Mobilox Innovations Private Limited Versus Kirusa Software Private Limited (CIVIL APPEAL NO. 9405 OF 2017, Judgment on 21st September 2017)

Question of law: – What constitutes “existence of a dispute” in the context of applications filed by operational creditors for initiation of CIRP of corporate debtors under the IBC, 2016.

Supreme Court held:-

  • Interpreting the expression “existence of a dispute” occurring in Section 8(2)(a) of the IBC, the Supreme Court allowed Mobilox’s appeal holding that there was a dispute in existence which was sufficient to defeat the CIRP application filed by Kirusa.
  • SC reiterated the importance of strict adherence to the timelines as set out in the Code being of essence to the insolvency resolution process.
  • Dispute must be “pre-existing”

The Supreme Court holds that 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.

  • Formulation of a new “plausible contention” test

The Supreme Court holds that while determining “existence of a dispute”, all that the NCLT is to see is whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence.

  • Questions that the adjudicating authority must decide

Supreme Court holds that when examining an application under Section 9, NCLT will have to determine the following questions:

  1. Whether there is an âoperational debtâ as defined, exceeding ₨.1,00,000/- ?
  2. Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid?
  3. Whether there is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding on the dispute filed before the receipt of the Demand Notice?

If even one of the conditions mentioned above is found to be lacking, the NCLT must reject the application.

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