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Definition of "dispute" and "existence of dispute" under Section 9 of Insolvency Code

It is early days of the Insolvency Code and already confusion is evident.

In Kirusa Software Private Ltd. Vs Mobilox Innovations Private Ltd., the National Company Law Tribunal, the question before the Tribunal was what does "dispute" and "existence of dispute" means for the purpose of determination of a petition under section 9 of the 'I & B Code'?

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?

The Ld. Adjudicating Authority had rejected the application of the Operational Creditor under Section 5(ii)(d) of the Insolvency Code which directs the said authority to reject an application if  notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility against which appeal was filed.

The Ld. Appellate Tribunal held that 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.

Once the term "dispute" is given its natural and ordinary meaning, upon reading of the Code as a whole, the width of "dispute" should cover all disputes on debt, default etc. and not be limited to only two ways of disputing a demand made by the operational creditor, i.e. either by showing a record of pending suit or by showing a record of a pending arbitration.

The Ld. Appellate Tribunal rejecting the decision of the Adjudicating Authority held that it is a duty of the Adjudicating Authority not to act mechanically but to examine the dispute raised by the debtor has any relation to the debt claimed by the creditor.

Held: In the present case the adjudicating authority has acted mechanically and rejected the application under sub-section (5)(ii)(d) of Section 9 without examining and discussing the aforesaid issue. If the adjudicating authority would have noticed the provisions as discussed above and what constitute and as to what constitute 'dispute' in relation to services provided by operational creditor then would have come to a conclusion that condition of demand notice under subsection (2) of Section 8 has not been fulfilled by the corporate debtor and the defence claiming dispute was not only vague, got up and motivated to evade the liability.

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