Skip to main content

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.

Comments

Most viewed this month

Michigan House Approves 'Right-to-Work' Bill

Amid raucous protests, the Republican-led Michigan House approved a contentious right-to-work bill on  Dec 11 limiting unions' strength in the state where the (Union for American Auto Workers)  UAW was born. The chamber passed a measure dealing with public-sector workers 58-51 as protesters shouted "shame on you" from the gallery and huge crowds of union backers massed in the state Capitol halls and on the grounds. Backers said a right-to-work law would bring more jobs to Michigan and give workers freedom. Critics said it would drive down wages and benefits. The right-to-work movement has been growing in the country since Wisconsin fought a similar battle with unions over two years ago. Michigan would become the 24th state to enact right-to-work provisions, and passage of the legislation would deal a stunning blow to the power of organized labor in the United States. Wisconsin Republicans in 2011 passed laws severely restricting the power of public s...

Power to re-assess by AO and disclosure of material facts

In AVTEC Limited v. DCIT, the division of the Delhi High Court held that AO is bound to look at the litigation history of the assessee and cannot expect the assessee to inform him.  In the instant case, the Petitioner, engaged in the business of manufacturing and selling of automobiles, power trains and power shift transmissions along with their components, approached the High Court challenging the re-assessment order passed against them. For the year 2006-07, the Petitioner entered into a Business Transfer Agreement with Hindustan Motors Ltd, as per which, the Petitioner took over the business from HML.  While filing income tax return for the said year, the petitioner claimed the expenses incurred in respect of professional and legal charges for the purpose of taking over of the business from HML as capital expenses and claimed depreciation. Article referred: http://www.taxscan.in/assessing-officer-bound-look-litigation-history-assessee-delhi-hc-read-order/8087/

The recovery of vehicles by the financier not an offence - SC

Special Leave Petition (Crl.) No. 8907  of 2009 Anup Sarmah (Petitioner) Vs Bhola Nath Sharma & Ors.(Respondents) The petitioner submitted that  respondents-financer had forcibly taken away the vehicle financed by them and  illegally deprived the petitioner from its lawful possession  and  thus,  committed  a crime. The complaint filed by the petitioner had been  entertained  by  the Judicial Magistrate (Ist Class), Gauhati (Assam) in Complaint Case  No.  608 of 2009, even directing the interim custody of the vehicle (Maruti  Zen)  be given to the petitioner vide order dated  17.3.2009.  The respondent on approaching the Guwahati High  Court against this order, the hon'ble court squashed the criminal  proceedings  pending   before  the  learned Magistrate. After hearing both sides, the Hon'ble Supreme Court decided on 30th...