India: "Existence Of A Dispute" Under The Insolvency And Bankruptcy Code Clarified By The NCLAT

Last Updated: 26 June 2017
Article by Alishan Naqvee, Rupal Bhatia and Monica Benjamin

The issue concerning conflicting interpretations of the phrase "existence of a dispute" under the Insolvency & Bankruptcy Code, 2016 ("Code") by the Delhi and Mumbai benches of the National Company Law Tribunal ("Tribunal") (see One Coat Plaster vs. Ambience Pvt. Ltd., Annapurna Infrastructure Pvt. Ltd. & Ors. vs. Soril Infra Resources Ltd. and Essar Projects India Ltd. vs. MCL Global Steel Pvt. Ltd.), seems to have been put to rest by the National Company Law Appellate Tribunal ("Appellate Tribunal") for the time being.

The Appellate Tribunal recently had the opportunity to interpret the terms "dispute" and "existence of a dispute" in the case of Kirusa Software Pvt. Ltd. v. Mobilox Innovations Pvt. Ltd., and clarified the legal position inter alia as under:

  1. "Dispute" cannot be limited to a pending proceeding or "lis" within the limited ambit of suit or arbitration proceedings. It also includes proceedings initiated or pending before consumer courts, tribunals, labour courts, mediation, conciliation, etc.;
  2. Any action taken by a corporate debtor under any act or law, including reply to a notice issued under Section 80 of the Code of Civil Procedure, 1908 or Section 59 of the Sale of Goods Act, 1930 or regarding quality of goods and services provided by operational creditor, will come within the meaning and ambit of "dispute";
  3. Merely raising a dispute for the first time while replying to the demand notice issued under the Code by the operational creditor, cannot be a reason for rejection of an insolvency application by operational creditor, if operational creditor otherwise satisfies that there is a debt and default on the part of the corporate debtor; and
  4. Onus to prove that there is no debt and default or that there is a dispute pending, shifts on to the corporate debtor.


In the aforesaid case before the Appellate Tribunal, the appeal had arisen out of an order of the Tribunal (Mumbai bench) rejecting the insolvency application filed by an operational creditor. In the order, the Mumbai bench had dismissed the insolvency application by merely observing that a notice of dispute had been issued by the corporate debtor disputing the claim of the operational creditor, without adjudicating as to whether the dispute actually existed. The operational creditor challenged the Tribunal's order in appeal on the ground that merely disputing a claim of default of debt cannot be a reason to reject the insolvency application under the Code till the corporate debtor refers any pending dispute. Thus, the only question which arose before the Appellate Tribunal in the appeal was – what does "dispute" and "existence of a dispute" mean for the purpose of determination of a petition under Section 9 of the Code?

The Judicial Interpretation & Observations:

The Appellate Tribunal interpreted the provisions of the Code and decided the question as under:

  1. The Code is to be read as a whole in order to give the term "dispute" its natural and ordinary meaning, which will then cover all disputes on debt, default, etc. without limiting it to a pending suit or arbitration proceeding. The definition of the term "dispute" under the Code is inclusive and illustrative and not exhaustive, as evident from Section 5(6) which uses the term "include" and Section 8(2) which uses the term "if any". Therefore, disputes pending before every judicial authority including mediation, conciliation, etc. as well as disputes raised in notices from the corporate debtor to the operational creditor, will also be covered;
  2. A dispute should satisfy any of the three requirements under Section 5(6) as mentioned above, and should not be a malafide dispute raised merely to stall the insolvency resolution process. An illusory dispute raised for the first time in reply to the demand notice/invoice under Section 8, cannot be a tool to reject an insolvency application if the operational creditor satisfies the Tribunal regarding the existence of a debt and default;
  3. The onus to prove the absence of a debt/default or the existence of a pending dispute shifts from the operational creditor to the corporate debtor. Thus, the corporate debtor is required to raise a dispute with sufficient particulars and even if a record of pendency of a suit or arbitration proceeding is shown, the same should relate to any of the three requirements under Section 5(6);
  4. Examples of "existence of a dispute" will include notices issued under Section 80 of the Code of Civil Procedure, 1908 and under Section 59 of the Sale of Goods Act, 1930, disputes regarding quality of foods raised before the corporate debtor for taking appropriate steps, decrees pending execution and pending writ petitions against public sector undertakings before High Courts, winding up proceedings under Section 433 of the Companies Act, 1956, petitions under Section 34 of the Arbitration & Conciliation Act, 1996, disputes regarding existence of debt amounts before Labour Courts and proceedings before consumer courts, tribunals, labour courts, mediation, conciliation, etc.

While giving the above detailed judicial interpretation of the provisions of the Code, the Appellate Tribunal examined the case before it on merits and found that the notice of dispute therein was insufficient in view of the said interpretation and was in fact "vague, got up and motivated to evade the liability". From the extract of the notice of dispute in the Appellate Tribunal's order, it appears that though the corporate debtor only made a statement of denial of the amounts alleged to be paid by it without offering any counter argument or explanation for the same, it had also alleged breach by the operational creditor of the terms and conditions of the NDA between the parties. However, the Appellate Tribunal observed that the corporate debtor could not adequately raise a dispute within the meaning of Sections 5(6) and 8(2) of the Code and held that merely disputing the amount on some account or the other could not be termed as a dispute for the purpose of rejecting an insolvency application under Section 9. With this observation, the Appellate Tribunal allowed the appeal by setting aside the Tribunal's order and remitted the case back to the Tribunal for reconsideration of the insolvency application.


The Appellate Tribunal has taken a logical stand and brought balance with respect to insolvency cases regarding operational debts by clarifying that despite its liberal interpretation of the Code, companies are required to show sufficient proof of an existing dispute, thereby ensuring that the aforesaid case is not misused as a precedent. The Tribunal's role has also been clearly outlined with respect to such cases by ensuring that it applies its mind on a case to case basis without literally following the words contained in the provisions under the Code. After all, judicial interpretation of legal provisions, where such provisions have not been clearly worded, has time and again proved to be a necessary tool for proper adjudication of any dispute.

The aforesaid case, being the first of its kind, showcases the Appellate Tribunal's current view, which has been reiterated by it subsequently in the appeal challenging the Tribunal's (Mumbai bench) decision in Essar Projects India's case. However, there are several other cases of operational debt (such as Annapurna Infrastructure's case) which are currently pending before the Appellate Tribunal in appeal, to which the aforesaid interpretation is expected to be applied on a case to case basis. Therefore, it remains to be seen whether subsequent decisions of the Appellate Tribunal will provide more clarity with respect to the level of proof required to be shown by operational creditors and corporate debtors on a case to case basis.

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