India: Insolvency And Bankruptcy Code – Meaning Of "Dispute In Existence"

Last Updated: 3 May 2017
Article by Alishan Naqvee, Rupal Bhatia and Monica Benjamin

The recently implemented Insolvency & Bankruptcy Code, 2016 ("Code"), which streamlines the insolvency and liquidation process in India, has lately become the subject of varying interpretations by the National Company Law Tribunal ("Tribunal").

Conflicting interpretations as to what constitutes a "dispute in existence" have surfaced between the Delhi and the Mumbai benches of the Tribunal.

The phrase "dispute in existence" assumes significance as it is largely the only legal defence that a corporate debtor can take to avoid insolvency/liquidation proceedings initiated by an operational creditor. The survival of the corporate debtor therefore to a large extent depends on whether there exists a dispute concerning the claims of the operational creditor.

Provisions of the Code:

In terms of the Code, an operational creditor can file an insolvency application before the Tribunal against a corporate debtor after the expiry of 10 days of service of the operational creditor's demand notice on the corporate debtor ("Demand Notice"), provided that the operational creditor has, within these 10 days:

  • neither received repayment of the operational debt from the corporate debtor;
  • nor received from the corporate debtor any notice of the "existence of a dispute", if any, and record of the pendency of suit or arbitration proceeding filed before receipt of such notice/invoice.

Further, the Code defines the term "dispute" to include suits or arbitration proceedings relating to existence of the amount of debt, quality of goods/service or breach of a representation/warranty.

The Code empowers the Tribunal to either admit or reject the operational creditor's insolvency application based on whether or not a notice of dispute (in existence) has been received by such operational creditor from the corporate debtor as aforesaid.

The Judicial Dilemma:

In practice, within a short span of time since operationalization of the Code, many insolvency applications have been preferred before the Tribunal where:

i.     the claims are either not disputed by the corporate debtor (making it easier for the Tribunal to take a judicial call to commence the insolvency resolution process); or

ii.     the claims are already disputed by the corporate debtor in a suit or in an arbitration proceeding (again making it easier for the Tribunal to take a judicial call and reject the insolvency application).

The Tribunal's judicial call however becomes difficult (and has given rise to differing interpretations) in cases where operational creditor's claims are disputed by the corporate debtor, whether before or during the 10 days' response period post service of the Demand Notice, but no suit or arbitration proceeding has been initiated concerning such claim(s) of the operational creditor.

On the one hand, if the Tribunal takes a strict interpretation of the law, and holds that a "dispute in existence" shall necessarily mean pendency of a suit or an arbitration proceeding prior to receipt of the Demand Notice from the operational creditor, the Tribunal is likely to direct commencement of insolvency resolution process even in those cases where genuine disputes exist regarding quality of goods or services or regarding a contractual breach. The insolvency resolution process – coupled with the trauma attached to it for the company, its employees as well as its business relationships, contracts (containing clauses stipulating automatic termination upon commencement of insolvency proceedings) and market sentiments – would make the Code an excellent tool for extortion in cases where the dispute is at pre-adjudication stage (even if it is in mediation/conciliation). A strict interpretation has, however, been taken by the Mumbai Bench of the Tribunal in the case of:

  • Essar Projects India Ltd. vs. MCL Global Steel Pvt. Ltd. - The Tribunal, while interpreting the definition of "dispute" under the Code, held that "dispute in existence" means and includes raising a dispute in a court of law or arbitral tribunal before receipt of the Demand Notice issued under Section 8 of the Code. The Bench also observed that a dispute raised by a corporate debtor for the first time in its reply to the Demand Notice cannot be treated as a dispute in existence in the absence of the same being disputed before any court of law prior to receipt of the Demand Notice. With the above observations, the Bench admitted the insolvency application. 

On the other hand, if the Tribunal takes a liberal interpretation, and only receipt of a notice of dispute is deemed sufficient to reject the application of the operational creditor, all corporate debtors can raise any frivolous dispute, even after receipt of the Demand Notice under the Code, to scuttle the application of the Code. For example, in the case of: 

  • One Coat Plaster vs. Ambience Pvt. Ltd. - The Tribunal, apparently, considering the disputes raised for the first time by the corporate debtor in its reply to the Demand Notice received from the operational creditor, rejected the insolvency application observing that the corporate debtor had vehemently disputed the payment/debt in its aforesaid reply.

However, the Delhi Bench of the Tribunal in One Coat Plaster judgment also observed that the operational creditor had failed to show any evidence of acceptance of the completed work by the corporate debtor or any independent (architect's) certification to demonstrate that the work executed by it was complete in all respects. The reasoning of the same bench of the Tribunal is further amplified in the case of Annapurna Infrastructure Pvt. Ltd. & Ors. vs. Soril Infra Resources Ltd., where it held that:

"21. A co-joint perusal of the aforesaid provisions makes it clear that a corporate debtor has option available under Section 8(2) of the Code. The corporate debtor could either place on record material disclosing the existence of a dispute or to pay the unpaid debt. ...... The definition of the word 'dispute' is not exhaustive but is, in fact illustrative. In other words a corporate debtor is not left with the only option of showing the existence of dispute by way of a pending suit, arbitration or to show the breach of representation or warranty The corporate debtor would be well within his right to show that goods and services were not supplied at all or the supply was far from satisfactory in case of demand raised by an operational creditor. Hence a corporate debtor would be well within his rights to reject the demand on any sustainable grounds. It would therefore, depend on the facts and circumstances of each case."


The Delhi Bench of the Tribunal seems to be on the right path that existence of a dispute, or in other words a valid dispute, needs to be determined on the facts and circumstances of each case. The Tribunal would need to apply its judicious mind to ascertain each case where the dispute is not pending before any court or arbitral tribunal, to see whether the dispute alleged is prima facie bona-fide or is a sham defence desperately or cleverly put forward by a corporate debtor to avoid corporate insolvency resolution process.

Besides, any other interpretation may either flood the Tribunal with opportunistic insolvency applications (where the disputes may be valid, but no suit/arbitration would have been pending) or leave redundant the provisions of the Code regarding invocation of insolvency proceedings by operational creditors (if all corporate debtors are permitted to raise a dispute, without merits, even if raised for the first time after receipt of the Demand Notice).  

The judgments of Essar Projects India as well as Annapurna Infrastructure, have been challenged before the National Company Law Appellate Tribunal. One can expect a judgment to clarify the position in law and resolve the currently prevalent difference in approach between the Delhi and the Mumbai benches of the Tribunal.

LexCounsel provides this e-update on a complimentary basis solely for informational purposes. It is not intended to constitute, and should not be taken as, legal advice, or a communication intended to solicit or establish any attorney-client relationship between LexCounsel and the reader(s). LexCounsel shall not have any obligations or liabilities towards any acts or omission of any reader(s) consequent to any information contained in this e-newsletter. The readers are advised to consult competent professionals in their own judgment before acting on the basis of any information provided hereby.

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.

Alishan Naqvee
Rupal Bhatia
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
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must 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