Mobilox Innovations Pvt. Ltd. VS Kirusa Software Pvt. Ltd. ( Case Summary )
Dispute is one of the grounds of defense available to the Corporate Debtor in an application filed by Operational Creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Supreme Court in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software Pvt. Ltd. (Civil Appeal No. 9405/2017) has interpreted the term “dispute” which has been relied upon by the Supreme Court and other Courts/Tribunals in a number of subsequent judgments.
BRIEF FACTS
Mobilox Innovations Pvt. Ltd. was engaged by the Star TV for conducting tele voting for programme “Nach Baliye”. Mobilox Innovations subcontracted work to Kirusa Software and issued purchase orders between October and December, 2013. The requisite services were provided by Kirusa Software and invoices were raised between December 2013 and November, 2014 for which invoices were raised, which were payable within 30 days. Non-disclosure agreement has been also signed between Mobilox Innovations and Kirusa Software. Mobilox Innovations vide letter dated 30th January, 2015 wrote to Kisrua Software that they are withholding payment as Kirusa Software had disclosed on the webpage that it has worked for “Nach Baliye” programme. Kirusa Software sent demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016. Mobilox Innovations replied vide letter dated 27th December, 2016 that there exists serious and bonafide dispute between the parties and nothing was payable in light of breach of Non Disclosure Agreement. On 30th December, 2016, an application was filed under Section 9 of the Code. NCLT dismissed the appeal vide order dated 27.01.2017 in light of dispute regarding default. An appeal was filed before the NCLAT which was allowed by NCLAT. Mobilox Innovations filed appeal before the Supreme Court.
FINDINGS OF THE SUPREME COURT
The Supreme Court held that before admitting the application under Section 9 of the Code three things have to checked by the Adjudicating Authority:
- Whether there is an operational debt exceeding the limit prescribed under the Code?
- Whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not been paid?
- Whether there is existence of dispute between the parties or record of pendency of a suit or arbitration proceedings filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute?
Notice under Section 8
The Supreme Court noted that a demand notice of an unpaid operational debt or copy of an invoice demanding payment of the amount involved must be delivered in 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. Section 8 (2) (a) used term “existence of a dispute if any, and record of the pendency of the suit or arbitration proceedings” . The Court said that “and” should be read as “or”. After this judgment vide Act of 2018, “and” has been substituted with “or” vide Insolvency and Bankruptcy Code (Second Amendment) Act, 2018.
Interpretation of Dispute
The Supreme Court observed that the winding up on the ground of inability of payment of debt under 271 is no longer a ground for winding up in light of enactment of Insolvency and Bankruptcy Code, 2016. With the omission of the said ground principle enunciated by the Supreme Court regarding “bonafide dispute” in Madhusudan Gordhandas v. Madhu Woollen Industries Pvt. Ltd (1972) 2 SCR 201 is also gone. All that 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. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster.
In light of aforesaid interpretation, the Hon’ble Supreme Court allowed appeal filed by Mobilox Innovation Pvt. Ltd.
