India: NCLAT's Order On Dispute Under The Insolvency And Bankruptcy Code, 2016

Last Updated: 5 September 2017
Article by Pooja S. Mahajan

Under the Insolvency and Bankruptcy Code, 2016 ("Code"), an operational creditor can initiate a corporate insolvency resolution process ("CIRP") of the corporate debtor by filing an application before the relevant National Company Law Tribunal ("NCLT/ Adjudicating Authority") upon occurrence of a default in payment of its operational debt.

However, the operational creditor must first send a demand notice or invoice to the corporate debtor, demanding the payment of the defaulted debt. In case the corporate debtor issues a 'notice of dispute' to the operational creditor, the Adjudicating Authority is required to reject the application of the operational creditor.

Since the Code has been notified, one of key interpretational question that has arisen is the meaning of 'dispute' to constitute a valid notice of dispute that will defeat the application of the operational creditor. The term 'dispute' has been defined in Section 5 (6) of the Code as "dispute includes a suit or arbitration proceedings relating to: (a) the existence of the amount of debt; (b) quality of goods or service; or (c) the breach of a representation or warranty". On the other hand, Section 8 (2) provides that the debtor should bring to the notice of the operational creditor "existence of a dispute, if any, and record of suit or arbitration proceeding pending before receipt of the demand notice".

The question that has arisen before various NCLTs is whether a corporate debtor can raise all kinds of disputes in the notice of dispute or can the notice of dispute only refer to pendency of a suit or arbitration before receipt of the demand notice. In other words, is the application of an operational creditor liable to be rejected only if the notice of dispute refers to a pending suit or arbitration proceeding on the dispute before receipt of the demand notice? Very recently, in Kirusa Software Private Limited v. Mobilox Innovations Private Limited1, the National Company Law Appellate Tribunal ("NCLAT") discussed this issue and passed an order, interpreting the meaning of 'dispute' under the Code ("NCLAT Order"). This e-alert discusses some critical observations made by NCLAT on interpretation of 'dispute'.


Kirusa Software Private Limited ("Kirusa") issued a demand notice on Mobilox Innovations Private Limited ("Mobilox") as an operational creditor, demanding payment of certain dues. Mobilox issued a reply to the demand notice inter alia stating that there exists serious and bona fide dispute between the parties and that Kirusa had breached the terms of an NDA between the parties and divulged Mobilox's confidential information.

Kirusa filed an application before the NCLT, Mumbai for initiation of CIRP of Mobilox which was dismissed by the NCLT, Mumbai on the grounds that a notice of dispute has been issued by Mobilox.

Kirusa filed an appeal before the Hon'ble NCLAT, claiming that Mobilox's reply does not constitute a notice of dispute in accordance with the Code.


What does "dispute" and "existence of dispute" mean for the purpose of determining the petition of the operational creditor under Section 9 of the Code?


  • Though the words 'prima facie' are missing in Sections 8 and 9 of the Code, yet the Adjudicating Authority would examine whether notice of dispute in fact raises the dispute and that too within the parameters of two definitions – 'debt' and 'default' and then it has to reject the application if it apparently finds that the notice of dispute does really raise a dispute and no other factual ascertainment is required. On the other hand, if the Adjudicating Authority finds that the notice of dispute lacks in particulars or does not raise a dispute, it may admit the application but in either case, there is neither an ascertainment of the dispute, nor satisfaction of the Adjudicating Authority.
  • The definition of "dispute" is "inclusive" and not "exhaustive". The same has to be given wide meaning provided it is relatable to the existence of the amount of the debt, quality of goods or service or breach of a representation or warranty.
  • The corporate debtor must raise a dispute with sufficient particulars. Further, the dispute under the Code must relate to the specified nature in Section 5 (6) (a)- (c), i.e. existence of amount of debt or quality of goods or service or breach of representation or warranty.
  • Mere illusory dispute, raised for the first time while replying to a demand notice cannot be a tool to reject the application under Section 9 if the operational creditor otherwise satisfies the Adjudicating Authority that there is a debt and a default.
  • Dispute as defined in Section 5 (6) cannot be limited to a pending proceeding or 'lis' within the limited ambit of suit or arbitration proceedings but includes proceedings initiated or pending before consumer court, tribunal, court or mediation, conciliation etc. If any action is taken by the corporate debtor under any Act or law, including while replying to a notice under Section 433 of the Companies Act or Section 59 of the Sale of Goods Act or regarding quality of goods or services provided by the operational creditor, the same will come within the ambit of dispute, raised and pending within the meaning of Section 5 (6) read with Section 8 (2) of the Code.

On facts of the case it was held that Mobilox's reply, when read in totality, does not raise any dispute within the meaning of Section 5 (6) or Section 8 (2), that Mobilox has disputed the payment merely on "some or other account" and that Mobilox's defence was "vague, got up and motivated to evade the liability". The NCLAT therefore set aside the order of NCLT, Mumbai and remitted the case to it for consideration of Kirusa's application for admission, if the application is otherwise complete.


Rather than clarifying the meaning of the term 'dispute', the NCLAT Order raises more interpretational issues. On the one hand, Hon'ble NCLAT held that the definition of 'dispute' is inclusive and the term 'dispute' must be given a wide meaning and further that disputes raised in the notice sent by the corporate to the operational creditor would get covered within Section 8(2). On the other hand, Hon'ble NCLAT also said that the corporate debtor must have taken some action on the dispute under any Act or law before receipt of the demand notice. Therefore, while the Hon'ble NCLAT has extended the definition of dispute beyond suit or arbitration proceeding, it appears that it has still limited it to some action/ proceeding taken by the corporate debtor under any Act or law in respect of the dispute, before receipt of the demand notice.

The NCLAT Order will have wide implications for corporate debtors as the NCLAT Order puts an onus on the corporate debtors to take proactive action on the dispute before receipt of the demand notice. Therefore, if a corporate debtor has concerns or disputes regarding a payment to be made to its operational debtor, and if no proceedings (in the form of suit, arbitration, mediation etc.) is pending, it must proactively take steps in respect of the same (before the operational creditor issues a formal demand notice under the Code).


1 Company Appeal (AT) (Insolvency) 6 of 2017, dated May 24, 2017

May 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions