India: NCLAT Interprets Disputed Debts Under The Insolvency Bankruptcy Code, 2016

Last Updated: 30 August 2017
Article by S.S. Rana & Co. Advocates


A need to codify and consolidate the laws related to bankruptcy or insolvency was felt since a long time. The Insolvency and Bankruptcy Code, 2016 ("Code") brought about many changes to the laws related to corporate insolvency resolution making the process definite, ascertainable and easier. The new code makes the National Company Law Tribunal ("NCLT") and the National Company Law Appellate Tribunal ("NCLAT"), the adjudicating authority, inter alia in case an application is filed for resolution of matters pertaining to insolvency. Upon a collective reading of various provisions of the code it is observed that if the notice of a disputed debt is sent to the operational creditor by the corporate debtor, then the NCLT is required to send back/ reject the application for corporate insolvency resolution process. ("CIRP").

The Law:

Notice of demand for default:

According to Section 8 of the Code, an operational creditor may, on the occurrence of a default, deliver a demand notice and/ or copy of an invoice demanding payment of the amount involved in the default, to the corporate debtor in such form and manner as may be prescribed.

Application for CIRP:

Under Section 9 of the Code, the operational creditor becomes entitled to file an application after expiry of 10 days from the date of delivery of the demand notice or copy of invoice, as the case may be, demanding payment. The 'operational creditor' would receive either the payment or a 'notice of dispute' in terms of sub-section (2) of Section 8 of the Code. The notice of dispute is a notice given by the debtor claiming that he disputes the amount relating to goods or services, to be paid or owed to the creditor, which is the cause for non-payment. If the operational creditor receives neither, he may file an insolvency proceeding against the debtor.

Acceptance of rejection of Application:

According to Section 9(5)(ii)(d) of the Code, the Adjudicating authority is required to reject the application of CIRP if there is a notice of dispute. In other words, the notice of dispute can be a ground for rejecting an application by Operation Creditor. The pre-requisite for qualification of a notice of dispute to be an eligible ground is the existence of a valid dispute.

The Case:

Kirusa Software Pvt. Ltd. ("Kirusa") v. Mobilox Innovations Pvt. Ltd. ("Mobilox")

Kirusa issued a notice of demand regarding a certain debt to Mobilox, to which Mobilox replied by raising a dispute between the parties with regards the debt. The NCLT, Mumbai, considering this notice of dispute and Section 9, rejected the application made by Kirusa, for CIRP, leading to the instant appeal.

Kirusa appealed to the NCLAT, stating that in the impugned order the validity of the "disputed debt" was not examined by NCLT. If the disputed debt had been analyzed, Kirusa contended, the NCLT would have inferred that the dispute raised neither fulfills the requirements of a dispute as enumerated under Section 5(6), nor is a bonafide dispute within the meaning of the Code. Kirusa therefore prayed that as the dispute was invalid within the meaning of the Code, the NCLT erred in rejecting its application for Corporate Insolvency Resolution Process filed by Kirusa.

The appellants stated that the in order to qualify as a 'dispute' under Section 5(6), the dispute must relate to (i) existence of the debt or (ii) quality of the goods or services or (iii) the breach of the representation or warranty with regard to such goods or services.

The appellants further stated that the NCLT failed to exercise its jurisdiction as an adjudicatory body as it did not speculate the requirements for qualification of a dispute as a 'dispute' as defined under Section 5(6). It also failed to examine whether the notice of dispute given by the corporate debtor fulfils the condition stipulated in Section 8(2)(a); and ensure whether the dispute was raised in good faith.

The Verdict:

The main question of interpretation which the NCLAT speculated and pronounced upon was the ambit of the phrase 'disputed debt'. It observed, "Sub Section (6) of Section 5 defines "dispute", to include, unless the context otherwise requires, a dispute pending in any suit or arbitration proceedings relating to: (a) existence of amount of the debt; (b) quality of good or service; (c) breach of a representation or warranty. 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 good or service or breach of a representation or warranty."

NCLAT, applying the doctrine of harmonious interpretation stated that: "Admittedly in subsection (6) of Section 5 of the 'I & B Code', the Legislature used the words 'dispute includes a suit or arbitration proceedings... If this is harmoniously read with Section (2) of Section 8 of the 'I & B Code', where words used are 'existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings, 'the result is disputes, if any, applies to all 14 kinds of disputes, in relation to debt and default. The expression used in subsection (2) of Section 8 of the 'I & B Code' 'existence of a dispute, if any,' is disjunctive from the expression 'record of the pendency of the suit or arbitration proceedings'. Otherwise, the words 'dispute, if any'. in sub-section (2) of Section 8 would become surplus usage."

Referring to the Hon'ble Supreme Court's observation in Mithlesh Singh Vs. Union of India (2003) 3 SCC 309, NCLAT stated that "the Legislature is deemed not to waste its words or to say anything in vain." Therefore, if the legislature intended to limit the ambit of the word 'dispute' it would have mentioned the requirement of notice of a dispute to only refer to a record of pendency of the suit or arbitration proceedings and not to 'existence of a dispute, if any'.

With regards to the present case, the NCLAT set aside the order of the NCLT as it was made mechanically and was based on a very vague, got up and motivated dispute made merely with the view of evading the liability.


The word dispute cannot be interpreted in a limited and restrictive sense. The tribunal observed that the definition of the word 'dispute' is inclusive and not exhaustive, and therefore it need not be interpreted in a restrictive light. It stated that the term dispute applies to any dispute that has arisen or is pending before the application for CIRP was made. The NCLAT included within this definition, the disputes which are pending with different adjudicating authorities such as, Consumer Courts, Adjudicating Tribunals, arbitration proceedings, mediation or conciliation proceedings as well as any action taken by a Corporate Debtor under any act or law such as replying to a notice under section 80 of the Code of Civil Procedure, 1908, or an action under section 59 of the Sale of Goods Act, 1930 or an action regarding the quality of goods provided by an Operational Creditor. etc. Dispute also includes any dispute raised by the operational debtor with respect to the quality of goods and services delivered or breach of representation of warranty by the operational creditor. On the other hand, the CALT also stated that this interpretation should not be used as a tool by the corporate debtors to avoid or evade insolvency proceedings by mentioning any unsubstantiated or frivolous dispute.

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.

S.S. Rana & Co. Advocates
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.