Skip to main content

Insolvency & Bankruptcy Code- SC Interprets Scope Of ‘Existence Of Dispute’ Between Operational Creditor And Corporate

 The judgment of the Supreme Court in Mobilox Innovations Pvt.Ltd. v.Kirusa Software Pvt.Ltd. rendered by a bench of Justices R. F Nariman and Sanjay Kishan Kaul settles a significant issue under the Insolvency and Bankruptcy Code 2016. The issue was whether the existence of a dispute by itself without the record of initiation of any suit or arbitration proceedings in relation to it is sufficient to make an application for insolvency resolution at the instance of operational creditor unsustainable.

The Supreme Court looked at the details of the Code and held that operational creditors are those creditors to whom an operational debt is owed, and an operational debt, in turn, means a claim in respect of the provision of goods or services. Further a claim by operational creditor can be defeated  as per Section 8(2)(a)  by bringing out to the notice of debtor the existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice
or invoice in relation to such dispute.

The argument by the operational creditor was that existence of dispute by itself is not sufficient, and that there should be a suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute.

The Court in a significant judgment deviated from the literal explanation of the statue and held that such an interpretation will lead to injustice and anomalies, and hence construed ‘and’ as ‘or’ to make the phrases disjunctive. It was held that the word “and” occurring in Section 8(2)(a) must be read as “or” keeping in mind the legislative intent and the fact that an anomalous situation would arise if it is
not read as “or”.

The Court then proceeded to examine the width and ambit of the phrase ‘existence of dispute’. Referring to various foreign authorities, it was held that the adjudicating authority need to satisfy itself that a plausible dispute existence, without needing to examine whether the dispute is likely to succeed or not. It held that all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious,  hypothetical or illusory, the adjudicating authority has to reject the application.

Comments

Post a Comment

Most viewed this month

One Sided Clauses In Builder-Buyer Agreements Is An Unfair Trade Practice

In CIVIL APPEAL NO. 12238 OF 2018, Pioneer Urban Land & Infrastructure Ltd. vs Govindan Raghavan, an appeal was filed before the Supreme Court  by the builder against the order of the National Consumer Forum. The builder had relied upon various clauses of the Apartment Buyer’s Agreement to refute the claim of the respondent but was rejected by the commission which found the said clauses as wholly one-sided, unfair and unreasonable, and could not be relied upon. The Supreme Court on perusal of the Apartment Buyer’s Agreement found stark incongruities between the remedies available to both the parties. For example, Clause 6.4 (ii) of the Agreement entitles the Appellant – Builder to charge Interest @18% p.a. on account of any delay in payment of installments from the Respondent – Flat Purchaser. Clause 6.4 (iii) of the Agreement entitles the Appellant – Builder to cancel the allotment and terminate the Agreement, if any installment remains in arrears for more than 30 da...
Post a Comment
Read more

Inherited property of childless hindu woman devolve onto heirs of her parents

In Tarabai Dagdu Nitanware vs Narayan Keru Nitanware, quashing an order passed by a joint civil judge junior division, Pune, the Bombay High Court has held that under Section 15 of the Hindu Succession Act, any property inherited by a female Hindu from her father or mother, will devolve upon the heirs of her father/mother, if she dies without any children of her own, and not upon her husband. Justice Shalini Phansalkar Joshi was hearing a writ petition filed by relatives of one Sundarabai, who died issueless more than 45 years ago on June 18, 1962. Article referred:http://www.livelaw.in/property-inherited-female-hindu-parents-shall-devolve-upon-heirs-father-not-husband-dies-childless-bombay-hc-read-judgment/
Post a Comment
Read more

Court approached in the early stages of arbitration will prevail in all other subsequent proceedings

In National Highway Authority of India v. Hindustan Steelworks Construction Limited, the Hon'ble Delhi High Court opined that once the parties have approached a certain court for relief under Act at earlier stages of disputes then it is same court that, parties must return to for all other subsequent proceedings. Language of Section 42 of Act is categorical and brooks no exception. In fact, the language used has the effect of jurisdiction of all courts since it states that once an application has been made in Part I of the Act then ―that Court alone shall have jurisdiction over arbitral proceedings and all subsequent applications arising out of that agreement and arbitral proceedings shall be made in that Court and in no other Court. Court holds that NHAI in present case cannot take advantage of Section 14 of the Limitation Act, 1963 for explaining inordinate delay in filing present petition under Section 34 of this Act in this Court.
Post a Comment
Read more