‘Dispute’ meaning settled for corporate insolvency cases

The National Company Law Appellate Tribunal (NCLAT), in Kirusa Software Pvt Ltd v Mobilox Innovations Pvt Ltd, has finally decided the scope of the term “dispute” under section 9 of the Insolvency and Bankruptcy Code, 2016.

The NCLAT was hearing an appeal by Kirusa, an operational creditor, against an order passed on 27 January by the National Company Law Tribunal (NCLT), Mumbai. The order rejected Kirusa’s petition filed under section 9 of the code on the ground that Mobilox, the corporate debtor, disputed the debt.

The only issue before the NCLAT was: what does “dispute” and “existence of dispute” mean for the purpose of determining a petition under section 9 of the code.

The NCLAT drew an analogy between sections 8 and 9 of the code and section 8 of the Arbitration and Conciliation Act, 1996, and held that just as a judicial authority has to prima facie determine the existence of a valid arbitration agreement before exercising jurisdiction in relation to a dispute brought before it, if the adjudicating authority concludes that the notice of dispute in fact raises a dispute within the parameters of the definitions of “debt” and “default” under the code, the authority has to reject the application and no other factual ascertainment is required.

The NCLAT further held that the definition of “dispute” was clearly intended to be illustrative and not exhaustive. Relying on Mithilesh Singh v Union of India, in which the Supreme Court held that the legislature is deemed not to waste words, the NCLAT observed that if the legislature intended that a demand by an operational creditor can be disputed only by showing a record of pending suit or arbitration proceeding, the definition of “dispute” would have simply stated “dispute means a dispute pending in arbitration or suit”.

Vivek Vashi is the mainstay of the litigation team at Bharucha & Partners, where Utkarsh Srivastava is an associate.