
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1043
SOFTWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

(c) the creditor has not delivered the invoice or notice for A
payment to the corporate debtor;
(d) notice of dispute has been received by the operational
creditor or there is a record of dispute in the information
utility; or
(e) any disciplinary proceeding is pending against any B
proposed resolution professional:
Provided thatAdjudicatingAuthority, shall before rejecting an ·
application under sub-clause (a) of clause (ii) give a notice to
the applicant to rectify the defect in his application within seven
days of the date ofreceipt of such notice from the Adjudicating c
Authority.
(6) The corporate insolvency resolution process shall commence
from the date of admission of the application under sub-section
(5) of this section."
D
22. Together with Section 8(1), the Insolvency and Bankruptcy
(Application to Adjudicating Authority) Rules, 2016, speak of demand
notices by the operational creditor and applications by the operational
creditor in the following terms:
"S. Demand notice by operational creditor.
E
(1) An operational creditor shall deliver to the corporate debtor,
the following docuri1ents, namely.-
( a) a demand notice in Form 3; <if
(b) a copy of an invoice attached with a notice in Form 4.
(2) The demand notice or the copy of the invoice demanding F
payment referred to in sub-section (2) of section 8 of the Code,
may be delivered to the corporate debtor,
(a) at the registered office by hand, registered post or speed
post with acknowledgement due; or
(b) by electronic mail service to a whole time director or G
designated partner or key managerial personnel, if any, of the
corporate debtor.
(3) A copy of demand notice or invoice demanding payment served
under this rule by an operational creditor shall also be filed with
an information utility, ifany.
H
1044 SUPREME COURT REPORTS [2017] IO S.C.R.

A 6. Application by operational creditor.
(l) An operational creditor, shall make an application for initiating
the corporate insolvency resolution process against a corporate
debtor under section 9 of the Code in Form 5, accompanied with
documents and records required therein and as specified in the
B Insolvency and Bankruptcy Board oflndia (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016.
(2) The applicant under sub-rule ( 1) shall dispatch forthwith, a
copy of the application filed with the Adjudicating Authority, by
registered post or speed post to the registered office of the
C corporate debtor..
FORM 3
(See clause (a) of sub-rule (1) of rule 5)

D FORM OF DEMAND NOTICE I INVOICE
DEMANDING PAYMENT UNDER THE
INSOLVENCY AND BANKRUPTCY CODE, 2016
(Under rule 5 of the Insolvency and Bankruptcy (Application
to Adjudicating Authority) Rules, 2016)
E [Date]
To,
[Name and address of the.registered office of the corporate
debtor]
F From,
[Name and address.of the registered office of the operational
creditor].
Subject: Demand notice/invoice demanding payment in
respect of unpaid operational debt due from [corporate
G
debtor] under the Code.
Madam/Sir,
I. This letter is a demand notice/invoice demanding payment of
an unpaid operational debt due from [name of corporate
H debtor]. ··
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1045
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

2. Please find particulars of the unpaid operational debt below: A

I PARTICULARS OF OPERATIONAL
!
DEBT
' 1. TOTAL AMOUNT OF DEBT, DETAILS
OF TRANSACTIONS ON ACCOUNT OF
WHICH DEBT FELL DUE, AND THE B
DATE FROM WHICH SUCH DEBT
FELL DUE
12.
I
AMOUNT <;":LAIMED TO BE IN
I DEFAULT ANDTHEDATEONWHICH
THE DEFAULT OCCURRED (ATTACH
·I THE WORKINGS FOR COMPUTATION c
! OF DEFAULT INT ABULAR FORM)
3. PARTICULARS OF SECURITY HELD,
IF ANY, THE DATE OF ITS CREATION.
ITS ESTIMATED VALUE AS PER THE
CREDITOR. ATTACH A COPY OF A
CERTIFICATE OF REGISTRATION OF
D
CHARGE ISSUED BY THE REGISTRAR
OF COMPANIES (IF THE CORPORATE
DEBTOR IS A COMPANY)
4. DETAILS OF RETENTION OF TITLE
ARRANGEMENTS (IF ANY) IN
RESPECT OF GOODS TO WHICH THE
OPERATIONAL DEBT REFERS E
'5 RECORD OF DEFAULT WITH THE
I __:__ IN:i:;QfilvJATIQN T,JJ:!LITY QF ANY) _ - ·• . ··--··-·········-··-········
i 6. PROVISION OF LAW, CONTRACT OR
iI OTHER DOCUMENT UNDER WHICH
DEBT HAS BECOME DUE
h-.
'
TJST OF DOCUMENTS-ArrACHED TO
-- F
! THIS APPLICATION IN ORDER.TO
I PROVE THE EXISTENCE OF
I OPERATIONAL DEBT ANDTHE
I
I AMOUNT IN DEFAULT
3. If you dispute the existence or amount of unpaid operational G
debt (in default) please provide the undersigned, within ten days ·
of the receipt of this letter, of the pehdency of the suit or arbitration
proceedings in relation to such dispute filed before the receipt of
this letter/notice.
H
1046 SUPREME COURT REPORTS [2017] 10 S.C.R.

A 4. If you believe that the debt has been repaid before the receipt
of this letter, please demonstrate such repayment by sending to
us, within ten days of receipt of this letter, the following:
(a) an attested copy of the record of electronic transfer of the
unpaid amount from the bank account of the corporate debtor;
B or
(b) an attested copy of any record that [name of the operational
creditor] has received the payment.
5. The undersigned, hereby, attaches a certificate from an
information utility confirming that no record of a dispute raised
c in relat10n to the relevant operational debt has been filed by any
person at any infonnation utility, (if applicable)
6. The undersigned request you to unconditionally repay the unpaid
operational debt (in default) in full within ten days from the receipt
of this letter failing which we shall initiate a corporate insolvency
D resolution process in respect of [c].
Yours sincerely,
Signature of person authorised to act on behalf of the
operational creditor
Name in block letters
iP0Sition\Y-iillorTnrclationlotl!eove11ltiOn~~e<l ~01:-----
E
Adch-ess of person signing

Instructions
1. Please serve a copy of this form on the corporate debtor, ten
F days in advance of filing an application under section 9 of the
Code.
2. Please append a copy of such served notice to the application
made by the operational creditor to the Adjudicating Authority.
Form 4
G
(See clause (b) of sub-rule (l) of rule 5)
FORIVI OF NOTICE WITH WHICH INVOICE DEMANDING
PAYMENT IS TO BE ATTACHED
(Under Rule 5 of the Insolvency and Bankruptcy (Application to
H Adjudicating Authority) Rules, 2016)
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1047
.._,
SOFTWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

[Date] A
To,
[Name and address of registered office of the corporate debtor]

From,
.B
[Name and address of the operational creditor] ·

Subject: Notice -attached to invoice demanding payment

Madam/Sir, c
[Name of operational creditor], hereby provides notice for
repayment of the unpaid amount ofINR [insert amount] that is
in default as reflected in the invoice attached to this notice. ·
D
In the event you do not repay the debt due to us within ten days
· . of receipt of this notice, we may file an application before the
Adjudicating Authority for initiating a corporate insolvency
resolution process under section 9 of the Code. .
Yours sincerely, E

Signature of person authorised to act on behalf of the
erational creditor
ame in block letters
F

Form 5
(See sub-rule (I) of rule 6)
APPLICATION BY OPERATIONAL CREDITOR TO
G
INITIATE CORPORATE INSOLVENCY
RESOLUTION PROCESS UNDER THE CODE.
'
(Under rule 6 of the Insolvency and Bankruptcy (Application
to Adjudicating Authority) Rules; 2016)
[Date] H
. 1048 SUPREME COURT REPORTS (2017] IO S.C.R.

A To,
The National Company Law Tribunal
[Address]

... B
From,
[Name and address for correspondence of the operational
creditor] ·

In the matter of [name of the corporate debtor]
c
Subject: Application to initiate corporate insolvency
resolution process in respect of [11ame of the corporate
debtor] under the Insolvency and Bankruptcy Code, 2016.

D Madam/Sir,

[Name of the operational creditor], hereby submits this
application to initiate a corporate insolvency resolution process
in the case of [name of corporate debtor]. The details for the
E purpose of this application are set out below:
Part- I
PARTICULARS OF APPLICANT
I. NAME OF OPERATIONAL CREDITOR
2. IDENTIFICATION NUMBER OF
OPERATIONAL CREDITOR
F
(IF ..ANY).....
. . ..,

3. ADDRESS FOR CORRESPONDENCE
OF THE OPERATIONAL CREDITOR
Part - II
G PARTICULARS OF CORPORATE
DEBTOR
1. NAME OF THE CORPORATE
DEBTOR
2. - -iDENTIFICATIOr•fNUMBEROF-
CORPORATE DEBTOR
H
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1049
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

3. . DATE OF INCORPORATION OF A
CORPORATE DEBTOR
4. NOMINAL SHARE CAPITAL
AND THE PAID-UP SHARE :
CAPITAL OF THE CORPORATE
DEBTOR AND/OR DETAILS OF I''
B
GUARANTEE CLAUSE AS PER
-. MEMORANDUM OF
ASSOCIATION (AS
APPLICABLE) '
5. ADDRESS OF THE REGISTERED
OFFICE OF THE CORPORAT}:': c
DEBTOR
6. NAME, ADDRESS AND
AUTHORITY OF PERSON
SUBMITTING APPLICATION
ON BEHALF OF OPERATIONAL
CREDITOR (ENCLOSE D
.. ·-··-----
. .. ,.\UTHORISATIOJ:-l) ··-··-.. --·--···-···-·- ... -
7. NAME AND ADDRESS OF
PERSON RESIDENT IN INDIA
AUTHORISED TO ACCEPT THE
SERVICE OF PROCESS ON ITS
BEHALF (ENCLOSE E
AUTHORISATION)
Part-III
PARTICULARS OF THE PROPOSED '
INTERIM RESOLUTION
PROFESSIONAL [IF PROPOSED] ! . F
1. NAME, ADDRESS, EMAIL ADDRESS
AND1HEREGISTRATIONNUMBER
OF THE PROPOSED INSOLVENCY ·
PROFESS!QJ'i!'\!: ______ .______ _J _ _ _ _ --·--·

Part-IV G

PARTICULARS OF
OPERATIONAL .DEBT
1. TOTAL AMOUNT OF DEBT,
DEfAILS OF TRANSACTIONS
ON ACCOUNT OF WHICH H
1050 SUPREME COURT REPORTS [2017] IO S.C.R.

A . DEBT FELL DUE,
. AND THE DATE FROM WHICH
'SUCH DEBT FELL DUE
2 : AMOUNT CLAIMED TO BE IN
•DEFAULT AND THE DATE ON
·WHICH THE DEFAULT OCCURRED
B (ATTACH THE WORKINGS FOR
•COMPUTATION OF AMOUNT AND
:DATES OF DEFAULT IN TABULAR
.FORM)
Part-V
c
PARTICULARS OF OPERATIONAL DEBT
[DOCUMENTS, RECORDS AND EVIDENCE OF
DEFAULT]
1. . PARTICULARS OF SECURffY HELD, IF ANY,
THE DATE OF ITS CREATION, rrs ESTIMATED
D VALUE AS PER THE CREDITOR.
ATTACH A COPY OF A CERTIFICATE OF
REGISTRATION OF CHARGE ISSUED BY 'illE
REGISTRAR OF COMPANIES (IF THE
CORPORATE DEBTOR IS A COMPANY)
2. DETAILS OF RESERVATION I RETENTION OF
E TITLE ARRANGEMENTS (IF ANY) IN RESPECT
OF GOODS TO WHICH THE OPERATIONAL
DEBT REFERS
3. PARTICULARS OF AN ORDER OF A COURT,
TRIBUNAL OR ARBITRAL PANEL
ADJUDICATINGONTHEDEFAULT, IF ANY
p (ATTACHACOPYOFTHEORDER)
4. RECORD OF DEFAULT WITH THE
INFORMATION UTILITY, IF ANY
(ATTACH A COPY OF SUCH RECORD)
5. DETAILS OF SUCCESSION CERTIFICATE, OR
PROBATE OF A WILL, OR LETTER OF
.G ADMINISTRATION, OR COURT DECREE (AS
MAY BE APPLICABLE), UNDER THE INDIAN
SUCCESSION ACT, 192.'5 (I 0 OF 1925)
(ATTACH--A COPY)
-- - . ---
-- ------ ----- ----- -- ..~ -
-- -- -- --·
----- - -

6. PROVISION OF LAW, CONTRACf OR OTHER
DOCUMENT UNDER WHICH OPERATIONAL
H DEBT HAS BECOME DUE
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1051
SOFrWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

A
7. A STATEMENT OF BANK ACCOUNT WHERE
DEPOSITS ARE MADE OR CREDITS RECEIVED
NORI\!IALLY BY THE 6PERATIONAL CREDITOR
IN RESPECT. OF. THE DEBT OF THE CORPORATE
DEBTOR (ATTACH A COPY)
8. LIST OF OTHER DOCUMENTS ATTACHED TO B
THIS APPLICATION IN ORDER TO PROVE THE
EXISTENCE OF OPERATION AL DEBT AND THE
AMOUNT IN DEFAULT

I, [Name of the operational creditor I person authorised to
act on behalf of the operational creditor] hereby certify that, C
to the best of my knowledge, [name of proposed insolv~ncy
professional], is fully qualified and permitted to act as an
insolvency professional in accordance with the Code and the .
rules and regulations made thereunder. [WHERE APPLICABLE]
D
[Name pf the operational creditor] Jias paid the requisite fee
for this application through [state means ofpayment] on [date].

Yours sincerely, E

Signature of person authcrised to act on behalf of the operational
creditcr
Name in block letters
-Position with or in relation to the operational creclitOf-.·---
Address of nerson signing F

Instructions -
Please attach the following to this application:
Annex I Copy of the invoice/ demand notice as in Form 3 of the G·
Insolvency and.Bankruptcy (Application to Adjudicating
Authority) Rules, 2016 served on the corporate debtor.
. . .
Annex II Copies of all documents referred to in this application.
AnnexJII Copy of the relevant accounts from the banks/financial
H
1052 SUPREME COURT REPORTS [2017] 10 S.C.R.

A institutions maintaining accounts of the operational creditor
confirming that there is no payment of the relevant unpaid
operational debt by the operational debtor, if available.
Annex IV Affidavit in support of the application in accordance
with the Insolvency and Bankruptcy (Application to Adjudicating
B Authority)Rules,2016.
Annex V Written communication by the proposed interim
resolution professional as set out in Form 2 of the Insolvency
and Bankruptcy (Application to Adjudicating Authority) Rules,
2016. [WHERE APPLICABLE]
c Annex VI Proof that the specified application fee has been
paid.
Note: Where workmen/employees are operational creditors, the
application may be made either in an individual capacity or in a
joint capacity by one of them who is duly authorised for the
D purpose.
Regulation 7 of the Insolvency and Bankruptcy Board of India
(Insolvency Resolution Proce.% for Corporate Persons) Regulations, 2016
is also relevant and reads as under:
"7. Claims by operational creditors.-
E
(!) A person claiming to be an operational creditor, other than
workman or employee of the corporate debtor, shall submit proof
of claim to the interim resolution professional in person, by post
or by electronic means in Form B of the Schedule:
F Provided that such person may submit supplementary documents
or clarifications in support of the claim before the constitution of
the committee.
(2) The existence of debt due to the operational creditor under
this Regulation may be proved on the basis of-
G (a) the records available with an information utility, if any; or
(b) other relevant documents, including -
(i) a contract for the supply of goods and services with
corporate debtor;
H
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1053
SOFI'WARE PRIVATE LIMITED [R. F. NARIMAN, J.]

(ii) an invoice demanding payment for the goods and A
services supplied to the corporate debtor;
(iii) an order of a court or tribunal that ha~ adjudicated upon
. the non-payment of a debt, if any; or
(iv) financial accounts.
B
FORM B
PROOF OF CLAIM BY OPERATIONAL CREDITORS
EXCEPT WORKMEN AND EMPLOYEES
[Under Regulation 7 of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for C
Corporate Persons) Regulations, 2016]
[Date] ·
To 1·

D
The Interim Resolution Professional I Resolution Professional
[Name of the Insolvency Resolution Professional I '
Resolution Professional]
[Address as set out in public announcement] . E

From
[Name and address of the operational creditor]
F
Subject: Submission of proof of claim.

Madam/Sir,
G
[Name of the operational creditor], hereby submits this proof
of claim in respect of the corporate insolvency resolution process
in the case of [name of corporate debtor]. The.derails forthe
· same are set out below:
H
1054 SUPREME COURT REPORTS [2017] 10 S.C.R.

A
PARTICULARS
I. NAME OF OPERATIONAL
CREDITDR
2. IDENTIFICATION NUMBER OF '
OPERATIONAL CREDITOR I

B (IF AN INCORPORATED BODY I
PROVIDE IDENTIFICATION
NUMBER AND PROOF OF I
I

INCORPORATION. IF A
PARTNERSHIP OR INDIVIDUAL
PROVIDE IDENTIFICATION
c RECORDS* OF ALL THE
PARTNERS OR THE INDIVIDUAL)
3. ADDRESS AND EMAIL ADDRESS
OF OPERATIONAL CREDITDR !
FOR CORRESPONDENCE I
4. TOTAL AMOUNT OF CLAIM I

D
·(INCLUDING ANY INTEREST AS I
AT THE INSOLVENCY
-~--
~0Mr.1~Cf;ME!'rf l)~T~l_ ___ --
5. DETAILS OF DOCUMENTS BY
REFERENCE TO WHICH THE
E DEBT CAN BE SUBSTANTIATED.
6. DETAILS OF ANY DISPUTE AS
WELL AS THE RECORD OF
PENDBNCY OR ORDER OF SUIT
---
OR ARBITRATION PROCEEDINGS ··- ---
7. DErili OFHOWAN-D-WHEN-- ·-· -
---

F DEBT INCURRED I
:
8. DETAILS OF ANY MUTUAL i
CREDIT, MUTUAL DEBTS, OR
OTHER MUTUAL DEALINGS I

BETWEEN THE CORPORATE
DEBTOR AND THE CREDITOR I
'
G WHICH MAY BESET-OFF I
I
AGAINST THE CLAIM !
9. DETAILS OF ANY RETENTION OF
TITLE ARRANGEMENTS IN
RESPECT OF GOODS OR
PROPERTIES TO WHICH THE
H CLAIM REFERS ;
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1055
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

A
1. DETAILS OFTHEBANK
ACCOUNT TO WHICH THE
AMOUNT OF THE CLAIM OR ANY
PART THEREOF CAN BE
TRANSFERRED PURSUANT TO A
RESOLUTION PLAN .
B
2. LIST OF DOCUMENTS ATTACHED
TO THIS PROOF OF CLAIM IN ,
ORDER TO PROVE THE
EXISTENCE AND NONPAYMENT.
OF CLAIM DUE TO THE
OPERATIONAL CREDITOR c
Signature of operational creditor or person authorised to
act on his behalf
[Please enclose tlie autlwrity if this is being submitted on
•'
belwlf'ofan operational credit01J
I
Name in BLOCK LETTERS. I

i D
Position with or in relation to creditor ·
---------~ --~---------

Address of oerson signing --4
*PAN number, passport, AADHAAR Card or the identity
card issued by the Election Commission of India."
. . · ... · • . . E
(Emphasis supplied) .
23. In the passage of the Bills which ultimately became the Code,
various important changes have taken place. The original definition of
"dispute" has now become an inclusive definition, the word "bona fid~"
before "suit or arbitration proceedings" being deleted. In Section 8(1 ),
the words "through an information utility, wherever applicable, or by F
registered post or courier or by any electronic communication" have
been deleted. Likewise, in Section .8(2), the period of ''at least 60 days
... through an infoi;mation utility or by registered post or courier or by
any electronic communication" has also been deleted. In Section 9(5),
the absence of a proviso similar to the.proviso occurring in Section 7(5) G
was also rectified. Further, the time periods o_f 2 and 3 days were· .
uniformly substituted, as .has been seen. above, by 7 days, so that a
· sufficiently long period is given to do the needful.
24. The scheme untler Sections 8 and 9 of the Code, appears to
be that an operational ~reditor, as defined, may, on the occurrence of a H
1056 SUPREME COURT REPORTS [2017] 10 S.C.R.

A default (i.e., on non-payment of a debt. any part whereof has become
due and payable and has not been repaid), deliver a demand notice of
such unpaid operational debt or deliver the copy of an invoice demanding
payment of such amount to the corporate debtor in the form set out in
Rule 5 of the Insolvency and Bankruptcy (Application to Adjudicating
Authority) Rules, 2016 read with Form 3 or 4, as the case may be
B
(Section 8(1)). Within a period of lOdays of the receipt of such demand
notice or copy of invoice, the corporate debtor must bring to the notice
of the operational creditor the existence of a dispute and/or the record
of the pendency of a suit or arbitration proceeding filed before the receipt
of such notice or invoice in relation to such dispute (Section 8(2)(a)).
c What is important is that the existence of the dispute and/or the suit or
arbitration proceeding must be pre-existing- i.e. it must exist before the
receipt of the demand notice or invoice, as the case may be. In case the
unpaid operational debt has been repaid, the corporate debtor shall within
a period of the self-same 10 days send an attested copy of the record of
D the electronic transfer of the unpaid amount from the bank account of
the corporate debtor or send an attested copy of the record that the
a
operational creditor has encashed cheque or otherwise received
payment from the corporate debtor (Section 8(2)(b)). It is only if, after
the expiry of the period of the said I0 days, the operational creditor does
not either receive payment from the corporate debtoror notice of dispute,
E that the operational creditor may trigger the insolvency process by filing
an application before the adjudicating authority under Sections 9(1) and
9(2). This application is to be filed under Rule 6 of the Insolvency and
Bankruptcy (Application to Adjudicating Authority) Rules, 2016 in Form
5, accompanied with documents and records that are required under the
said form. Under Rule 6(2), the applicant is to dispatch by registered
F . post or speed post, a copy of the application to th\! registered office of
the corpor~te debtor.Under Section 9(3 ), along with the application, the
statutory requirement is to furnish a copy of the invoice.or demand notice,
an affidavit to the effect that there is no notice given by the corporate
debtor reiating to a dispute of the unpaid operational debt and a copy of
G . the certificate from the financial institution maintaining accounts of the
operational creditor confirming that there is no payment of an unpaid
operational debt by the corporate debtor. Apart from this information,
the other information required under Form 5 is also to be given. Once
this is done, the adjudicating authority may either admit the application
or reject it. If the application made under sub-section (2) is incomplete,
H
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1057
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

the adjudicating authority, under the proviso to sub-section 5, may give a A
notice to the applicant to rectify defects within 7 days of the receipt of
the notice from the adjudicating authority to make the application
complete. Once this is done, and the adjudicating authority finds that
either there is no repayment of the unpaid operational debt after the
invoice (Section 9(5)(i)(b)) or the invoice or notice of payment to the B
corporate debtor has been delivered by the operational creditor (Section
9(5)(i)(c)), or that no notice of dispute has been received by the operational
creditor from the corporate debtor or that there is no record of such
dispute in the information utility (Section 9(5)(i)(d)), or that there is no
disciplinary proceeding pending against any resolution professional
proposed by the operational creditor (Section 9(5)(i)(e)), it shall admit C
the application within 14 days of the receipt of the application, after
which the corporate insolvency resolution process gets triggered. On
the other hand, the adjudicating authority shall, within 14 days of the .
receipt of an application by the operational creditor, reject such application
if the application is incomplete and has not been completed within the D
period of7 days granted by the proviso (Section 9(5)(ii)(a)). It may also
reject the application where there has been repayment of the operational
debt (Section 9(5)(ii)(b )), or the creditor has not delivered the invoic~ or
notice for payment to the corporate debtor (Section 9(5)(ii)(c)). It may
also reject the application if the notice of dispute has been received by
the operational creditor or there is a record of dispute in the information E
utility (Section 9(5)(ii)(d)). Section 9(5)(ii)(d) refers to the notice of an
existing dispute that has so been received, as it must be read with Section
8(2)(a). Also, if any disciplinary proceeding is pending against any
proposed resolution professional, the application may be rejected (Section
9(5)(ii)(e)).
F
25 .. Therefore, the adjudicating authority, when examining an
application under Section 9 of the Act will have to determine:
(i) Whether there is an "operational debt" as defined exceeding
Rs.1 lakh? (See Section 4 of the Act)
(ii) Whether the documentary evidence furnished with the G
application shows that the aforesaid debt is due and payable
and has not yet been paid? and
(iii) Whether there is existence of a dispute between the parties
or the record of the pendency of a suit or arbitration ·
H
1058 SUPREME COURT REPORTS [2017] JO S.C.R.

A proceeding filed before the receipt of the demand notice of
the unpaid operational debt in relation to such dispute?
If any one of the aforesaid conditions is lacking, the application
would have to be rejected.
Apart from the above, the adjudicating authority must follow the
B mandate of Section 9, as outlined above, and in particular the mandate
of Section 9(5) of the Act, and admit or reject the application, as the
case may be, depending upon the factors mentioned in Section 9(5) of
the Act.
26. Another thing of importance is the timelines within which the
C insolvency resolution process is to be triggered. The corporate debtor is
given 10 days from the date of receipt of demand notice or copy of
invoice to either point out that a dispute exists between the parties or
that he has since repaid the unpaid operational debt. If neither exists,
then an application once filed has to be disposed of by the adjudicating
D authority within 14 days of its receipt, either by admitting it or rejecting
it. An appeal can then be filed to the Appellate Tribunal under Section
61 of the Act within 30 days of the order of the Adjudicating Authority
with an extension of 15 further days and no more.
27. Section 64 of the Code mandates that where these timelines
E are not adhered to, either by the Tribunal or by the Appellate Tribunal,
they shall record reasons for not doing so within the period so specified
and extend the period so specified for another period not exceeding 10
days. Even in appeals to the Supreme Court from the Appellate Tribunal
under Section 62, 45 days time is given from the date of receipt of the
orderoftheAppellate Tribunal in which an appeal to the Supreme Court
F is to be made, with a further grace period not exceeding 15 days. The
strict adherence of these timelines is of essence to both the triggering
process and the insolvency resolution process. As we have seen, one of
the principal reasons why the Code was enacted was because liquidation
proceedings went on interminably, thereby damaging the interests of all
G stakeholders, except a recalcitrant management which would continue
to hold on to the company without paying its debts. Both the Tribunal
and the Appellate Tribunal will do well to keep in mind this principal
objective sought to be achieved by the Code and will strictly adhere to
the time frame within which they are to decide matters under the Code.

H
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1059
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

28. It is now important to construe Section 8 of the Code. The A
operational creditors are those creditors to whom an operational debt is
owed, and an operational debt, in turn, means a claim in respect of the
provision of goods or services, including employment, or a debt in respect
of repayment of dues arising under any law for the time being in force
and payable to the Government or to a local authority. This has to be
contrasted with financial debts that may be owed to financial creditors, B
which was the subject matter of the judgment delivered by this Court on
31.8.2017 in Innoventive Industries Ltd. v. ICICI Bank & Anr.
(Civil Appeal Nos.8337-8338 of 2017). In this judgment, we had held
that the adjudicating authority under Section 7 of the Code has to ascertain
the existence of a defaultfrom the records of the information utility or C
on the basis of evidence furnished by the financial creditor within 14
days. The corporate debtor is entitled to pbint out to the adjudicating
authority that a default has not occurred; in the sense that a debt, which
may also include a disputed claim, is not due i.e. it is not payable in law
or in fact. This Court then went' on to state:
D
"29. The scheme of Section 7 stands in contrast with the scheme
under Section 8 where an operational creditor is, on the
occurrence of a default, to first deliver a demand notice of the
unpaid debt to the operational debtor in the manner provided in
Section 8(1) of the Code. Under Section 8(2), the corporate
debtor can, within a period of 10 days of receipt of the demand E
notice or copy of the invoice mentioned in sub-section (I), bring
to the notice of the operational creditor the existence of a dispute
or the record of the pendency of a suit or arbitration proceedings,
which is pre-existing - i.e. before such notice or invoice was
received by the corporate debtor. The moment there is existence F
of such a dispute, the operational creditor gets out of the clutches
of the Code ..
. 30. On the other hand, as we have seen, in the case of a corporate
debtor who commits a default of a financial debt, the adjudicating
authority has merely to see the re.cords of the information utility G
or other evidenc.e produced by the financial creditor to satisfy
itself that a default has occurred. It is of no matter that the debt
is disputed so long as the debt is "due" i.e. payable unless
interdicted by some law or has not yet become due in the sense
that it is payable. at some future date. It is only when this is
proved to the satisfaction of the adjudicating authority that the H
1060 SUPREME COURT REPORTS [2017] 10 S.C.R.

A adjudicating authority may reject an application and not
otherwise."
29. It is, thus, clear that so far as an operational creditor is
concerned, a demand notice of an unpaid operational debt or copy of an
invoice demanding payment of the amount involved must be delivered in
B the prescribed form. The corporate debtor is then given a period of 10
days from the receipt of the demand notice or copy of the invoice to
bring to the notice of the operational creditor the existence of a dispute,
if any. We have also seen the notes on clauses annexed to the Insolvency
and Bankruptcy Bill of2015, in which "the existence ofa dispute" alone
is mentioned. Even otherwise, the word ''and" occurring in Section
c 8(2)(a) must be read as "or" keeping in mind the legislative intent and
the fact that an anomalous situation would arise if it is not read as "or".
Ifread as "and", disputes would only stave off the bankruptcy process if
they are already pending in a suit or arbitrati.on proceedings and not
otherwise. This would lead to great hardship; in that a dispute may
D arise a few days before triggering of the insolvency process, in which
case, though a dispute may exist, there is no time to approach either an
arbitral tribunal or a court. Further, given the fact that long limitation
periods are allowed, where disputes may arise and do not reach an arbitral
tribunal or a court for upto three years, such per~ons would be outside
the purview of Section 8(2) leading to bankruptcy proceedings
E commencing against them. Such an anomaly cannot possibly have been
intended by the legislature nor has it so been intended. We have also
seen that one of the objects of the Code qua operational debts is to
ensure that the amount of such debts, which is usually smaller than that
of financial debts, does not enable operational creditors to put the
p corporate debtor into the insolvency resolution process prematurely or
initiate the process for extraneous considerations. It is for this reason
that it is enough that a dispute exists between the parties.
30. It is settled law that the expression "and" may be read as "or"
in order to further the object of the statute and/or to avoid an anomalous
G situation. Thus, in Samee Khan v. Bindu Khan ( 1998) 7 SCC 59 at 64,
this Court held:
"14. Since the word "also" can have meanings such as "as well"
or "likewise". cannot those meanings be used for understanding
the scope of the trio words "and may also"? Those words cannot
H
altogether be detached from the other words in the sub-rule.
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1061
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

Here again the word "and" need not necessarily be understood A
as denoting a conjunctive sense. In Stroud:5 Judicial Dictionary,
it is stated that the word "and" has generally a cumulative sense.
but sometimes it is by force of a context read as "or". Maxwell
on Interpretation of Statutes has recognised the above use to
carry out the interpretation of the legislature. This has been B
approved by this Court in lshwar Singh Bindra v. State of U.P.
[AIR 1968 SC 1450: 1969CriLJ19]. The principle of noscitur
a sociis can profitably be used to construct the words "and may
also" in the sub-rule:"
31. In Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd. C.
(2008) 4 SCC 755 at 765, this Court held:
"26. It may be noted that Section 86(1 )(f) of the Act of 2003 is a
special provision for adjudication of disputes between the licensee
and the generating companies. Such disputes can be adjudicated
upon either by the State Commission or the person or persons to
·whom it is referred for arbitratiOn. In our opinion the word "and" D
in Section 86(1 )(f) between the words "generating companies"
and "to refer any dispute for arbitration" means ''or". It is well
settled that sometimes "and" can mean "or" and sometimes "or"
can rriean "and" (vide G.P. Singh's Principles of Statutory
Interpretation, 9th Edn., 2004, p. 404). E
27. In ouropinion in Section 86(1 )(f) of the Electricity Act, 2003
the word "and" between the words "generating companies" and
the words "refer any dispute" means "or", otherwise it will lead
to an anomalous situation because obvious! y the State Commission
cannot both decide a dispute itself and also refer it to some F
arbitrator. Hence the word "and" in Section 86(1 )(f) means "or"."
32. In a recent judgment in Mah.arishi Mahesh Yogi Vedic
Vishwavidyalaya v. State ofM.P. (2013) 15 SCC 677 at 718, this Court
held:
"93. Besides the above two decisions, which discuss about the G
methodology of interpretation of a statute, we also refer to the
following decisions rendered by this Court in lshwar Singh
Bindra [lslnvar Singh Bindra v. State of U.P., AIR 1968 SC
1450: 1969 Cri LJ 19], wherein in para .11 it has been held as
under: (AIR p. 1454)
H
1062 SUPREME COURT REPORTS . [2017] IO S.C.R.

A "lJ . ... It would be much more appropriate in the context to
read it disconjunctively. In Stroud's Judicial Dictionary, 3rd
Edn., it is stated at p. 135 that 'and' has generally a cumulative
sense, requiring the fulfilment of all the conditions that it joins
together. and herein it is the antithesis of or. Sometimes, however,
even in such a connection, it is. by force of a context, read as
B
'or'. Similarly in Maxwell on Interpretation of Statutes, 11th
Elin., it has been accepted that 'to carry out the intention
of the legislature it i.~ occasionally found necessary to read
the conju11ctio11s "or" and "and" one for the other'."
94. We may also refer to para 4 of the decision rendered by this
c Court in Director of Mines Safety v. Tandur and Nayandgi
Stone Quarries (P) Ltd. [(1987) 3 SCC 208] : (SCC p. 211,
para 4)
"4. According to the plain meaning, the exclusionary clause in
sub-section (I) of Section 3 of the Act read with the two provisos
D beneath clauses (a) and (b), the word 'and' at the end of para
(b) of sub-clause (ii) of the proviso to clause (a) of Section
3(1) must in the context in which it appears, be construed as
'or'; and if so construed, the existence of any one of the three
conditions stipulated in paras (a), (b) and (c) would at once
E attract the proviso to clauses (a) and (b) of sub-section (I) of
Section 3 and thereby make the mine subject to the provisions
of the Act. The High Court overlooked the fact that the use of
the negative language in each of the three clauses implied that
the word 'and' used at the end of clause (b) had to be read
disjunctively. That construction of ours is in keeping with
F the legislative intent manifested by the scheme of the Act
which is primarily meant for ensuring the safety of workmen ·
employed in the mines."
33. This being the case, is it not open to the adjudicating authority
to then go into whether a dispute does or does not exist?
G
34. It is important to notice that Section 255 read with the Eleventh
Schedule of the Code has amended Section 271 of the Companies Act,
2013 so that a company being unable to pay its debts is no longer a
ground for winding up a company. The old law contained in Madhusudan
(supra) has, therefore, disappeared with the disappearance of this ground
H in Section 271 of the Companies Act.
- - .· - . - -
-·--·

MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1063
SOFTWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

35. We have already noticed that in the first Insolvency and A
Bankruptcy Bill, 2015 that was annexed to the Ban~uptcy Law Reforms
Committee Report, Section 5(4) defined "dispute" as meaning a "bona
fide suit or arbitration proceedings ... ". In its present avatar, Section
' 5(6) excludes the expression "bona fide" which is of significance.
Therefore, it is difficult to import the expression "bona fide" into Section B
8(2)(a) in order to judge whether a dispute exists or not.
36. The expression "existence" has been understood as follows:
"The Shorter Oxford English Dictionary gives the following meaning of
the word "existence": · ·"·"
a) ~eality, as opp to appearance. c
b) The fact or state of existing; actual possession of being.
Continued being as a living creature, life, esp. under adverse
conditions.
Something that exists; an entity, a being. All that exists. (Page D
894 - Oxford English Dictionary)"
37. Two extremely instructive judgments, one of the Australian
High Court, and the other of the Chancery Division in the UK, throw a
great deal of light on the expression "existence of a dispute" contained
in Section 8(2)(a) of the Code .. TheAustralianjudgment is reported as· E .
Spencer Constructions Pty Ltd v. G & M Aldridge Pty Ltd; [1997]
FCA 681. The Australian High Court had to construe Section 459H of
the Corporations Law, which read as under:
"( 1)
(a) that there is a genuine dispute between the F
company and. the respondent about the .existence or
amount of a debt to which the demand relates;
(b)
· The expression "genuine dispute" was then held to mean the
following: G
Finn J was content to adopt the explanation of "genuine dispute"
given by McLelland CJ in Eq in Eyota Pty Ltd v Hanave P°ry
Ltd (1994) 12 ACSR 785 l!t 787 where his Honour said:
"In my opinion [the] expression connotes a plausible H
1064 SUPREME COURT REPORTS (2017] 10 S.C.R.

A contention requiring investigation, and raises much the same
sort of considerations as the 'serious question to be tried'
criterion which arises on an application for an interlocutory
injunction or for the extension or removal of a caveat. This
does not mean that the court must accept uncritically as giving
rise to a genuine dispute, every statement in an affidavit
B
'however equivocal, lacking in precision, inconsistent with
undisputed contemporary documents or other statements by
the same deponent, or inherently and probable in itself, it
may be not having 'sufficient prima facie plausibility to merit
further investigation as to [its] truth' (cf Eng Mee Yong v
c Letchumanan [1980] AC 331 at 341), or 'a patently feeble
legal argument or an assertion of facts unsupported by
evidence': cf South Australia v Wall (1980) 24 SASR 189
at194."
His Honour also referred to the judgment of Lindgren Jin Rohala
D Pharmaceutical Pty Ltd (supra) where, at 353, his Honour said:
"The provisions [bf s 459H(l) and (5)) assume that the
dispute and offsetting claim have an 'objective' existence
the genuineness of Which is capable of being assessed. The
word 'genuine' is included fin 'genuine dispute'} to sound a
E note of warning that the propounding of serious disputes
and claims is to be expected but must be excluded from
consideration".
There have been numerous decisions of single judges in this Court
and in State Supreme Courts which have analysed, in different
F ways, the approach a court should take in determining whether
there is "a genuine dispute" for the purposes of s 459H of
the Corporations Law. What is clear is that in considering
applications to set aside a statutory demand, a court will not
determine contested issues of fact or law which have a significant
or substantial basis. One finds formulations such as:
G
"... at least in most cases, it is not expected that the court
will embark upon any extended enquiry in order to determine
whether there is a genuine dispute between the parties and
certainly will not attempt to weigh the merits of that dispute.
All that the legislation requires is that the court conclude
H that there is a dispute and that it is a genuine dispute".
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1065
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

See Mibor Investments Pty Ltd v Commonwealth Bank of A
Australia (1993) 11 ACSR 362 at 366-7,followed by Ryan J
in Mayall Investments Services Pty Ltd v White (1993) 12
ACSR 320 at 324.
Another formulation has been expressed as follows:
"It is clear that what is required in all cases is something B
between mere assertion and the proof that would be
necessary in a court of law. Something niore than mere
assertion is required because if that were not so then anyone
could merely say it did not owe a debt ... "
See John Holland Construction and Engineering Pty Ltd v C
Kilpatrick Green Pty Ltd (1994) 12ACLC 716 at 718, followed
by Northrop J in Aquatown Pty Ltd v Holder Stroud Pty Ltd
(Federal Court of Australia, 25June1996, unreported).
In Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR
601 at 605, Thomas J said: D
"There is little doubt that Div 3 is intended to be a complete
code which prescribes a formula that requires the court to
assess the position between the parties, and preserve
demands where it can be seen that there is no genuine dispute
and no sufficient genuine offsetting claim. That is not to E
say that the court will examine the merits or settle the dispute. ·
The specified limits of the court's examination are the
ascertai11me11t of whether there is a 'genuine dispute' and
whether there is a 'genuine claim'.
It is often possible to discern the spurious, and to identify F
mere bluster or assertion. But beyo11d a perception of
genuineness (or the lack of it) the court has no function. It
is not helpful to perceive that one party is more likely than
the other to succeed, or that the eventual state of the account
between the parties is more likely to be one result than G
another.
The essential task is relatively simple - to identify the genuine
level of a claim (not the likely result of it) and to identify the
genuine level of an offsetting claim (not the iikely result of
it). "
H
1066 SUPREME COURT REPORTS [2017] 10 S.C.R.

A In Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993)
12 ACSR 341at357 Beazley J said:
" ... the test to be applied for the purposes of s 459H is
whether the court is satisfied that there is a serious question
to be tried that the applicant has an offsetting claim".
B In Chadwick Industries (South Coast) Pty Ltd v Condensing
Vaporisers Pty Ltd (1994) 13 ACSR 37 at 39, Lockhart J said:
"... what appears clearly enough from all the judgments is
that a standard of satisfaction which a court requires is not
a particularly high one. I am for present purposes content
c to adopt any of the standards that are referred to in the cases
... The highest of the thresholds is probably the test
enunciated by Beazley J, though for myself I discern no
inconsistency between that test and the statements in the other
cases to which I have referred. However, the application of
D . Beazley J's test will vary according to the circwnstances of
the case.
Certainly the court will not examine the merits of the dispute
other than to see if there is in fact a genuine dispute. The
notion of a 'genuine dispute' in this context suggests to me
E that the court must be satisfied that there is a dispute that is
not plainly vexatious or frivolous. It must be satisfied that
there is a claim that may have some substance".
In Greenwood Manor Pty Ltd v Woodlock (1994) 48 FCR
229 Northrop J referred to the formulations of Thomas J
F in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACLC
919, 922 and Hayne J in Mihor Investments Pty Ltd v
Coml1U!nwealth Bank of Australia (supra), where he noted the
dictionary definition of "genuine" as being in this context "not
spurious ... real or true" and concluded (at 234):
"Although it is true that the Court, on an application
G
under ss 459G and 459H is not entitled to decide a question
as to whether a claim will succeed or not, it must be satisfied
that there is a genuine dispute between the company and the
respondent about the existence of the debt. If it can be shown
that the argument in support of the existence of a genuine
H dispute can have no possible basis whatsoever, in my view,
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1067
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

it cannot be said that there is a genuine dispute. This does A
not involve, in itself, a determination of whether the claim
will succeed or not, but it does go to the reality of the dispute,
to show that it is real or true and not merely spurious". ·
In our view a "genuine" dispute requires that:
• the dispute be bona fide and truly exist in fact; B

• the grounds for alleging the existence of a dispute are real and
not spurious, hypothetical, illusory or misconceived.
We consider that the various formulations referred to above can
be helpful in determining whether there is a genuine dispute in a c
particular case, so long as the formulation used does not become
a substitute for the words of the statute." '
38. To similar effect is the judgment of the Chancery Division in
Hayes v. Hayes (2014) EWHC 2694 (Ch) under the U.K. Insolvency
Rules. The Chancery Division held: D
"I do not think it necessary, for the purposes of this appeal, to
embark on a survey of the authorities as to precisely what is
involved in a genuine and substantial cross-claim. It is clear that
on the pne hand, the court does not need to be satisfied that
there is a good claim or even that it is a claim which is prima · E
·facie likely to succeed. In In re Bayoil SA [1999] l WLR 147
itself, Nourse LJ referred, at p 153, to wharHarman LJ had said
in In re LHF Wools Ltd [1970] Ch 27, 36 where Harman LJ,
having referred to a previous case, said:
''The majority decided in that case that, shadowy as the cross- F
claim was and improbable as the events said to support it
seemed to be, there was just enough to make the principle
work, namely, that it was right to have the matter tried out
before the axe fell."
On the otht;r hand, the court should be alert to detect wholly G
spurious claims merely being put forward by an unwilling debtor
to raise what has been called "a cloud of objections" as I referred
to earlier."
39. Interestingly enough in In Re: Portman Provincial Cinemas
Ltd. (1999) 1WLR157, a sharply divided CourtofAppeal had to decide H
1068 SUPREME COURT REPORTS [2017) IO S.C.R.

A whether a winding up petition should be dismissed on the ground that a
cross-claim had to be tried. Lord Denning, the minority Judge put it thus:
"It comes to this: Mr. Hymanson has put forward a most
astonishing claim for an indemnity against losses in perpetuity-
based on an oral agreement eight years ago-in a railway
B carriage or a solicitor's office_:with nothing to support it at all:
against a man now dead. If there was substance in it fit for the
court to consider, he should have condescended to a great deal
more particularity. At all events, he should have done so if he
wished to convince me. I do not think this cross-claim has any
substance at all. I would reject it as an answer to this creditor's
c debt and I would allow the appeal accordingly."
On the other hand, Justice Harman in agreeing with the Chancery
Di vision judgment, held:
''I do not think that on this proceeding we are entitled to adjudicate
D upon that matter. I do not think we ought to reject out of hand
statements on oath by Mr. Hymanson and Mr. Waller which,
unsatisfactory as they may be, do yet set up affirmatively this
story. There is nobody, of course, to contradict them. I think we
must take it that there is at least a chance that the judge will
believe that story and will agree that there was such a bargain
E made, and, moreover, that it was an inherent part of the sale
agreement.
xxx xxx xxx
Therefore. I have had grave doubts about this matter but I have
F
come to the conclusion on the whole that it cannot be said that
the story was so vague and the likelihood of success so slight
that we can say there was no substance in the cross-claim. I
think the judge was right to say that the matter ought to go to
trial, and therefore according to the modern practice the petition
should be dismissed, and I would so hold."
G
Similarly, Russell L.J. held:
. "Lord Denning M.R. has taken the view that the deponents of
the company really have made up this story, so strong are the
circumstances which seem to point in the opposite direction. As
I have said, I agree it is a most extraordinary story, but I am not
H
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1069
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

prepared, merely on the basis of affidavits and circumstances A
appearingin the Companies Court, to hold that really not only is
their story strange, but palpably untrue."
40. It is clear, therefore, that once the operational creditor has
filed an application, which is otherwise complete, the adjudicating authority
must reject the application under Section 9(5)(2)(d) if notice of dispute B
has been received by the operational creditor or there is a record of
dispute in the information utility. It is clear that such notice must bring to
the notice of the operational creditor the "existence" ofa dispute or the
fact that a suit or arbitration proceeding relating to a dispute is pending
between the parties. Therefore, all that the adjudicating authority is to
see at this stage is whether there is a plausible contention which requires C
further investigation and that the "dispute" is not a patently feeble legal
argument or an assertion of fact unsupported by evidence. It is important
to separate the grain from the chaff and to reject a spurious defence
which is mere bluster. However, in doing so, the Court does not need to.
be satisfied that the defence is likely to succeed. The Court does not at D
this stage examine the merits of the dispute except to the extent indicated
above. So long as a dispute truly exists in fact and is not spurious,
hypothetical or illusory, the adjudicating authority has to reject the
application.
. 41. Coming to the facts of the present case, it is clear that the E
argument cif Shri Mohta that the requisite certificate by IDBI was not
given in time will have to be rejected, inasmuch as neither the appellant
nor the Tribunal raised any objection to the application on this score.
The confirmation from a financial institution that there is no payment of
an unpaid operational debt by the corporate debtor is an important piece
of information that needs to be placed before the adjudicating authority, F
under Section 9 of the Code, but given the fact that the adjudicating
authority has not dismissed the application on this ground and that the
appellant has raised this ground only at the appellate stage, we are of the
view that the application cannot be dismissed at the threshold for want ·
of this certificate alone. G
42. On the other hand, Shri Mohta is on firmer ground when he
argues that a dispute certainly exists on the facts of the present case
and_that, therefore, the application ought to have been dismissed on this
ground.
H
1070 SUPREME COURT REPORTS [2017] 10 S.C.R.

A 43. According to learned counsel for the respondent, the definition
of "dispute" would indicate that since the NDA does not fall within any
of the three sub-clauses of Section 5(6), no "dispute" is there on the
facts of this case. We are afraid that we cannot accede to such a
contention. First and foremost, the definition is an inclusive one, and we
have seen that the word "includes" substituted the word "means" which
B
occurred in the first Insolvency and Bankruptcy Bill. Secondly, the present
is not a case of a suit or arbitration proceeding filed before receipt of
notice - Section 5(6) only deals with suits or arbitration proceedings
which must "relate to" one of the three sub-clauses, either directly or
indirectly. We have seen that a "dispute" is said to exist, so long as
C there is a real dispute as to payment between the parties that would fall
within the inclusive definition contained in Section 5(6). The
correspondence between the parties would show that on 30'h January,
2015, the appellant clearly informed the respondent that they had displayed
the appellant's confidential client information and client campaign
D information on a public platform which constituted a breach of trust and
a breach of the NDA between the_parties. They were further told that
all amounts that were due to them were withheld till the time the matter
is resolved. On I01h February, 2015, the respondent referred to the
NDA of 261hDecember, 2014 and denied that there was a breach of the
NDA. The respondent went on to state that the appellant's claim is
E unfounded and untenable, and that the appellant is trying to avoid its
financial obligations, and that a sum ofRs.19,08,202.57 should be paid
within one week, failing which the respondent would be forced to explore
legal options and initiate legal process for recovery of the said amount.
This e-mail was refuted by the appellant by an e-mail dated 261hFebruary,
F 2015 and the appellant went on to state that it had lost business from
various clients as a result of the respondent's breaches. Curiously, after
this date, the respondent remained silent, and thereafter, by an e-mail
dated 201hJune, 2016, the respondent wished to revive business relations
and stated that it would like to follow up for payments which are long
stuck up. This was followed by an e-mail dated 251hJune, 2016 to finalize
G the time and place for a meeting. On 28 1h June, 2016, the appellant
wrote to the respondent again to finalize the time and place. Apparently,
nothing came of the aforesaid e-mails and the appellant then fired the
last shot on 191hSeptember, 2016, reiterating that no payments are due
as the NDA was breached.
H
MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1071
SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.J ·

44. The demand notice sent by the respondent was disputed in A .
detail by the appellant in its reply dated 27'h December, 2016, which set
out the e-mail of30•h January, 2015. The appellant then went on to state:
. "Sometime during June and September 2016, an officer of your
. .Client, one Mr. Jasmeet Singh wrote to our Client that he wanted
to meet and revive business relationship and exploring common B
interest points to work together. In fact, in his email, he admits
that there should be resolution to the impending payments thereby
implying that there was (a) a dispute (as defined underthe Code)
and (b) there was a breach of the NOA which needed to be
re.solved. Mr. Singh's emails to our client were sent after 1
year and 6 months had elapsed from the date of our Client's C
email of 30 January 2015. This clearly shows that your Client
was silent during this period and had not bothered to answer the
questions raised by our Client. Hence, once again in September,
our Client called upon your Client to explain its breach of the
NOA. Your Client instead of explaining its breach of the NOA D
remained silent for about 3 months and thereafter chooses to
a
issue the Notice as form of pressure tactic and extort monies
from our Client for your Client's breach of the NDA. All the
.conduct of your Client explicitly shows !aches on its part.
Your Clients should note that under the NOA, it has agreedthat E
a breach of the NOA will cause irreparable damage to our Client
and our Client is entitled to all remedies under law or equity
against your Client for the enforcement of the NOA. Accordingly,
given the severity of the breaches of the NOA committed by
your Client, the delay and !aches committed by your Client and
the conduct of your Client, our Client is not liable to make F
payments to your Client against the breaches of the NOA and
the delay and !aches committed by your Client. In fact, at this
·stage, our Client is contemplating initiating necessary legal actions
against your Client and its parent company for the breach of the
NOA to seek further compensations and damages and other legal G
and equitable remedies against your Client and its parent
company."
45. Going by the aforesaid test of "existence of a dispute", it is
clear that without going into the merits of the dispute, the appellant has
raised a plausible contention requiring further investigation which is not H
1072 SUPREME COURT REPORTS [2017] IO S.C.R.

A a patently feeble legal argument or an assertion of facts unsupported by
evidence. The defense is not spurious, mere bluster, plainly frivolous or
vexatious. A dispute does truly exist in fact between the parties, which
may or may not ultimately succeed, and the Appellate Tribunal was wholly
incorrect in characterizing the defense as vague, got-up and motivated
to evade liability.
B
46. Learned counsel for the respondent, however, argued that the
breach of the NDA is a claim for unliquidated damages which does not
become crystallized until legal proceedings are filed, and none have been
filed so far. The period of limitation for filing such proceedings has
admittedly not yet elapsed. Further, the appellant has withheld amounts
C that were due to the respondent under the NDA till the matter is resolved.
Admittedly, the matter has never been resolved. Also, the respondent
itself has not commenced any legal proceedings after the e-mail dated
30'h January, 2015 except for the present insolvency application, which
was filed almost 2 years after the said e-mail. All these circumstances
D go to show that it is right to have the matter tried out in the present case
before the axe falls.
47 .. We, therefore, allow the present appeal and set aside the
judgment of the Appellate Tribunal. There shall, however, be no order
as to costs.
E
Devika Gujral Appeal allowed.