1  

REPORTABLE  

IN THE SUPREME COURT OF INDIA  

CIVIL APPELLATE JURISDICTION    

CIVIL APPEAL NO. 9405 OF 2017       

Mobilox Innovations Private Limited           … Appellant  

Versus  

Kirusa Software Private Limited            … Respondent  

               J U D G M E N T   

R.F. Nariman, J.  

1. The present appeal raises questions as to the triggering  

of the Insolvency and Bankruptcy Code, 2016 when it comes to  

operational debts owed to operational creditors. The appellant  

was engaged by Star TV for conducting tele-voting for the  

“Nach Baliye” program on Star TV.  The appellant in turn sub-

contracted the work to the respondent and issued purchase

2  

orders between October and December, 2013 in favour of the  

respondent.  In the “Nach Baliye” program, the successful  

dancer was to be selected on various bases, including viewers’  

votes.  For this purpose, the respondent was to provide toll free  

telephone numbers across India, through which the viewers of  

the program could cast their votes in favour of one or more  

participants. For this purpose, a software was customized by  

the respondent, who then coordinated the results and provided  

them to the appellant. Since the respondent obtained toll free  

numbers from telephone operators in terms of the purchase  

orders, the appellant was liable to make payment of rentals for  

the toll free numbers, as well as primary rate interface rental to  

the telecom operators. The respondent provided the requisite  

services and raised monthly invoices between December, 2013  

and November, 2014 – the invoices were payable within 30  

days from the date on which they were received.  The  

respondent followed up with the appellant for payment of  

pending invoices through e-mails sent between April and  

October, 2014.  It is also important to note that a non-disclosure  

agreement (hereinafter referred to as the NDA) was executed

3  

between the parties on 26th December, 2014 with effect from 1st  

November, 2013.  

2. More than a month after execution of the aforesaid  

agreement, the appellant, on 30th January, 2015, wrote to the  

respondent that they were withholding payments against  

invoices raised by the respondent, as the respondent had  

disclosed on their webpage that they had worked for the “Nach  

Baliye” program run by Star TV, and had thus breached the  

NDA. The correspondence between the parties finally  

culminated in a notice dated 12th December, 2016 sent under  

Section 271 of the Companies Act, 2013.  Presumably because  

winding up on the ground of being unable to pay one’s debts  

was no longer a ground to wind up a company under the said  

Act, a demand notice dated 23rd December, 2016 was sent for  

a total of Rs.20,08,202.55 under Section 8 of the new  

Insolvency and Bankruptcy Code, 2016 (hereinafter referred to  

as the Code).  By an e-mail dated 27th December, 2016, the  

appellant responded to the aforesaid notice stating that there  

exists serious and bona fide disputes between the parties, that

4  

the notice issued was a pressure tactic, and that nothing was  

payable inasmuch as the respondent had been told way back  

on 30th January, 2015 that no amount will be paid to the  

respondent since it had breached the NDA.    

3. An application was then filed on 30th December, 2016  

before the National Company Law Tribunal under Sections 8  

and 9 of the new Code stating that an operational debt of  

Rs.20,08,202.55 was owed to the respondent.    

4. On 19th January, 2017, the respondent was orally  

intimated to remove a defect in the application, in that it did not  

contain the appellant’s notice of dispute.  This was rectified by  

an affidavit in compliance dated 24th January, 2017, by which  

various other documents were also supplied by the respondent  

to the Tribunal.  On 27th January, 2017, the Tribunal dismissed  

the aforesaid application in the following terms:  

“On perusal of this notice dated 27.12.2016  disputing the debt allegedly owed to the petitioner,  this Bench, looking at the Corporate Debtor  disputing the claim raised by the Petitioner in this  CP, hereby holds that the default payment being  disputed by the Corporate Debtor, for the petitioner  has admitted that the notice of dispute dated 27th

5  

December 2016 has been received by the  operational creditor, the claim made by the  Petitioner is hit by Section (9)(5)(ii)(d) of The  Insolvency and Bankruptcy Code, hence this  Petition is hereby rejected.”  

5. An appeal was then filed before the National Company  

Law Appellate Tribunal which was decided on 24th May, 2017.   

This appeal was allowed in the following terms:  

“39. 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 constitutes  ‘dispute’ in relation to services provided by  operational creditors then it would have come to a  conclusion that condition of demand notice under  sub-section (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.  

40. For the reasons aforesaid we set aside the  impugned order dated 27.1.2017 passed by  adjudicating authority in CP No.01/I  &BP/NCLT/MAH/2017 and remit the case to  adjudicating authority for consideration of the  application of the appellant for admission if the  application is otherwise complete.   

41. The appeal is allowed with the aforesaid  observations. However, in the facts and  circumstances there shall be no order as to cost.”

6  

6. Shri Mohta, learned counsel on behalf of the appellant,  

raised various contentions before us.   According to learned  

counsel, the application should have been dismissed on the  

ground that the operational creditor did not furnish a copy of the  

certificate from a financial institution, viz. IDBI in the present  

case, that maintained accounts of the operational creditor,  

which confirmed that there is no payment of any unpaid  

operational debt by the corporate debtor under Section 9(3)(c)  

of the Code.   This being so, the application ought to have been  

dismissed at the very threshold.  Apart from this, the learned  

counsel took us through various committee reports and the  

provisions of the Code and argued that under Section 8 of the  

Code, the moment a corporate debtor, within 10 days of the  

receipt of a demand notice or copy of invoice, brings to the  

notice of the operational creditor the existence of a dispute  

between the parties, the Tribunal is obliged to dismiss the  

application.  According to him, under Section (8)(2)(a), the  

expression “existence of a dispute, if any, and record of the  

pendency of the suit or arbitration proceedings filed …” must be  

read as existence of a dispute “or” record of the pendency of

7  

the suit or arbitration proceedings filed, i.e. disjunctively.   

According to the learned counsel, the definition of “dispute”  

under Section 5(6) of the Code is an inclusive one and the  

original draft bill not only had the word “means” instead of the  

word “includes”, but also the word “bona fide” before the words  

“suit or arbitral proceedings”, which is missing in the present  

Code.  Therefore, learned counsel argued that the moment  

there is existence of a dispute, meaning thereby that there is a  

real dispute to be tried, and not a sham, frivolous or vexatious  

dispute, the Tribunal is bound to dismiss the application.   

Learned counsel went on to argue that there is a fundamental  

difference between applications filed by financial creditors and  

operational creditors. A financial creditor’s application is dealt  

with under Section 7 of the Code, in which the adjudicating  

authority has to ascertain the existence of a default on the basis  

of the records of an information utility or other evidence  

furnished by the financial creditor.  In contrast to this scheme,  

all that a corporate debtor needs to do is to file a reply within a  

period of 10 days of the receipt of demand notice or copy of  

invoice from an operational creditor, showing the existence of a

8  

dispute, which then does not need to be “ascertained” by the  

adjudicating authority.  He was at pains to point out that the  

application itself must contain all the documents that are  

required by the statute and that the timelines indicated in the  

statute are mandatory.  For this purpose, he referred us to  

Sections 61, 62 and 64 in addition to Sections 7 to 9 of the  

Code.  Finally, on facts, according to learned counsel, the  

Tribunal was wholly incorrect in remanding the matter on both  

counts – first, to find out whether the application is otherwise  

complete and, second, because the Tribunal found that the  

dispute in the present case was vague, got up and motivated to  

evade the liability, which, according to learned counsel, was a  

perverse conclusion reached on the facts of this case.  

7. Shri Jawaharlal, learned counsel appearing on behalf of  

the respondent, has argued in reply that the only notice given to  

rectify the defects by the Tribunal was an oral notice of 19th  

January, 2017 and that too only to supply the notice of dispute  

by the appellant.  This was done within time and the Tribunal,  

therefore, dismissed the application only on non-fulfillment of

9  

the conditions laid down in Section 9.  No plea was ever taken  

before the Tribunal that the IDBI certificate was not furnished.   

This plea was taken for the first time only in appeal, and since  

the Tribunal did not think it fit to dismiss the application on a  

technical ground, this ground does not avail the appellants. The  

counsel then submitted that the expression “dispute” under  

Section 5(6) covers only three things, namely, existence of the  

amount of debt, quality of goods or services or breach of a  

representation or warranty and since what was sought to be  

brought as a defense was that the NDA was breached, it would  

not come within the definition of “dispute” under Section 5(6).   

He further went on to state that, at best, the breach of the NDA  

is a claim for unliquidated damages which does not become  

crystallized until legal proceedings are filed, and none have  

been filed so far.  Therefore, there is no real dispute on the  

facts of the present case and the Tribunal was correct in its  

finding that the dispute was a sham one.   

8. Before going into the contentions of fact and law argued  

by both counsel, it is a little important to trace the background

10  

of this path-breaking legislation viz. the Insolvency and  

Bankruptcy Code, 2016.  The starting point is a Resolution of  

the UN General Assembly, Resolution No.59/40, passed on 2nd  

December, 2004, by which it was stated:  

“Legislative Guide on Insolvency Law of the  United Nations Commission on International  

Trade Law  

The General Assembly,  

Recognizing the importance to all countries of  strong, effective and efficient insolvency regimes as  a means of encouraging economic development  and investment,   

Noting the growing realization that  reorganization regimes are critical to corporate and  economic recovery, the development of  entrepreneurial activity, the preservation of  employment and the availability of finance in the  capital market,   

Noting also the importance of social policy  issues to the design of an insolvency regime,   

Noting with satisfaction the completion and  adoption of the Legislative Guide on Insolvency Law  of the United Nations Commission on International  Trade Law by the Commission at its thirty-seventh  session, on 25 June 2004,  

Believing that the Legislative Guide, which  includes the text of the Model Law on Cross-Border  Insolvency and Guide to Enactment recommended  by the General Assembly in its resolution 52/158 of  15 December 1997, contributes significantly to the  establishment of a harmonized legal framework for

11  

insolvency and will be useful both to States that do  not have an effective and efficient insolvency  regime and to States that are undertaking a process  of review and modernization of their insolvency  regimes,   

Recognizing the need for cooperation and  coordination between international organizations  active in the field of insolvency law reform to ensure  consistency and alignment of that work and to  facilitate the development of international standards,   

Noting that the preparation of the Legislative  Guide was the subject of due deliberations and  extensive consultations with Governments and  international intergovernmental and non- governmental organizations active in the field of  insolvency law reform,   

1. Expresses its appreciation to the United  Nations Commission on International Trade Law for  the completion and adoption of its Legislative Guide  on Insolvency Law;   

2. Requests the Secretary-General to publish  the Legislative Guide and to make all efforts to  ensure that it becomes generally known and  available;  

3. Recommends that all States give due  consideration to the Legislative Guide when  assessing the economic efficiency of their  insolvency regimes and when revising or adopting  legislation relevant to insolvency;   

4. Recommends also that all States continue  to consider implementation of the Model Law on  Cross-Border Insolvency of the United Nations  Commission on International Trade Law.”

12  

9. The purpose of the Legislative Guide for various nations  

was stated as follows:  

“The purpose of the Legislative Guide on Insolvency  Law is to assist the establishment of an efficient and  effective legal framework to address the financial  difficulty of debtors. It is intended to be used as a  reference by national authorities and legislative  bodies when preparing new laws and regulations or  reviewing the adequacy of existing laws and  regulations. The advice provided in the Guide aims  at achieving a balance between the need to address  the debtor’s financial difficulty as quickly and  efficiently as possible and the interests of the  various parties directly concerned with that financial  difficulty, principally creditors and other parties with  a stake in the debtor’s business, as well as with  public policy concerns. The Guide discusses issues  central to the design of an effective and efficient  insolvency law, which, despite numerous  differences in policy and legislative treatment, are  recognized in many legal systems. It focuses on  insolvency proceedings commenced under the  insolvency law and conducted in accordance with  that law, with an emphasis on reorganization,  against a debtor, whether a legal or natural person,  that is engaged in economic activity. Issues specific  to the insolvency of individuals not so engaged,  such as consumers, are not addressed.”  

In stating some of the key objectives of effective and efficient  

insolvency law, the Legislative Guide goes on to state:

13  

“When a debtor is unable to pay its debts and other  liabilities as they become due, most legal systems  provide a legal mechanism to address the collective  satisfaction of the outstanding claims from assets  (whether tangible or intangible) of the debtor. A  range of interests needs to be accommodated by  that legal mechanism: those of the parties affected  by the proceedings including the debtor, the owners  and management of the debtor, the creditors who  may be secured to varying degrees (including tax  agencies and other government creditors),  employees, guarantors of debt and suppliers of  goods and services, as well as the legal,  commercial and social institutions and practices that  are relevant to the design of the insolvency law and  required for its operation. Generally, the mechanism  must strike a balance not only between the different  interests of these stakeholders, but also between  these interests and the relevant social, political and  other policy considerations that have an impact on  the economic and legal goals of insolvency  proceedings.  

xxx xxx xxx  

An insolvency law should be transparent and  predictable. This will enable potential lenders and  creditors to understand how insolvency proceedings  operate and to assess the risk associated with their  position as a creditor in the event of insolvency.  This will promote stability in commercial relations  and foster lending and investment at lower risk  premiums. Transparency and predictability will also  enable creditors to clarify priorities, prevent disputes  by providing a backdrop against which relative  rights and risks can be assessed and help define  the limits of any discretion. Unpredictable  application of the insolvency law has the potential to  undermine not only the confidence of all participants  in insolvency proceedings, but also their willingness

14  

to make credit and other investment decisions prior  to insolvency. As far as possible, an insolvency law  should clearly indicate all provisions of other laws  that may affect the conduct of the insolvency  proceedings (e.g. labour law; commercial and  contract law; tax law; laws affecting foreign  exchange, netting and set-off and debt for equity  swaps; and even family and matrimonial law).   

An insolvency law should ensure that adequate  information is available in respect of the debtor’s  situation, providing incentives to encourage the  debtor to reveal its positions and, where  appropriate, sanctions for failure to do so. The  availability of this information will enable those  responsible for administering and supervising  insolvency proceedings (courts or administrative  agencies, the insolvency representative) and  creditors to assess the financial situation of the  debtor and determine the most appropriate  solution.”  

While referring to the commencement of insolvency  

proceedings, the Legislative Guide states:  

“The standard to be met for commencement of  insolvency proceedings is central to the design of  an insolvency law. As the basis upon which  insolvency proceedings can be commenced, this  standard is instrumental to identifying the debtors  that can be brought within the protective and  disciplinary mechanisms of the insolvency law and  determining who may make an application for  commencement, whether the debtor, creditors or  other parties.  

As a general principle it is desirable that the  commencement standard be transparent and

15  

certain, facilitating access to insolvency  proceedings conveniently, cost-effectively and  quickly to encourage financially distressed or  insolvent businesses to voluntarily commence  proceedings. It is also desirable that access be  flexible in terms of the types of insolvency  proceedings available (reorganization and  liquidation), and the ease with which the  proceedings most relevant to a particular debtor can  be accessed, and that conversion between the  different types of proceeding can be achieved.  Restrictive access can deter both debtors and  creditors from commencing proceedings, while the  effects of delay can be harmful to the value of  assets and the successful completion of insolvency  proceedings, in particular in cases of reorganization.  Ease of access needs to be balanced with proper  and adequate safeguards to prevent improper use  of proceedings. Examples of improper use may  include application by a debtor that is not in financial  difficulty in order to take advantage of the  protections provided by the insolvency law, such as  the automatic stay, or to avoid or delay payment to  creditors and application by creditors who are  competitors of the debtor, where the purpose of the  application is to take advantage of insolvency  proceedings to disrupt the debtor’s business and  thus gain a competitive edge.”  

10. On the fixation of time limits and denial of an application  

to commence proceedings, the Legislative Guide states:  

“Where a court is required to make a decision as to  commencement, it is desirable that that decision be  made in a timely manner to ensure both certainty  and predictability of the decision-making and the

16  

efficient conduct of the proceedings without delay.  This will be particularly important in the case of  reorganization to avoid further diminution of the  value of assets and to improve the chances of a  successful reorganization. Some insolvency laws  prescribe set time periods after the application  within which the decision to commence must be  made. These laws often distinguish between  applications by debtors and by creditors, with  applications by debtors tending to be determined  more quickly. Any additional period for creditor  applications is designed to allow prompt notice to be  given to the debtor and provide the debtor with an  opportunity to respond to the application.   

Although the approach of fixing time limits may  serve the objectives of providing certainty and  transparency for both the debtor and creditors, the  achievement of those objectives may need to be  balanced against possible disadvantages. For  example, a fixed time period may be insufficiently  flexible to take account of the circumstances of the  particular case. More generally, such time periods  may be set without regard to the resources  available to the body responsible for supervising  insolvency proceedings or of the local priorities of  that body (especially where insolvency is only one  of the matters for which it has responsibility). It may  also prove difficult to ensure that the decision- making body adheres to the established limit and to  provide appropriate consequences where there is  no compliance. The time period between application  and the decision to commence proceedings should  also reflect the type of proceeding applied for, the  application procedure and the consequences of  commencement in any particular regime. For  example, the extent to which notification of parties  in interest and information gathering must be  completed prior to commencement will vary

17  

between regimes, requiring different periods of time.  For these reasons, it is desirable that an insolvency  law adopt a flexible approach that emphasizes the  advantages of quick decision-making and provides  guidance as to what is reasonable, but at the same  time also recognizes local constraints and priorities.   

(d) Denial of an application to commence  proceedings   

The preceding paragraphs refer to a number of  instances where it will be desirable, in those cases  where the court is required to make the  commencement decision, for the court to have the  power to deny the application for commencement,  either because of questions of improper use of the  insolvency law or for technical reasons relating to  satisfaction of the commencement standard. The  cases referred to include examples of both debtor  and creditor applications. Principal among the  grounds for denial of the application for technical  reasons might be those cases where the debtor is  found not to satisfy the commencement standard;  where the debt is subject to a legitimate dispute or  off-set in an amount equal to or greater than the  amount of the debt; where the proceedings will  serve no purpose because, for example, secured  debt exceeds the value of assets; and where the  debtor has insufficient assets to pay for the  insolvency administration and the law makes no  other provision for funding the administration of  such estates.   

Examples of improper use might include those  cases where the debtor uses an application for  insolvency as a means of prevaricating and  unjustifiably depriving creditors of prompt payment  of debts or of obtaining relief from onerous  obligations, such as labour contracts. In the case of  a creditor application, it might include those cases

18  

where a creditor uses insolvency as an  inappropriate substitute for debt enforcement  procedures (which may not be well developed); to  attempt to force a viable business out of the market  place; or to attempt to obtain preferential payments  by coercing the debtor (where such preferential  payments have been made and the debtor is  insolvent, investigation would be a key function of  insolvency proceedings).   

As noted above, where there is evidence of  improper use of the insolvency proceedings by  either the debtor or creditors, the insolvency law  may provide, in addition to denial of the application,  that sanctions can be imposed on the party  improperly using the proceedings or that that party  should pay costs and possibly damages to the other  party for any harm caused. Remedies may also be  available under non-insolvency law. Where an  application is denied, any provisional measures of  relief ordered by the court after the time of the  application for commencement should terminate  (see chap. II, para. 53).”  

(Emphasis supplied)  

Ultimately, recommendation 19 of the Legislative Guide  

reads as under:  

“Commencement on creditor application (paras.57  and 67)  

19. The law generally should specify that, where a  creditor makes the application for commencement:   

(a) Notice of the application promptly is given to the  debtor;   

(b) The debtor be given the opportunity to respond  to the application, by contesting the application,

19  

consenting to the application or, where the  application seeks liquidation, requesting the  commencement of reorganization proceedings; and   

(c) The court will promptly determine its jurisdiction  and whether the debtor is eligible and the  commencement standard has been met and, if so,  commence insolvency proceedings.1”  

11. The legislative history of legislation relating to  

indebtedness goes back to the year 1964 when the 24th Law  

Commission recommended amendments to the Provincial  

Insolvency Act of 1920.  This was followed by the Tiwari  

Committee of 1981, which introduced the Sick Industrial  

Companies Act, 1985.   Following economic liberalization in the  

1990s, two Narsimham Committee reports led to the Recovery  

of Debts and Bankruptcy Act, 1993 and the SARFAESI Act,  

2002.  Meanwhile, the Goswami Committee Report, submitted  

in 1993, condemned the liquidation procedure prescribed by the  

Companies Act, 1956 as unworkable and being beset with  

delays at all levels – delaying tactics employed by the  

management, delays at the level of the Courts, delays in  

                                                           1  A determination that the commencement standard has been met may involve consideration of  

whether the debt is subject to a legitimate dispute or offset in an amount equal to or greater  

than the amount of the debt. The existence of such a set-off may be a ground for dismissal of the  

application (see above, paras. 61-63).

20  

making auction sales etc.  This then led to the Eradi Committee  

Report of 1999, which proposed amendments to the  

Companies Act and proposed the repeal of SICA. This  

Committee echoed the findings of the Goswami Committee and  

recommended an overhaul of the liquidation procedure under  

the Companies Act.   

12. It was for the first time, in 2001, that the L.N. Mitra  

Committee of the RBI proposed a comprehensive Bankruptcy  

Code.  This was followed by the Irani Committee Report, also of  

the RBI in 2005, which noted that the liquidation procedure in  

India is costly, inordinately lengthy and results in almost  

complete erosion of asset value.  The Committee also noted  

that the insolvency framework did not balance stakeholders’  

interests adequately.  It proposed a number of changes  

including changes for increased protection of creditors’ rights,  

maximization of asset value and better management of the  

company in liquidation.  In 2008, the Raghuram Rajan  

Committee of the Planning Commission proposed improvement  

to the credit infrastructure in the country, and finally a

21  

Committee of Financial Sector Legislative Reforms in 2013  

submitted a draft Indian Financial Code, which included a  

“resolution corporation” for resolving distressed financial firms.    

13. All this then led to the Bankruptcy Law Reforms  

Committee, set up by the Department of Economic Affairs,  

Ministry of Finance, under the Chairmanship of Shri T.K.  

Viswanathan.  This Committee submitted an interim report in  

February 2015 and a final report in November of the same year.   

It was, as a result of the deliberations of this Committee, that  

the present Insolvency and Bankruptcy Code of 2016 was  

finally born.  

14. The interim report went into the existing law on  

indebtedness in some detail and discussed the tests laid down  

in Madhusudan Gordhandas v. Madhu Woollen Industries  

Pvt. Ltd (1972) 2 SCR 201, by which a petition presented  

under the Companies Act on the ground that the company is  

“unable to pay its debts” can only be dismissed if the debt is  

bona fide disputed, i.e. that the defense of the debtor is  

genuine, substantial and is likely to succeed on a point of law.  

22  

The interim report also adverted to an amendment made in the  

Companies Act, 2003, by which the threshold requirement of  

Rs.500 was replaced by Rs.1 lakh.    

15. The interim report found:  

“Once the petitioning creditor has proved the  inability of the debtor company to pay debts, van  Zwieten states that courts in India have recognised  a wide discretion that enabled it to give time to the  debtor to make payment or even dismiss the  petition. This is in stark contrast with the position in  the UK (from where the law was transplanted)  where once the company’s inability to pay debts has  been proven, the petitioning creditor is ordinarily  held to be entitled to a winding up order (although it  should be noted that there is an alternative  corporate rescue procedure, ‘administration’, which  a debtor may be entitled to enter).   

The effect of these abovementioned judicial  developments has been to add significant delays in  the liquidation process under CA 1956 and to add  uncertainty regarding the rights of the creditors in  the event of the company’s insolvency.  Consequently, this has made creditor recourse to  the liquidation procedure as a means of debt  enforcement rather difficult, and secondly, rendered  the liquidation procedure ineffective as a disciplinary  mechanism for creditors against insolvent debtors.”  

The interim report then recommended:  

“Recommendations:    

• In order to re-instate the debt enforcement function  of the statutory demand test for winding up, if a

23  

company fails to pay an undisputed debt of a  prescribed value as per Section 271(2) (a), the  creditor should be entitled to a winding up order  irrespective of whether it is insolvent (in commercial  or balance sheet terms) or not. Further, the NCLT  should have the discretion to refer the company for  rehabilitation under Chapter XIX before making a  winding up order on such ground, if the company  appears to be prima facie viable. Further, in order to  prevent abuse of the provision by creditors and  ensure that it is not used to force debtor companies  to settle disputed debts, the provision should specify  the factors that the NCLT may take into account to  determine whether the debt under consideration is  disputed or not. As laid down by the courts, a  petition may be dismissed if the debt in question is  bona fide disputed, i.e., where the following  conditions are satisfied: (i) the defence of the debtor  company is genuine, substantial and in good faith;  (ii) the defence is likely to succeed on a point of law;  and (iii) the debtor company adduces prima facie  proof of the facts on which the defence depends.  Further, as with initiation of rescue proceedings, the  NCLT should also have the power to impose  sanctions/costs/damages on a petitioning creditor  and disallow reapplications on the same grounds if  it finds that a petition has been filed to abuse the  process of law.      

• The Government may also consider revising the  present value for triggering the statutory demand  test under Section 271 (2) (a) from ‘one lakh rupees’  to a higher amount or revise the provision to state  ‘one lakh rupees or such amount as may be  prescribed’.      

• ‘Balance sheet insolvency’ and ‘commercial  insolvency’ should be identified as separate  grounds indicating a company’s ‘inability to pay

24  

debt’ in order to avoid conflicts/confusion with the  statutory demand test (as is the case of the IA 1986  where the statutory demand test, the commercial  insolvency test and the balance sheet insolvency  test are alternate grounds for determining a  company’s inability to pay debts under Sections  123(1) (a),123 (1) (e) and 123(2), respectively).”  

16. By the final report dated November 2015, the  

recommendation of the interim report was shelved. The  

Committee made a distinction between financial contracts and  

operational contracts.  It stated:  

“4.3.3 Information about the liabilities of a  solvent entity  

Operational contracts typically involve an exchange  of goods and services for cash. For an enterprise,  the latter includes payables for purchase of raw- materials, other inputs or services, taxation and  statutory liabilities, and wages and benefits to  employees.  

xxx xxx xxx  

The Code specifies that if the Adjudicator is able to  locate the record of the liability and of default with  the registered IUs, a financial creditor needs no  other proof to establish that a default has taken  place.  

xxx xxx xxx  

The second set of liabilities are operational  liabilities, which are more difficult to centrally  capture given that the counterparties are a wide and  heterogeneous set. In the state of insolvency, the  record of all liabilities in the IUs become critical to

25  

creditors in assessing the complexity of the  resolution required. Various private players,  including potential strategic acquirers or distressed  asset funds, would constantly monitor entities that  are facing stress, and prepare to make proposals to  the committee of creditors in the event that an  insolvency is triggered. Easy access to this  information is vital in ensuring that there is adequate  interest by various kinds of financial firms in coming  up to the committee of creditors with proposals. It is  not easy to set up mandates for the holders of  operational liabilities to file the records of their  liabilities, unlike the case of financial creditors.  However, their incentives to file liabilities are even  stronger when the entity approaches insolvency.  

4.3.4 Information about operational creditors  

Once the invoice or notice is served, the debtor  should be given a certain period of time in which to  respond either by disputing it in a court, or pay up  the amount of the invoice or notice. The debtor will  have the responsibility to file the information about  the court case, or the repayment record in response  to the invoice or notice within the specified amount  of time. If the debtor does not file either response  within the specified period, and the creditor files for  insolvency resolution, the debtor may be charged a  monetary penalty by the Adjudicator. However, if  the debtor disputes the claim in court, until the  outcome of this case is decided, the creditor may  not be able to trigger insolvency on the entity. This  process will act as a deterrent for frivolous claims  from creditors, as well as act as a barrier for some  types of creditors to initiate insolvency resolution.”  

26  

The Committee then went on to consider as to who can  

trigger the insolvency process.  In paragraph 5.2.1 the  

Committee stated:  

“Box 5.2 – Trigger for IRP   

1. The IRP can be triggered by either the debtor or  the creditors by submitting documentation specified  in the Code to the adjudicating authority.   

2. For the debtor to trigger the IRP, she must be  able to submit all the documentation that is defined  in the Code, and may be specified by the Regulator  above this.   

3. The Code differentiates two categories of  creditors: financial creditors where the liability to the  debtor arises from a solely financial transaction, and  operational creditors where the liability to the debtor  arises in the form of future payments in exchange  for goods or services already delivered. In cases  where a creditor has both a solely financial  transaction as well as an operational transaction  with the entity, the creditor will be considered a  financial creditor to the extent of the financial debt  and an operational creditor to the extent of the  operational debt is more than half the full liability it  has with the debtor.   

4. The Code will require different documentation for  a debtor, a financial creditor, and an operational  creditor to trigger the IRP. These are listed in Box  5.3 under what the Adjudicator will accept as  requirements to trigger the IRP.  

5.2.1 Who can trigger the IRP?  

Here, the Code differentiates between financial  creditors and operational creditors. Financial

27  

creditors are those whose relationship with the  entity is a pure financial contract, such as a loan or  a debt security. Operational creditors are those  whose liability from the entity comes from a  transaction on operations. Thus, the wholesale  vendor of spare parts whose spark plugs are kept in  inventory by the car mechanic and who gets paid  only after the spark plugs are sold is an operational  creditor. Similarly, the lessor that the entity rents out  space from is an operational creditor to whom the  entity owes monthly rent on a three-year lease. The  Code also provides for cases where a creditor has  both a solely financial transaction as well as an  operational transaction with the entity. In such a  case, the creditor can be considered a financial  creditor to the extent of the financial debt and an  operational creditor to the extent of the operational  debt.  

5.2.2 How can the IRP be triggered?  

An application from a creditor must have a record of  the liability and evidence of the entity having  defaulted on payments. The Committee  recommends different documentation requirements  depending upon the type of creditor, either financial  or operational. A financial creditor must submit a  record of default by the entity as recorded in a  registered Information Utility (referred to as the IU)  as described in Section 4.3 (or on the basis of other  evidence). The default can be to any financial  creditor to the entity, and not restricted to the  creditor who triggers the IRP. The Code requires  that the financial creditor propose a registered  Insolvency Professional to manage the IRP.  Operational creditors must present an “undisputed  bill” which may be filed at a registered information  utility as requirement to trigger the IRP. The Code  does not require the operational creditor to propose  a registered Insolvency Professional to manage the

28  

IRP. If a professional is not proposed by the  operational creditor, and the IRP is successfully  triggered, the Code requires the Adjudicator to  approach the Regulator for a registered Insolvency  Professional for the case.  

When the Adjudicator receives the application, she  confirms the validity of the documents before the  case can be registered by confirming the  documentation in the information utility if applicable.  In case the debtor triggers the IRP, the list of  documentation provided by the debtor is checked  against the required list. The proposal for the RP is  forwarded to the Regulator for validation. If both the  documentation and the proposed RP checks out as  required within the time specified in regulations, the  Adjudicator registers the IRP.  

In case the financial creditor triggers the IRP, the  Adjudicator verifies the default from the information  utility (if the default has been filed with an  information utility, it shall be incontrovertible  evidence of the existence of a default) or otherwise  confirms the existence of default through the  additional evidence adduced by the financial  creditor, and puts forward the proposal for the RP to  the Regulator for validation. In case the operational  creditor triggers the IRP, the Adjudicator verifies the  documentation. Simultaneously, the Adjudicator  requests the Regulator for an RP. If either step  cannot be verified, or the process verification  exceeds the specified amount of time, then the  Adjudicator rejects the application, with a reasoned  order for the rejection. The order rejecting the  application cannot be appealed against. Instead,  application has to be made afresh. Once the  documents are verified within a specified amount of  time, the Adjudicator will trigger the IRP and register  the IRP by issuing an order. The order will contain a  unique ID that will be issued for the case by which

29  

all reports and records that are generated during the  IRP will be stored, and accessed.”  

17. Annexed to this Committee Report is the Insolvency and  

Bankruptcy Bill, 2015.  Interestingly, Section 5(4) defined  

“dispute” as:  

“5. Definitions  

In this Part, unless the context otherwise requires-  

(4) “dispute” means a bona fide suit or arbitration  proceeding regarding (a) the existence or the amount of a  debt; (b) the quality of a good or service; or (c) the breach  of a representation or warranty;”  

Sections 8 and 9 in the said Bill read as under:  

“8. Insolvency resolution by operational creditor.  

(1) An operational creditor shall, on the occurrence  of a default, deliver a demand notice or copy of an  invoice demanding payment of the amount involved  in the default to the corporate debtor in such form  as may be prescribed, through an information utility,  wherever applicable, or by registered post or courier  or by any electronic communication.   

(2) The corporate debtor shall, within a period of ten  days of the receipt of the demand notice or copy of  the invoice mentioned in sub-section (1) bring to the  notice of the operational creditor –   

(a) the existence of a dispute, if any,  and record of the pendency of the suit or

30  

arbitration proceedings filed at least  sixty days prior to the receipt of such  invoice or notice in relation to such  dispute through an information utility or  by registered post or courier or by any  electronic communication;   

(b) the repayment of unpaid operational  debt- (i) by sending an attested copy of  electronic transfer of the unpaid amount  from the bank account of the corporate  debtor; or (ii) by sending an attested  copy of proof that the operational  creditor having encashed a cheque  issued by the corporate debtor.   

Explanation. – For the purpose of this section a  “demand notice” means a notice served by an  operational creditor to the corporate debtor  demanding repayment of the debt in respect of  which the default has occurred.  

9. Application for initiation of corporate  insolvency resolution process by operational  creditor.  

(1) After the expiry of the period of ten days from  the date of delivery of the invoice or notice  demanding payment under sub-section (1) of  section 8, if the operational creditor does not  receive payment from the corporate debtor or notice  of the dispute under sub-section (2) of section 8, the  operational creditor may file an application with the  Adjudicating Authority in the prescribed form for  initiating a corporate insolvency resolution process.    

(2) The application under sub-section (1) shall be  filed in such form and manner and accompanied  with such fee as may be prescribed.

31  

(3) The operational creditor shall, along with the  application furnish-   

(a) the invoice demanding payment or  notice delivered by the operational  creditor to the corporate debtor;   

(b) affidavit to the effect that there is no  notice given by the corporate debtor  relating to a dispute of the unpaid  operational debt;   

(c) a confirmation from the financial  institutions maintaining accounts of the  operational creditor that there is no  payment of an unpaid operational debt  by the corporate debtor; and   

(d) such other information or as may be  specified.  

(4) The Adjudicating Authority shall, within two days  of the receipt of the application under sub-section  (2), admit the application and communicate such  decision to the operational creditor and the  corporate debtor if, -   

(a) the application is complete;   

(b) there is no repayment of the unpaid  operational debt;   

(c) the invoice or notice for payment to  the corporate debtor has been delivered  by the operational creditor; and   

(d) no notice of dispute has been  received by the operational creditor or  there is no record of dispute in the  information utility.

32  

(5) The Adjudicating Authority shall reject the  application and communicate such decision to the  operational creditor and the corporate debtor if –   

(a) the application made under this  section is incomplete;   

(b) there has been repayment of the  unpaid operational debt;   

(c) the creditor has not delivered the  invoice or notice for payment to the  corporate debtor; and   

(d) notice of dispute has been received  by the operational creditor and there is  no record of dispute in the information  utility.   

(6) Without prejudice to the conditions mentioned in  sub-section (3), an operational creditor initiating a  corporate insolvency resolution process under this  section, may also propose a resolution professional  to act as an interim resolution professional.   

(7) The corporate insolvency resolution process  shall commence from the date of admission of the  application under sub-section (4) of this section.”  

18. Meanwhile, the Insolvency and Bankruptcy Bill that was  

annexed to the Bankruptcy Law Reforms Committee Report  

underwent a further change before it was submitted to a Joint  

Committee of the Lok Sabha.  In this Bill, the definition of  

“dispute” now read as follows:

33  

“5. Definitions.  

In this Part unless the context otherwise requires,-  

(6) “dispute” includes a suit or arbitration  proceedings relating to—   

(a) the existence or the amount of debt;   (b) the quality of goods or service; or   (c) the breach of a representation or warranty;”    

Sections 8 and 9 read as follows:  

“8. Insolvency resolution by operational creditor.  

(1) An operational creditor may, on the occurrence  of a default, deliver a demand notice of unpaid  operational debt or copy of an invoice demanding  payment of the amount involved in the default to the  corporate debtor in such form as may be  prescribed, through an information utility, wherever  applicable, or by registered post or courier or by  such electronic mode of communication, as may be  specified.      (2) The corporate debtor shall, within a period of ten  days of the receipt of the demand notice or copy of  the invoice mentioned in sub-section (1), bring to  the notice of the operational creditor—   

(a) the existence of a dispute, if any,  and record of the pendency of the suit or  arbitration proceedings filed prior to the  receipt of such notice or invoice in  relation to such dispute through an  information utility or by registered post  or courier or by such electronic mode of  communication as may be specified;   

(b) the repayment of unpaid operational  debt—  

34  

(i) by sending an attested  copy of the record of  electronic transfer of the  unpaid amount from the  bank account of the  corporate debtor; or   

(ii) by sending an attested  copy of record that the  operational creditor has  encashed a cheque issued  by the corporate debtor.   

Explanation.— For the purposes of this section, a  “demand notice” means a notice served by an  operational creditor to the corporate debtor  demanding repayment of the operational debt in  respect of which the default has occurred.   

9. Application for initiation of corporate  insolvency resolution process by operational  creditor.  

(1) After the expiry of the period of ten days from  the date of delivery of the notice or invoice  demanding payment under sub-section (1) of  section 8, if the operational creditor does not  receive payment from the corporate debtor or notice  of the dispute under sub-section (2) of section 8, the  operational creditor may file an application before  the Adjudicating Authority for initiating a corporate  insolvency resolution process.   

(2) The application under sub-section (1) shall be  filed in such form and manner and accompanied  with such fee as may be prescribed.   

(3) The operational creditor shall, along with the  application furnish—   

(a) a copy of the invoice demanding  payment or demand notice delivered by

35  

the operational creditor to the corporate  debtor;   

(b) an affidavit to the effect that there is  no notice given by the corporate debtor  relating to a dispute of the unpaid  operational debt;   

(c) a copy of the certificate from the  financial institutions maintaining  accounts of the operational creditor  confirming that there is no payment of  an unpaid operational debt by the  corporate debtor; and   

(d) such other information or as may be  specified.  

(4) An operational creditor initiating a corporate  insolvency resolution process under this section,  may propose a resolution professional to act as an  interim resolution professional.   

(5) The Adjudicating Authority shall, within fourteen  days of the receipt of the application under sub- section (2), by an order—   

(i) admit the application and  communicate such decision to the  operational creditor and the corporate  debtor if,—  

(a) the application made  under sub-section (2) is  complete;   

(b) there is no repayment of  the unpaid operational debt;   

(c) the invoice or notice for  payment to the corporate

36  

debtor has been delivered  by the operational creditor;   

(d) no notice of dispute has  been received by the  operational creditor or there  is no record of dispute in the  information utility; and   

(e) there is no disciplinary  proceeding pending against  any resolution professional  proposed under sub-section  (4), if any.   

(ii) reject the application and  communicate such decision to the  operational creditor and the corporate  debtor, if—   

(a) the application made  under sub-section (2) is  incomplete;   

(b) there has been  repayment of the unpaid  operational debt;   

(c) the creditor has not  delivered the invoice or  notice for payment to the  corporate debtor;   

(d) notice of dispute has  been received by the  operational creditor or there  is a record of dispute in the  information utility; or   

(e) any disciplinary  proceeding is pending

37  

against any proposed  resolution professional:   

Provided that Adjudicating Authority,  prior to rejecting an application under  sub-clause (a) of clause (ii) of this sub- section, shall give a notice to the  applicant to rectify the defect in his  application within three days of the date  of receipt of such notice from the  Adjudicating Authority.   

(6) The corporate insolvency resolution process  shall commence from the date of admission of the  application under sub-section (5).”  

19. The notes on clauses annexed to the Bill are extremely  

important and read as follows:  

“Notes on Clauses  

Clause 6 provides that where a corporate debtor  has defaulted in paying a debt that has become due  and payable but not repaid, the corporate  insolvency resolution process under Part II may be  initiated in respect of such corporate debtor by a  financial creditor, an operational creditor or the  corporate debtor itself.   

Early recognition of financial distress is very  important for timely resolution of insolvency. A  default based test for entry into the insolvency  resolution process permits early intervention such  that insolvency resolution proceedings can be  initiated at an early stage when the corporate debtor  shows early signs of financial distress rather than at  the point where it would be difficult to revive it

38  

effectively. It also provides a simple test to initiate  resolution process.   

This clause permits any financial creditor to initiate  the corporate insolvency resolution process where  the corporate debtor has defaulted in paying a debt  that has become due and payable but not repaid.  Financial creditors are those creditors to whom a  financial debt (i.e., a debt where the creditor is  compensated for the time value of the money lent)  is owed.   

Further, the Code also permits the corporate debtor  itself to initiate the insolvency resolution process  once it has defaulted on a debt. Additionally,  operational creditors (i.e., creditors to whom a sum  of money is owed for the provision of goods or  services or the Central/State Government or local  authorities in respect of payments due to them) are  also permitted to initiate the insolvency resolution  process. This will bring the law in line with  international practices, which permit unsecured  creditors (including employees, suppliers etc. who  fall under the definition of operational creditors) to  file for the initiation of insolvency resolution  proceedings.   

Clause 7 lays down the procedure for the initiation  of the corporate insolvency resolution process by a  financial creditor or two or more financial creditors  jointly. The financial creditor can file an application  before the National Company Law Tribunal along  with proof of default and the name of a resolution  professional proposed to act as the interim  resolution professional in respect of the corporate  debtor. The requirement to provide proof of default  ensures that financial creditors do not file frivolous  applications or applications which prematurely put  the corporate debtor into insolvency resolution  proceedings for extraneous considerations. The

39  

adjudicating authority/ Tribunal can, within fourteen  days from the date of receipt of the application,  ascertain the existence of a default from the records  of a regulated information utility. A default may also  be proved in such manner as may be specified by  the Insolvency and Bankruptcy Board of India.   

Once the adjudicating authority/Tribunal is satisfied  as to the existence of the default and has ensured  that the application is complete and no disciplinary  proceedings are pending against the proposed  resolution professional, it shall admit the application.  The adjudicating authority/Tribunal is not required to  look into any other criteria for admission of the  application. It is important that parties are not  allowed to abuse the legal process by using  delaying tactics at the admissions stage.   

Clause 8 lays down the procedure for the initiation  of the corporate insolvency resolution process by an  operational creditor. This procedure differs from the  procedure applicable to financial creditors as  operational debts (such as trade debts, salary or  wage claims) tend to be small amounts (in  comparison to financial debts) or are recurring in  nature and may not be accurately reflected on the  records of information utilities at all times. The  possibility of disputed debts in relation to  operational creditors is also higher in comparison to  financial creditors such as banks and financial  institutions. Accordingly, the process for initiation of  the insolvency resolution process differs for an  operational creditor.   

Once a default has occurred, the operational  creditor has to deliver a demand notice or a copy of  an invoice demanding payment of the debt in  default to the corporate debtor. The corporate  debtor has a period of ten days from the receipt of  the demand notice or invoice to inform the

40  

operational creditor of the existence of a dispute  regarding the debt claim or of the repayment of the  debt. This ensures that operational creditors, whose  debt claims are usually smaller, are not able to put  the corporate debtor into the insolvency resolution  process prematurely or initiate the process for  extraneous considerations. It may also facilitate  informal negotiations between such creditors and  the corporate debtor, which may result in a  restructuring of the debt outside the formal  proceedings.   

Clause 9 On the expiry of the period of ten days  from the date of receipt of the invoice or demand  notice under Clause 8, if the operational creditor  does not receive either the payment of the debt or a  notice of existence of dispute in relation to the debt  claim from the corporate debtor, he can file an  application with the adjudicating authority for  initiating the insolvency resolution process in  respect of such debtor. He also has to furnish proof  of default and proof of non-payment of the debt  along with an affidavit verifying that there has been  no notice regarding the existence of a dispute in  relation to the debt claim. Within fourteen days from  the receipt of the application, if the adjudicating  authority/Tribunal is satisfied as to (a) the existence  of a default, and (b) the other criteria laid down in  clause 9(5) being met, it shall admit the application.  The adjudicating authority/Tribunal is not required to  look into any other criteria for admission of the  application. It is important that parties are not  allowed to abuse the legal process by using  delaying tactics at the admissions stage.”  

(Emphasis supplied)  

41  

20. The Joint Committee in April, 2016 made certain small  

changes in the said Bill, by which the Committee stated:  

“17. Mode of delivery of demand notice of  unpaid operational debt – Clause 8   

The Committee find that clause 8(1) of the Code  provides that an operational creditor may, on the  occurrence of a default, deliver a demand notice of  unpaid operational debt or copy of an invoice  demanding payment of the amount involved in the  default to the corporate debtor in such form as may  be prescribed, through an information utility,  wherever applicable, or by registered post or  courier or by such electronic mode of  communication, as may be specified.   

The Committee are of the view that the details of  the mode of delivery of demand notice can be  provided in the rules. The Committee, therefore,  decide to substitute words “in such form as may be  prescribed, through an information utility, wherever  applicable, or by registered post or courier or by  such electronic mode of communication, as may be  specified” as appearing in clause 8(1) with the  words “in such form and manner, as may be  prescribed”. Besides as a consequential  amendment words “through an information utility or  by registered post or courier or by such electronic  mode of communication as may be specified” as  appearing in clause 8(2) may also be omitted.”  

The Committee also revised the time limits set out in various  

sections of the Code from 2, 3 and 5 days to a longer uniform  

period of 7 days.

42  

21. The stage is now set for setting out the relevant  

provisions of the Code insofar as operational creditors and their  

corporate debtors are concerned.    

“3. Definitions.   

In this Code, unless the context otherwise  requires,—  

xxx xxx xxx   

(12) “default” means non-payment of debt when  whole or any part or instalment of the amount of  debt has become due and payable and is not repaid  by the debtor or the corporate debtor, as the case  may be;   

5. Definitions.   

In this Part, unless the context otherwise requires,—  

(6) “dispute” includes a suit or arbitration  proceedings relating to—   

(a) the existence of the amount of debt;   

(b) the quality of goods or service; or   

(c) the breach of a representation or warranty;  

xxx xxx xxx  

(20) “operational creditor” means a person to whom  an operational debt is owed and includes any  person to whom such debt has been legally  assigned or transferred;  

(21) “operational debt” means a claim in respect of  the provision of goods or services including  employment or a debt in respect of the repayment  of dues arising under any law for the time being in

43  

force and payable to the Central Government, any  State Government or any local authority;  

8. Insolvency resolution by operational creditor.  

(1) An operational creditor may, on the occurrence  of a default, deliver a demand notice of unpaid  operational debt 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.   

(2) The corporate debtor shall, within a period of ten  days of the receipt of the demand notice or copy of  the invoice mentioned in sub-section (1) bring to the  notice of the operational creditor—  

(a) 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;   

(b) the repayment of unpaid operational  debt—   

(i) by sending an attested  copy of the record of  electronic transfer of the  unpaid amount from the  bank account of the  corporate debtor; or   

(ii) by sending an attested  copy of record that the  operational creditor has  encashed a cheque issued  by the corporate debtor.   

Explanation.—For the purposes of this section, a  “demand notice” means a notice served by an  operational creditor to the corporate debtor

44  

demanding repayment of the operational debt in  respect of which the default has occurred.  

9. Application for initiation of corporate  insolvency resolution process by operational  creditor.  

(1) After the expiry of the period of ten days from  the date of delivery of the notice or invoice  demanding payment under sub-section (1) of  section 8, if the operational creditor does not  receive payment from the corporate debtor or notice  of the dispute under sub-section (2) of section 8, the  operational creditor may file an application before  the Adjudicating Authority for initiating a corporate  insolvency resolution process.   

(2) The application under sub-section (1) shall be  filed in such form and manner and accompanied  with such fee as may be prescribed.   

(3) The operational creditor shall, along with the  application furnish—   

(a) a copy of the invoice demanding  payment or demand notice delivered by  the operational creditor to the corporate  debtor;   

(b) an affidavit to the effect that there is  no notice given by the corporate debtor  relating to a dispute of the unpaid  operational debt;   

(c) a copy of the certificate from the  financial institutions maintaining  accounts of the operational creditor  confirming that there is no payment of  an unpaid operational debt by the  corporate debtor; and  

45  

(d) such other information as may be  specified.   

(4) An operational creditor initiating a corporate  insolvency resolution process under this section,  may propose a resolution professional to act as an  interim resolution professional.   

(5) The Adjudicating Authority shall, within fourteen  days of the receipt of the application under sub- section (2), by an order—   

(i) admit the application and  communicate such decision to the  operational creditor and the corporate  debtor if,—   

(a) the application made  under sub-section (2) is  complete;   

(b) there is no repayment of  the unpaid operational debt;   

(c) the invoice or notice for  payment to the corporate  debtor has been delivered  by the operational creditor;   

(d) no notice of dispute has  been received by the  operational creditor or there  is no record of dispute in the  information utility; and   

(e) there is no disciplinary  proceeding pending against  any resolution professional  proposed under sub-section  (4), if any.

46  

(ii) reject the application and  communicate such decision to the  operational creditor and the corporate  debtor, if—   

(a) the application made  under sub-section (2) is  incomplete;   

(b) there has been  repayment of the unpaid  operational debt;   

(c) the creditor has not  delivered the invoice or  notice for payment to the  corporate debtor;   

(d) notice of dispute has  been received by the  operational creditor or there  is a record of dispute in the  information utility; or   

(e) any disciplinary  proceeding is pending  against any proposed  resolution professional:   

Provided that Adjudicating Authority,  shall before rejecting an application  under sub-clause (a) of clause (ii) give a  notice to the applicant to rectify the  defect in his application within seven  days of the date of receipt of such notice  from the Adjudicating Authority.   

(6) The corporate insolvency resolution process  shall commence from the date of admission of the  application under sub-section (5) of this section.”  

47  

22. Together with Section 8(1), the Insolvency and  

Bankruptcy (Application to Adjudicating Authority) Rules, 2016,  

speak of demand notices by the operational creditor and  

applications by the operational creditor in the following terms:  

“5. Demand notice by operational creditor.  (1) An operational creditor shall deliver to the  corporate debtor, the following documents, namely.-   (a) a demand notice in Form 3; or   (b) a copy of an invoice attached with a notice in  Form 4.     (2) The demand notice or the copy of the invoice  demanding payment referred to in sub-section (2) of  section 8 of the Code, may be delivered to the  corporate debtor,     

(a) at the registered office by hand,  registered post or speed post with  acknowledgement due; or   (b) by electronic mail service to a whole  time director or designated partner or  key managerial personnel, if any, of the  corporate debtor.   

 (3) A copy of demand notice or invoice demanding  payment served under this rule by an operational  creditor shall also be filed with an information utility,  if any.     6. Application by operational creditor.  (1) An operational creditor, shall make an  application for initiating the corporate insolvency  resolution process against a corporate debtor under  section 9 of the Code in Form 5, accompanied with

48  

documents and records required therein and as  specified in the Insolvency and Bankruptcy Board of  India (Insolvency Resolution Process for Corporate  Persons) Regulations, 2016.    (2) The applicant under sub-rule (1) shall dispatch  forthwith, a copy of the application filed with the  Adjudicating Authority, by registered post or speed  post to the registered office of the corporate debtor.    

FORM 3  (See clause (a) of sub-rule (1) of rule 5)  

 FORM OF DEMAND NOTICE / INVOICE  DEMANDING PAYMENT UNDER THE  

INSOLVENCY AND BANKRUPTCY CODE, 2016  (Under rule 5 of the Insolvency and Bankruptcy  

(Application to Adjudicating Authority) Rules, 2016)    

[Date]    To,   [Name and address of the registered office of the  corporate debtor]     From,   [Name and address of the registered office of the  operational creditor]     Subject: Demand notice/invoice demanding  payment in respect of unpaid operational debt  due from [corporate debtor] under the Code.     Madam/Sir,    1. This letter is a demand notice/invoice demanding  payment of an unpaid operational debt due from  [name of corporate debtor].   

49  

2. Please find particulars of the unpaid operational  debt below:    

PARTICULARS OF  OPERATIONAL DEBT  

1.  TOTAL AMOUNT OF  DEBT, DETAILS OF  TRANSACTIONS ON  ACCOUNT OF WHICH  DEBT FELL DUE, AND  THE DATE FROM WHICH  SUCH DEBT FELL DUE  

2.  AMOUNT CLAIMED TO  BE IN DEFAULT AND THE  DATE ON WHICH THE  DEFAULT OCCURRED  (ATTACH THE  WORKINGS FOR  COMPUTATION OF  DEFAULT IN TABULAR  FORM)  

3.  PARTICULARS OF  SECURITY HELD, IF ANY,  THE DATE OF ITS  CREATION, ITS  ESTIMATED VALUE AS  PER THE CREDITOR.  ATTACH A COPY OF A  CERTIFICATE OF  REGISTRATION OF  CHARGE ISSUED BY THE  REGISTRAR OF  COMPANIES (IF THE  CORPORATE DEBTOR IS  A COMPANY)  

4.  DETAILS OF RETENTION  OF TITLE  ARRANGEMENTS (IF  ANY) IN RESPECT OF  

50  

3. If you dispute the existence or amount of unpaid  operational debt (in default) please provide the  undersigned, within ten days of the receipt of this  letter, of the pendency of the suit or arbitration  proceedings in relation to such dispute filed before  the receipt of this letter/notice.     4. If you believe that the debt has been repaid  before the receipt of this letter, please demonstrate  such repayment by sending to us, within ten days of  receipt of this letter, the following:   (a) an attested copy of the record of electronic  transfer of the unpaid amount from the bank  account of the corporate debtor; or   (b) an attested copy of any record that [name of the  operational creditor] has received the payment.     5. The undersigned, hereby, attaches a certificate  from an information utility confirming that no record  

GOODS TO WHICH THE  OPERATIONAL DEBT  REFERS  

5.  RECORD OF DEFAULT  WITH THE INFORMATION  UTILITY (IF ANY)  

6.  PROVISION OF LAW,  CONTRACT OR OTHER  DOCUMENT UNDER  WHICH DEBT HAS  BECOME DUE  

7.  LIST OF DOCUMENTS  ATTACHED TO THIS  APPLICATION IN ORDER  TO PROVE THE  EXISTENCE OF  OPERATIONAL DEBT  AND THE AMOUNT IN  DEFAULT  

51  

of a dispute raised in relation to the relevant  operational debt has been filed by any person at  any information utility, (if applicable)    6. The undersigned request you to unconditionally  repay the unpaid operational debt (in default) in full  within ten days from the receipt of this letter failing  which we shall initiate a corporate insolvency  resolution process in respect of [c].    

Yours sincerely,    

Signature of person authorised to act on  behalf of the operational creditor  Name in block letters  Position with or in relation to the operational  creditor  Address of person signing    Instructions     1. Please serve a copy of this form on the corporate  debtor, ten days in advance of filing an application  under section 9 of the Code.     2. Please append a copy of such served notice to  the application made by the operational creditor to  the Adjudicating Authority.    

Form 4  (See clause (b) of sub-rule (1) of rule 5)  

 FORM OF NOTICE WITH WHICH INVOICE  

DEMANDING PAYMENT IS TO BE ATTACHED   (Under Rule 5 of the Insolvency and Bankruptcy  

(Application to Adjudicating Authority) Rules, 2016)     

[Date]   

52  

To,   [Name and address of registered office of the  corporate debtor]     From,   [Name and address of the operational creditor]    Subject: Notice attached to invoice demanding  payment     Madam/Sir,     [Name of operational creditor], hereby provides  notice for repayment of the unpaid amount of INR  [insert amount] that is in default as reflected in the  invoice attached to this notice.    In the event you do not repay the debt due to us  within ten days of receipt of this notice, we may file  an application before the Adjudicating Authority for  initiating a corporate insolvency resolution process  under section 9 of the Code.     Yours sincerely,    Signature of person authorised to act on  behalf of the operational creditor  Name in block letters  Position with or in relation to the operational  creditor  Address of person signing    

Form 5  (See sub-rule (1) of rule 6)  

 APPLICATION BY OPERATIONAL CREDITOR  

TO INITIATE CORPORATE INSOLVENCY  RESOLUTION PROCESS UNDER THE CODE.

53  

(Under rule 6 of the Insolvency and Bankruptcy  (Application to Adjudicating Authority) Rules, 2016)   

 [Date]  

 To,   The National Company Law Tribunal   [Address]     From,   [Name and address for correspondence of the  operational creditor]     In the matter of [name of the corporate debtor]     Subject: Application to initiate corporate  insolvency resolution process in respect of  [name of the corporate debtor] under the  Insolvency and Bankruptcy Code, 2016.     Madam/Sir,     [Name of the operational creditor], hereby submits  this application to initiate a corporate insolvency  resolution process in the case of [name of corporate  debtor]. The details for the purpose of this  application are set out below:    

Part – I  PARTICULARS OF APPLICANT   

1.  NAME OF OPERATIONAL  CREDITOR  

2.  IDENTIFICATION NUMBER OF  OPERATIONAL CREDITOR   (IF ANY)   

3.  ADDRESS FOR  CORRESPONDENCE OF THE  OPERATIONAL CREDITOR  

54  

Part - II  PARTICULARS OF  CORPORATE DEBTOR  

1.  NAME OF THE CORPORATE  DEBTOR  

2.  IDENTIFICATION NUMBER OF  CORPORATE DEBTOR  

3.  DATE OF INCORPORATION OF  CORPORATE DEBTOR  

4.  NOMINAL SHARE CAPITAL AND  THE PAID-UP SHARE CAPITAL  OF THE CORPORATE DEBTOR  AND/OR DETAILS OF  GUARANTEE CLAUSE AS PER  MEMORANDUM OF  ASSOCIATION (AS  APPLICABLE)  

5.  ADDRESS OF THE  REGISTERED OFFICE OF THE  CORPORATE DEBTOR  

6.  NAME, ADDRESS AND  AUTHORITY OF PERSON  SUBMITTING APPLICATION ON  BEHALF OF OPERATIONAL  CREDITOR (ENCLOSE  AUTHORISATION)  

7.  NAME AND ADDRESS OF  PERSON RESIDENT IN INDIA  AUTHORISED TO ACCEPT THE  SERVICE OF PROCESS ON ITS  BEHALF (ENCLOSE  AUTHORISATION)  

 Part-III  

PARTICULARS OF THE  PROPOSED INTERIM  RESOLUTION  PROFESSIONAL [IF  PROPOSED]  

55  

1.  NAME, ADDRESS, EMAIL  ADDRESS AND THE  REGISTRATION NUMBER OF  THE PROPOSED INSOLVENCY  PROFESSIONAL  

 Part-IV  

PARTICULARS OF  OPERATIONAL DEBT  

1.  TOTAL AMOUNT OF DEBT,   DETAILS OF TRANSACTIONS  ON ACCOUNT OF WHICH  DEBT FELL DUE,   AND THE DATE FROM WHICH  SUCH DEBT FELL DUE  

2.  AMOUNT CLAIMED TO BE IN  DEFAULT AND THE DATE ON  WHICH THE DEFAULT  OCCURRED (ATTACH THE  WORKINGS FOR  COMPUTATION OF AMOUNT  AND DATES OF DEFAULT IN  TABULAR FORM)  

 Part-V  

PARTICULARS OF OPERATIONAL DEBT  [DOCUMENTS, RECORDS AND EVIDENCE  OF DEFAULT]  

1.  PARTICULARS OF SECURITY HELD, IF  ANY, THE DATE OF ITS CREATION, ITS  ESTIMATED VALUE AS PER THE  CREDITOR.   ATTACH A COPY OF A CERTIFICATE OF  REGISTRATION OF CHARGE ISSUED BY  THE REGISTRAR OF COMPANIES (IF THE  CORPORATE DEBTOR IS A COMPANY)  

2.  DETAILS OF RESERVATION / RETENTION  OF TITLE ARRANGEMENTS (IF ANY) IN  RESPECT OF GOODS TO WHICH THE

56  

OPERATIONAL DEBT REFERS  3.  PARTICULARS OF AN ORDER OF A  

COURT, TRIBUNAL OR ARBITRAL PANEL  ADJUDICATING ON THE DEFAULT, IF ANY   (ATTACH A COPY OF THE ORDER)  

4.  RECORD OF DEFAULT WITH THE  INFORMATION UTILITY, IF ANY   (ATTACH A COPY OF SUCH RECORD)  

5.  DETAILS OF SUCCESSION CERTIFICATE,  OR PROBATE OF A WILL, OR LETTER OF  ADMINISTRATION, OR COURT DECREE  (AS MAY BE APPLICABLE), UNDER THE  INDIAN SUCCESSION ACT, 1925 (10 OF  1925)  (ATTACH A COPY)  

6.  PROVISION OF LAW, CONTRACT OR  OTHER DOCUMENT UNDER WHICH  OPERATIONAL DEBT HAS BECOME DUE  

7.  A STATEMENT OF BANK ACCOUNT  WHERE DEPOSITS ARE MADE OR  CREDITS RECEIVED NORMALLY BY THE  OPERATIONAL CREDITOR IN RESPECT  OF THE DEBT OF THE CORPORATE  DEBTOR (ATTACH A COPY)  

8.  LIST OF OTHER DOCUMENTS ATTACHED  TO THIS APPLICATION IN ORDER TO  PROVE THE EXISTENCE OF  OPERATIONAL DEBT AND THE AMOUNT  IN DEFAULT  

I, [Name of the operational creditor / person  authorised to act on behalf of the operational  creditor] hereby certify that, to the best of my  knowledge, [name of proposed insolvency  professional], is fully qualified and permitted to act  as an insolvency professional in accordance with  the Code and the rules and regulations made  thereunder. [WHERE APPLICABLE]  

57  

 [Name of the operational creditor] has paid the  requisite fee for this application through [state  means of payment] on [date].     

Yours sincerely,    

Signature of person authorised to act on behalf of  the operational creditor  Name in block letters  Position with or in relation to the operational  creditor  Address of person signing  

 Instructions -    Please attach the following to this application:     Annex I  Copy of the invoice / demand notice as  in Form 3 of the Insolvency and Bankruptcy  (Application to Adjudicating Authority) Rules, 2016  served on the corporate debtor.     Annex II  Copies of all documents referred to in  this application.     Annex III  Copy of the relevant accounts from the  banks/financial institutions maintaining accounts of  the operational creditor confirming that there is no  payment of the relevant unpaid operational debt by  the operational debtor, if available.     Annex IV  Affidavit in support of the application in  accordance with the Insolvency and Bankruptcy  (Application to Adjudicating Authority) Rules, 2016.     Annex V  Written communication by the proposed  interim resolution professional as set out in Form 2  of the Insolvency and Bankruptcy (Application to

58  

Adjudicating Authority) Rules, 2016. [WHERE  APPLICABLE]     Annex VI  Proof that the specified application fee  has been paid.     Note: Where workmen/employees are operational  creditors, the application may be made either in an  individual capacity or in a joint capacity by one of  them who is duly authorised for the purpose.    

Regulation 7 of the Insolvency and Bankruptcy Board of India  

(Insolvency Resolution Process for Corporate Persons)  

Regulations, 2016 is also relevant and reads as under:  

“7. Claims by operational creditors.-    (1) A person claiming to be an operational creditor,  other than workman or employee of the corporate  debtor, shall submit proof of claim to the interim  resolution professional in person, by post or by  electronic means in Form B of the Schedule:     Provided that such person may submit  supplementary documents or clarifications in  support of the claim before the constitution of the  committee.    (2) The existence of debt due to the operational  creditor under this Regulation may be proved on  the basis of-   

(a) the records available with an  information utility, if any; or   (b) other relevant documents, including  –  

59  

(i) a contract for the supply  of goods and services with  corporate debtor;   (ii) an invoice demanding  payment for the goods and  services supplied to the  corporate debtor;   (iii) an order of a court or  tribunal that has adjudicated  upon the non-payment of a  debt, if any; or   (iv) financial accounts.    

FORM B    

PROOF OF CLAIM BY OPERATIONAL  CREDITORS EXCEPT WORKMEN AND  

EMPLOYEES    

[Under Regulation 7 of the Insolvency and  Bankruptcy Board of India (Insolvency Resolution  

Process for Corporate Persons) Regulations, 2016]    

[Date]     To     The Interim Resolution Professional / Resolution  Professional   [Name of the Insolvency Resolution Professional /  Resolution Professional]   [Address as set out in public announcement]     From   [Name and address of the operational creditor]     Subject: Submission of proof of claim.     Madam/Sir,  

60  

 [Name of the operational creditor], hereby submits  this proof of claim in respect of the corporate  insolvency resolution process in the case of [name  of corporate debtor]. The details for the same are  set out below:  

  PARTICULARS   

1.  NAME OF OPERATIONAL  CREDITOR  

2.  IDENTIFICATION NUMBER  OF OPERATIONAL  CREDITOR   (IF AN INCORPORATED  BODY PROVIDE  IDENTIFICATION NUMBER  AND PROOF OF  INCORPORATION. IF A  PARTNERSHIP OR  INDIVIDUAL PROVIDE  IDENTIFICATION RECORDS*  OF ALL THE PARTNERS OR  THE INDIVIDUAL)  

3.  ADDRESS AND EMAIL  ADDRESS OF OPERATIONAL  CREDITOR FOR  CORRESPONDENCE  

4.  TOTAL AMOUNT OF CLAIM     (INCLUDING ANY INTEREST  AS AT THE INSOLVENCY  COMMENCEMENT DATE)  

5.  DETAILS OF DOCUMENTS  BY REFERENCE TO WHICH  THE DEBT CAN BE  SUBSTANTIATED.  

6.  DETAILS OF ANY DISPUTE  AS WELL AS THE RECORD  OF PENDENCY OR ORDER  

61  

OF SUIT OR ARBITRATION  PROCEEDINGS  

7.  DETAILS OF HOW AND  WHEN DEBT INCURRED  

8.  DETAILS OF ANY MUTUAL  CREDIT, MUTUAL DEBTS, OR  OTHER MUTUAL DEALINGS  BETWEEN THE CORPORATE  DEBTOR AND THE  CREDITOR WHICH MAY BE  SET-OFF AGAINST THE  CLAIM  

9.  DETAILS OF ANY  RETENTION OF TITLE  ARRANGEMENTS IN  RESPECT OF GOODS OR  PROPERTIES TO WHICH THE  CLAIM REFERS  

10. DETAILS OF THE BANK  ACCOUNT TO WHICH THE  AMOUNT OF THE CLAIM OR  ANY PART THEREOF CAN BE  TRANSFERRED PURSUANT  TO A RESOLUTION PLAN  

11. LIST OF DOCUMENTS  ATTACHED TO THIS PROOF  OF CLAIM IN ORDER TO  PROVE THE EXISTENCE AND  NONPAYMENT OF CLAIM  DUE TO THE OPERATIONAL  CREDITOR  

Signature of operational creditor or person  authorised to act on his behalf   [Please enclose the authority if this is being  submitted on behalf of an operational creditor]  Name in BLOCK LETTERS  Position with or in relation to creditor  Address of person signing  

62  

*PAN number, passport, AADHAAR Card or the  identity card issued by the Election Commission of  India.”  

(Emphasis supplied)      

23. In the passage of the Bills which ultimately became the  

Code, various important changes have taken place.  The  

original definition of “dispute” has now become an inclusive  

definition, the word “bona fide” before “suit or arbitration  

proceedings” being deleted. In Section 8(1), the words “through  

an information utility, wherever applicable, or by registered post  

or courier or by any electronic communication” have been  

deleted.  Likewise, in Section 8(2), the period of “at least 60  

days … through an information utility or by registered post or  

courier or by any electronic communication” has also been  

deleted.  In Section 9(5), the absence of a proviso similar to the  

proviso occurring in Section 7(5) was also rectified.  Further,  

the time periods of 2 and 3 days were uniformly substituted, as  

has been seen above, by 7 days, so that a sufficiently long  

period is given to do the needful.   

63  

24. The scheme under Sections 8 and 9 of the Code, appears  

to be that an operational creditor, as defined, may, on the  

occurrence of a default (i.e., on non-payment of a debt, any part  

whereof has become due and payable and has not been  

repaid), deliver a demand notice of such unpaid operational  

debt or deliver the copy of an invoice demanding payment of  

such amount to the corporate debtor in the form set out in Rule  

5 of the Insolvency and Bankruptcy (Application to Adjudicating  

Authority) Rules, 2016 read with Form 3 or 4, as the case may  

be (Section 8(1)).  Within a period of 10 days of the receipt of  

such demand notice or copy of invoice, the corporate debtor  

must bring to the notice of the operational creditor the existence  

of a dispute and/or the record of the pendency of a suit or  

arbitration proceeding filed before the receipt of such notice or  

invoice in relation to such dispute (Section 8(2)(a)). What is  

important is that the existence of the dispute and/or the suit or  

arbitration proceeding must be pre-existing – i.e. it must exist  

before the receipt of the demand notice or invoice, as the case  

may be.  In case the unpaid operational debt has been repaid,  

the corporate debtor shall within a period of the self-same 10

64  

days send an attested copy of the record of the electronic  

transfer of the unpaid amount from the bank account of the  

corporate debtor or send an attested copy of the record that the  

operational creditor has encashed a cheque or otherwise  

received payment from the corporate debtor (Section 8(2)(b)). It  

is only if, after the expiry of the period of the said 10 days, the  

operational creditor does not either receive payment from the  

corporate debtor or notice of dispute, that the operational  

creditor may trigger the insolvency process by filing an  

application before the adjudicating authority under Sections  

9(1) and 9(2).  This application is to be filed under Rule 6 of the  

Insolvency and Bankruptcy (Application to Adjudicating  

Authority) Rules, 2016 in Form 5, accompanied with documents  

and records that are required under the said form.  Under Rule  

6(2), the applicant is to dispatch by registered post or speed  

post, a copy of the application to the registered office of the  

corporate debtor. Under Section 9(3), along with the  

application, the statutory requirement is to furnish a copy of the  

invoice or demand notice, an affidavit to the effect that there is  

no notice given by the corporate debtor relating to a dispute of

65  

the unpaid operational debt and a copy of the certificate from  

the financial institution maintaining accounts of the operational  

creditor confirming that there is no payment of an unpaid  

operational debt by the corporate debtor.  Apart from this  

information, the other information required under Form 5 is also  

to be given.  Once this is done, the adjudicating authority may  

either admit the application or reject it.  If the application made  

under sub-section (2) is incomplete, the adjudicating authority,  

under the proviso to sub-section 5, may give a notice to the  

applicant to rectify defects within 7 days of the receipt of the  

notice from the adjudicating authority to make the application  

complete.  Once this is done, and the adjudicating authority  

finds that either there is no repayment of the unpaid operational  

debt after the invoice (Section 9(5)(i)(b)) or the invoice or notice  

of payment to the corporate debtor has been delivered by the  

operational creditor (Section 9(5)(i)(c)), or that no notice of  

dispute has been received by the operational creditor from the  

corporate debtor or that there is no record of such dispute in the  

information utility (Section 9(5)(i)(d)), or that there is no  

disciplinary proceeding pending against any resolution

66  

professional proposed by the operational creditor (Section  

9(5)(i)(e)), it shall admit the application within 14 days of the  

receipt of the application, after which the corporate insolvency  

resolution process gets triggered. On the other hand, the  

adjudicating authority shall, within 14 days of the receipt of an  

application by the operational creditor, reject such application if  

the application is incomplete and has not been completed  

within the period of 7 days granted by the proviso (Section  

9(5)(ii)(a)). It may also reject the application where there has  

been repayment of the operational debt (Section 9(5)(ii)(b)), or  

the creditor has not delivered the invoice or notice for payment  

to the corporate debtor (Section 9(5)(ii)(c)).  It may also reject  

the application if the notice of dispute has been received by the  

operational creditor or there is a record of dispute in the  

information utility (Section 9(5)(ii)(d)). Section 9(5)(ii)(d) refers  

to the notice of an existing dispute that has so been received,  

as it must be read with Section 8(2)(a).  Also, if any disciplinary  

proceeding is pending against any proposed resolution  

professional, the application may be rejected (Section  

9(5)(ii)(e)).  

67  

25. Therefore, the adjudicating authority, when examining an  

application under Section 9 of the Act will have to determine:  

(i) Whether there is an “operational debt” as defined  

exceeding Rs.1 lakh?  (See Section 4 of the Act)  

(ii) Whether the documentary evidence furnished with the  

application shows that the aforesaid debt is due and  

payable and has not yet been paid? and   

(iii) Whether there is existence of a dispute between the  

parties or the record of the pendency of a suit or  

arbitration proceeding filed before the receipt of the  

demand notice of the unpaid operational debt in relation  

to such dispute?  

If any one of the aforesaid conditions is lacking, the  

application would have to be rejected.  

Apart from the above, the adjudicating authority must  

follow the mandate of Section 9, as outlined above, and in  

particular the mandate of Section 9(5) of the Act, and admit or

68  

reject the application, as the case may be, depending upon the  

factors mentioned in Section 9(5) of the Act.  

26. Another thing of importance is the timelines within which  

the insolvency resolution process is to be triggered.  The  

corporate debtor is given 10 days from the date of receipt of  

demand notice or copy of invoice to either point out that a  

dispute exists between the parties or that he has since repaid  

the unpaid operational debt.  If neither exists, then an  

application once filed has to be disposed of by the adjudicating  

authority within 14 days of its receipt, either by admitting it or  

rejecting it.  An appeal can then be filed to the Appellate  

Tribunal under Section 61 of the Act within 30 days of the order  

of the Adjudicating Authority with an extension of 15 further  

days and no more.    

27. Section 64 of the Code mandates that where these  

timelines are not adhered to, either by the Tribunal or by the  

Appellate Tribunal, they shall record reasons for not doing so  

within the period so specified and extend the period so  

specified for another period not exceeding 10 days.  Even in

69  

appeals to the Supreme Court from the Appellate Tribunal  

under Section 62, 45 days time is given from the date of receipt  

of the order of the Appellate Tribunal in which an appeal to the  

Supreme Court is to be made, with a further grace period not  

exceeding 15 days.  The strict adherence of these timelines is  

of essence to both the triggering process and the insolvency  

resolution process.  As we have seen, one of the principal  

reasons why the Code was enacted was because liquidation  

proceedings went on interminably, thereby damaging the  

interests of all stakeholders, except a recalcitrant management  

which would continue to hold on to the company without paying  

its debts.  Both the Tribunal and the Appellate Tribunal will do  

well to keep in mind this principal objective sought to be  

achieved by the Code and will strictly adhere to the time frame  

within which they are to decide matters under the Code.   

28. It is now important to construe Section 8 of the Code.    

The 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,

70  

including employment, or a debt in respect of repayment of  

dues arising under any law for the time being in force and  

payable to the Government or to a local authority.  This has to  

be contrasted with financial debts that may be owed to financial  

creditors, which was the subject matter of the judgment  

delivered by this Court on 31.8.2017 in Innoventive Industries  

Ltd. v. ICICI Bank & Anr. (Civil Appeal Nos.8337-8338 of  

2017).  In this judgment, we had held that the adjudicating  

authority under Section 7 of the Code has to ascertain the  

existence of a default from the records of the information utility  

or on the basis of evidence furnished by the financial creditor  

within 14 days.  The corporate debtor is entitled to point out to  

the adjudicating authority that a default has not occurred; in the  

sense that a debt, which may also include a disputed claim, is  

not due i.e. it is not payable in law or in fact.  This Court then  

went on to state:  

“29. The scheme of Section 7 stands in contrast  with the scheme under Section 8 where an  operational creditor is, on the occurrence of a  default, to first deliver a demand notice of the  unpaid debt to the operational debtor in the manner  provided in Section 8(1) of the Code.  Under

71  

Section 8(2), the corporate debtor can, within a  period of 10 days of receipt of the demand notice or  copy of the invoice mentioned in sub-section (1),  bring to the notice of the operational creditor the  existence of a dispute or the record of the pendency  of a suit or arbitration proceedings, which is pre- existing – i.e. before such notice or invoice was  received by the corporate debtor.  The moment  there is existence of such a dispute, the operational  creditor gets out of the clutches of the Code.      30. On the other hand, as we have seen, in the  case of a corporate debtor who commits a default of  a financial debt, the adjudicating authority has  merely to see the records of the information utility or  other evidence produced by the financial creditor to  satisfy itself that a default has occurred.  It is of no  matter that the debt is disputed so long as the debt  is “due” i.e. payable unless interdicted by some law  or has not yet become due in the sense that it is  payable at some future date.  It is only when this is  proved to the satisfaction of the adjudicating  authority that the adjudicating authority may reject  an application and not otherwise.”       

29. It is, thus, clear that so far as an operational creditor is  

concerned, a demand notice of an unpaid operational debt or  

copy of an invoice demanding payment of the amount involved  

must be delivered in the prescribed form.  The corporate debtor  

is then given a period of 10 days from the receipt of the  

demand notice or copy of the invoice to bring to the notice of  

the operational creditor the existence of a dispute, if any.   We

72  

have also seen the notes on clauses annexed to the Insolvency  

and Bankruptcy Bill of 2015, in which “the existence of a  

dispute” alone is mentioned.  Even otherwise, 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”.  If read as “and”,  

disputes would only stave off the bankruptcy process if they are  

already pending in a suit or arbitration proceedings and not  

otherwise.   This would lead to great hardship; in that a dispute  

may arise a few days before triggering of the insolvency  

process, in which case, though a dispute may exist, there is no  

time to approach either an arbitral tribunal or a court.   Further,  

given the fact that long limitation periods are allowed, where  

disputes may arise and do not reach an arbitral tribunal or a  

court for upto three years, such persons would be outside the  

purview of Section 8(2) leading to bankruptcy proceedings  

commencing against them.  Such an anomaly cannot possibly  

have been intended by the legislature nor has it so been  

intended. We have also seen that one of the objects of the  

Code qua operational debts is to ensure that the amount of

73  

such debts, which is usually smaller than that of financial debts,  

does not enable operational creditors to put the corporate  

debtor into the insolvency resolution process prematurely or  

initiate the process for extraneous considerations. It is for this  

reason that it is enough that a dispute exists between the  

parties.  

30. It is settled law that the expression “and” may be read as  

“or” in order to further the object of the statute and/or to avoid  

an anomalous situation.  Thus, in Samee Khan v. Bindu Khan  

(1998) 7 SCC 59 at 64, this Court held:  

“14. Since the word “also” can have meanings such  as “as well” or “likewise”, cannot those meanings be  used for understanding the scope of the trio words  “and may also”? Those words cannot altogether be  detached from the other words in the sub-rule. Here  again the word “and” need not necessarily be  understood as denoting a conjunctive sense.  In Stroud’s Judicial Dictionary, it is stated that the  word “and” has generally a cumulative sense, but  sometimes it is by force of a context read as “or”.  Maxwell on Interpretation of Statutes has  recognised the above use to carry out the  interpretation of the legislature. This has been  approved by this Court in Ishwar Singh  Bindra v. State of U.P. [AIR 1968 SC 1450 : 1969  Cri LJ 19]. The principle of noscitur a sociis can  profitably be used to construct the words “and may  also” in the sub-rule.”

74  

 31. In Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd.  

(2008) 4 SCC 755 at 765, this Court held:  

“26. It may be noted that Section 86(1)(f) of the Act  of 2003 is a special provision for adjudication of  disputes between the licensee and the generating  companies. Such disputes can be adjudicated upon  either by the State Commission or the person or  persons to whom it is referred for arbitration. In our  opinion the word “and” in Section 86(1)(f) between  the words “generating companies” and “to refer any  dispute for arbitration” means “or”. It is well settled  that sometimes “and” can mean “or” and sometimes  “or” can mean “and” (vide G.P. Singh’s Principles of  Statutory Interpretation, 9th Edn., 2004, p. 404).    

27. In our opinion in Section 86(1)(f) of the  Electricity Act, 2003 the word “and” between the  words “generating companies” and the words “refer  any dispute” means “or”, otherwise it will lead to an  anomalous situation because obviously the State  Commission cannot both decide a dispute itself and  also refer it to some arbitrator. Hence the word  “and” in Section 86(1)(f) means “or”.”  

 32. In a recent judgment in Maharishi Mahesh Yogi Vedic  

Vishwavidyalaya v. State of M.P. (2013) 15 SCC 677 at 718,  

this Court held:  

“93. Besides the above two decisions, which  discuss about the methodology of interpretation of a  statute, we also refer to the following decisions

75  

rendered by this Court in Ishwar Singh  Bindra [Ishwar Singh Bindra v. State of U.P., AIR  1968 SC 1450 : 1969 Cri LJ 19], wherein in para 11  it has been held as under: (AIR p. 1454)  

“11. … It would be much more  appropriate in the context to read it  disconjunctively. In Stroud’s Judicial  Dictionary, 3rd Edn., it is stated at p.  135 that ‘and’ has generally a  cumulative sense, requiring the  fulfilment of all the conditions that it joins  together, and herein it is the antithesis  of or. Sometimes, however, even in  such a connection, it is, by force of a  context, read as ‘or’. Similarly in  Maxwell on Interpretation of Statutes,  11th Edn., it has been accepted that ‘to  carry out the intention of the legislature  it is occasionally found necessary to  read the conjunctions “or” and “and” one  for the other’.”  

94. We may also refer to para 4 of the decision  rendered by this Court in Director of Mines  Safety v. Tandur and Nayandgi Stone Quarries (P)  Ltd. [(1987) 3 SCC 208] : (SCC p. 211, para 4)  

“4. According to the plain meaning, the  exclusionary clause in sub-section (1) of  Section 3 of the Act read with the two  provisos beneath clauses (a) and (b),  the word ‘and’ at the end of para (b) of  sub-clause (ii) of the proviso to clause  (a) of Section 3(1) must in the context in  which it appears, be construed as ‘or’;  and if so construed, the existence of any  one of the three conditions stipulated in  paras (a), (b) and (c) would at once

76  

attract the proviso to clauses (a) and (b)  of sub-section (1) of Section 3 and  thereby make the mine subject to the  provisions of the Act. The High Court  overlooked the fact that the use of the  negative language in each of the three  clauses implied that the word ‘and’ used  at the end of clause (b) had to be read  disjunctively. That construction of ours is  in keeping with the legislative intent  manifested by the scheme of the Act  which is primarily meant for ensuring the  safety of workmen employed in the  mines.”  

33. This being the case, is it not open to the adjudicating  

authority to then go into whether a dispute does or does not  

exist?  

34. It is important to notice that Section 255 read with the  

Eleventh Schedule of the Code has amended Section 271 of  

the Companies Act, 2013 so that a company being unable to  

pay its debts is no longer a ground for winding up a company.    

The old law contained in Madhusudan (supra) has, therefore,  

disappeared with the disappearance of this ground in Section  

271 of the Companies Act.   

77  

35. We have already noticed that in the first Insolvency and  

Bankruptcy Bill, 2015 that was annexed to the Bankruptcy Law  

Reforms Committee Report, Section 5(4) defined “dispute” as  

meaning a “bona fide suit or arbitration proceedings…”.  In its  

present avatar, Section 5(6) excludes the expression “bona  

fide” which is of significance.  Therefore, it is difficult to import  

the expression “bona fide” into Section 8(2)(a) in order to judge  

whether a dispute exists or not.   

36. The expression “existence” has been understood as  

follows:  

“The Shorter Oxford English Dictionary gives the  following meaning of the word “existence”:  

a) Reality, as opp to appearance.  b) The fact or state of existing; actual possession  of being. Continued being as a living creature, life,  esp. under adverse conditions.  

Something that exists; an entity, a being. All that  exists. (Page 894 – Oxford English Dictionary)”  

37. Two extremely instructive judgments, one of the  

Australian High Court, and the other of the Chancery Division in  

the UK, throw a great deal of light on the expression “existence

78  

of a dispute” contained in Section 8(2)(a) of the Code.   The  

Australian judgment is reported as Spencer  

Constructions Pty Ltd v. G & M Aldridge Pty Ltd. [1997] FCA  

681.  The Australian High Court had to construe Section 459H  

of the Corporations Law, which read as under:  

“(1)     .......  

(a)          that there is a genuine dispute between the  company and the respondent about the existence or  amount of a debt to which the demand relates;  

(b)          ........ ”  

The expression “genuine dispute” was then held to mean  

the following:  

Finn J was content to adopt the explanation of  “genuine dispute” given by McLelland CJ in Eq  in Eyota Pty Ltd v Hanave Pty Ltd (1994) 12 ACSR  785 at 787 where his Honour said:  

“In my opinion [the] expression connotes a plausible  contention requiring investigation, and raises much  the same sort of considerations as the ‘serious  question to be tried’ criterion which arises on an  application for an interlocutory injunction or for the  extension or removal of a caveat.  This does not  mean that the court must accept uncritically as  giving rise to a genuine dispute, every statement in  an affidavit ‘however equivocal, lacking in precision,  inconsistent with undisputed contemporary  documents or other statements by the same

79  

deponent, or inherently and probable in itself, it may  be not having ‘sufficient prima facie plausibility to  merit further investigation as to [its] truth’ (cf Eng  Mee Yong v Letchumanan [1980] AC 331 at 341), or  ‘a patently feeble legal argument or an assertion of  facts unsupported by evidence’: cf South Australia v  Wall (1980) 24 SASR 189 at 194.”  

His Honour also referred to the judgment of  Lindgren J in Rohala Pharmaceutical Pty Ltd (supra)  where, at 353, his Honour said:  

“The provisions [of s 459H(1) and (5)] assume that  the dispute and offsetting claim have an ‘objective’  existence the genuineness of which is capable of  being assessed. The word ‘genuine’ is included [in  ‘genuine dispute’] to sound a note of warning that  the propounding of serious disputes and claims is to  be expected but must be excluded from  consideration”.  

There have been numerous decisions of single  judges in this Court and in State Supreme Courts  which have analysed, in different ways, the  approach a court should take in determining  whether there is “a genuine dispute” for the  purposes of s 459H of the Corporations Law.  What  is clear is that in considering applications to set  aside a statutory demand, a court will not determine  contested issues of fact or law which have a  significant or substantial basis.  One finds  formulations such as:  

“... at least in most cases, it is not expected that the  court will embark upon any extended enquiry in  order to determine whether there is a genuine  dispute between the parties and certainly will not  attempt to weigh the merits of that dispute.  All that  the legislation requires is that the court conclude

80  

that there is a dispute and that it is a genuine  dispute”.  

See Mibor Investments Pty Ltd v Commonwealth  Bank of Australia (1993) 11 ACSR 362 at 366- 7, followed by Ryan J in Moyall Investments  Services Pty Ltd v White (1993) 12 ACSR 320  at 324.  

Another formulation has been expressed as follows:  

“It is clear that what is required in all cases is  something between mere assertion and the proof  that would be necessary in a court of law.   Something more than mere assertion is required  because if that were not so then anyone could  merely say it did not owe a debt ...”  

See John Holland Construction and Engineering Pty  Ltd v Kilpatrick Green Pty Ltd (1994) 12 ACLC 716  at 718, followed by Northrop J in Aquatown Pty Ltd  v Holder Stroud Pty Ltd (Federal Court of Australia,  25 June 1996, unreported).  

In Re Morris Catering (Australia) Pty Ltd (1993) 11  ACSR 601 at 605, Thomas J said:  

“There is little doubt that Div 3 is intended to be a  complete code which prescribes a formula that  requires the court to assess the position between  the parties, and preserve demands where it can be  seen that there is no genuine dispute and no  sufficient genuine offsetting claim.  That is not to say  that the court will examine the merits or settle the  dispute.  The specified limits of the court’s  examination are the ascertainment of whether there  is a ‘genuine dispute’ and whether there is a  ‘genuine claim’.  

It is often possible to discern the spurious, and to  identify mere bluster or assertion.  But beyond a  perception of genuineness (or the lack of it) the

81  

court has no function.  It is not helpful to perceive  that one party is more likely than the other to  succeed, or that the eventual state of the account  between the parties is more likely to be one result  than another.  

The essential task is relatively simple - to identify  the genuine level of a claim (not the likely result of  it) and to identify the genuine level of an offsetting  claim (not the likely result of it).”  

In Scanhill Pty Ltd v Century 21 Australasia Pty  Ltd (1993) 12 ACSR 341 at 357 Beazley J said:  

“... the test to be applied for the purposes  of s 459H is whether the court is satisfied that there  is a serious question to be tried that the applicant  has an offsetting claim”.  

In Chadwick Industries (South Coast) Pty Ltd v  Condensing Vaporisers Pty Ltd (1994) 13 ACSR 37  at 39, Lockhart J said:  

“... what appears clearly enough from all the  judgments is that a standard of satisfaction which a  court requires is not a particularly high one.  I am for  present purposes content to adopt any of the  standards that are referred to in the cases ...  The  highest of the thresholds is probably the test  enunciated by Beazley J, though for myself I discern  no inconsistency between that test and the  statements in the other cases to which I have  referred.  However, the application of Beazley J’s  test will vary according to the circumstances of the  case.  

Certainly the court will not examine the merits of the  dispute other than to see if there is in fact a genuine  dispute.  The notion of a ‘genuine dispute’ in this  context suggests to me that the court must be  satisfied that there is a dispute that is not plainly

82  

vexatious or frivolous.  It must be satisfied that there  is a claim that may have some substance”.  

In Greenwood Manor Pty Ltd v Woodlock (1994) 48  FCR 229 Northrop J referred to the formulations of  Thomas J in Re Morris Catering (Australia) Pty  Ltd (1993) 11 ACLC 919, 922 and Hayne J in Mibor  Investments Pty Ltd v Commonwealth Bank of  Australia (supra), where he noted the dictionary  definition of “genuine” as being in this context “not  spurious ... real or true” and concluded (at 234):  

“Although it is true that the Court, on an application  under ss 459G and 459H is not entitled to decide a  question as to whether a claim will succeed or not, it  must be satisfied that there is a genuine dispute  between the company and the respondent about the  existence of the debt. If it can be shown that the  argument in support of the existence of a genuine  dispute can have no possible basis whatsoever, in  my view, it cannot be said that there is a genuine  dispute. This does not involve, in itself, a  determination of whether the claim will succeed or  not, but it does go to the reality of the dispute, to  show that it is real or true and not merely spurious”.  

In our view a “genuine” dispute requires that:  

• the dispute be bona fide and truly exist in fact;  • the grounds for alleging the existence of a  

dispute are real and not spurious, hypothetical,  illusory or misconceived.  

We consider that the various formulations referred  to above can be helpful in determining whether  there is a genuine dispute in a particular case,  so long as the formulation used does not become a  substitute for the words of the statute.”  

83  

38. To similar effect is the judgment of the Chancery Division   

in Hayes v. Hayes (2014) EWHC 2694 (Ch) under the U.K.  

Insolvency Rules.  The Chancery Division held:  

“I do not think it necessary, for the purposes of this  appeal, to embark on a survey of the authorities as  to precisely what is involved in a genuine and  substantial cross-claim. It is clear that on the one  hand, the court does not need to be satisfied that  there is a good claim or even that it is a claim which  is prima facie likely to succeed. In In re Bayoil  SA [1999] 1 WLR 147 itself, Nourse LJ referred, at p  153, to what Harman LJ had said in In re LHF  Wools Ltd [1970] Ch 27, 36 where Harman LJ,  having referred to a previous case, said:  

“The majority decided in that case that,  shadowy as the cross-claim was and  improbable as the events said to  support it seemed to be, there was just  enough to make the principle work,  namely, that it was right to have the  matter tried out before the axe fell.”  

On the other hand, the court should be alert to  detect wholly spurious claims merely being put  forward by an unwilling debtor to raise what has  been called “a cloud of objections” as I referred to  earlier.”  

39. Interestingly enough in In Re: Portman Provincial  

Cinemas Ltd. (1999) 1 WLR 157, a sharply divided Court of  

Appeal had to decide whether a winding up petition should be

84  

dismissed on the ground that a cross-claim had to be tried.   

Lord Denning, the minority Judge put it thus:  

“It comes to this: Mr. Hymanson has put forward a  most astonishing claim for an indemnity against  losses in perpetuity—based on an oral agreement  eight years ago—in a railway carriage or a solicitor’s  office—with nothing to support it at all: against a  man now dead. If there was substance in it fit for the  court to consider, he should have condescended to  a great deal more particularity. At all events, he  should have done so if he wished to convince me. I  do not think this cross-claim has any substance at  all. I would reject it as an answer to this creditor’s  debt and I would allow the appeal accordingly.”  

On the other hand, Justice Harman in agreeing with the  

Chancery Division judgment, held:  

“I do not think that on this proceeding we are  entitled to adjudicate upon that matter. I do not think  we ought to reject out of hand statements on oath  by Mr. Hymanson and Mr. Waller which,  unsatisfactory as they may be, do yet set up  affirmatively this story. There is nobody, of course,  to contradict them. I think we must take it that there  is at least a chance that the judge will believe that  story and will agree that there was such a bargain  made, and, moreover, that it was an inherent part of  the sale agreement.  

xxx xxx xxx  

Therefore, I have had grave doubts about this  matter but I have come to the conclusion on the

85  

whole that it cannot be said that the story was so  vague and the likelihood of success so slight that  we can say there was no substance in the cross- claim. I think the judge was right to say that the  matter ought to go to trial, and therefore according  to the modern practice the petition should be  dismissed, and I would so hold.”  

Similarly, Russell L.J. held:  

“Lord Denning M.R. has taken the view that the  deponents of the company really have made up this  story, so strong are the circumstances which seem  to point in the opposite direction. As I have said, I  agree it is a most extraordinary story, but I am not  prepared, merely on the basis of affidavits and  circumstances appearing in the Companies Court,  to hold that really not only is their story strange, but  palpably untrue.”  

40. It is clear, therefore, that once the operational creditor has  

filed an application, which is otherwise complete, the  

adjudicating authority must reject the application under Section  

9(5)(2)(d) if notice of dispute has been received by the  

operational creditor or there is a record of dispute in the  

information utility.  It is clear that such notice must bring to the  

notice of the operational creditor the “existence” of a dispute or  

the fact that a suit or arbitration proceeding relating to a dispute  

is pending between the parties. Therefore, all that the

86  

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.  It is important to  

separate the grain from the chaff and to reject a spurious  

defence which is mere bluster.  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.   

41. Coming to the facts of the present case, it is clear that the  

argument of Shri Mohta that the requisite certificate by IDBI  

was not given in time will have to be rejected, inasmuch as  

neither the appellant nor the Tribunal raised any objection to  

the application on this score.  The confirmation from a financial  

institution that there is no payment of an unpaid operational  

debt by the corporate debtor is an important piece of  

information that needs to be placed before the adjudicating

87  

authority, under Section 9 of the Code, but given the fact that  

the adjudicating authority has not dismissed the application on  

this ground and that the appellant has raised this ground only at  

the appellate stage, we are of the view that the application  

cannot be dismissed at the threshold for want of this certificate  

alone.  

42. On the other hand, Shri Mohta is on firmer ground when  

he argues that a dispute certainly exists on the facts of the  

present case and that, therefore, the application ought to have  

been dismissed on this ground.  

43. According to learned counsel for the respondent, the  

definition of “dispute” would indicate that since the NDA does  

not fall within any of the three sub-clauses of Section 5(6), no  

“dispute” is there on the facts of this case.   We are afraid that  

we cannot accede to such a contention.  First and foremost, the  

definition is an inclusive one, and we have seen that the word  

“includes” substituted the word “means” which occurred in the  

first Insolvency and Bankruptcy Bill.  Secondly, the present is  

not a case of a suit or arbitration proceeding filed before receipt

88  

of notice – Section 5(6) only deals with suits or arbitration  

proceedings which must “relate to” one of the three sub-

clauses, either directly or indirectly.   We have seen that a  

“dispute” is said to exist, so long as there is a real dispute as to  

payment between the parties that would fall within the inclusive  

definition contained in Section 5(6).  The correspondence  

between the parties would show that on 30th January, 2015, the  

appellant clearly informed the respondent that they had  

displayed the appellant’s confidential client information and  

client campaign information on a public platform which  

constituted a breach of trust and a breach of the NDA between  

the parties.  They were further told that all amounts that were  

due to them were withheld till the time the matter is resolved.   

On 10th February, 2015, the respondent referred to the NDA of  

26th December, 2014 and denied that there was a breach of the  

NDA.  The respondent went on to state that the appellant’s  

claim is unfounded and untenable, and that the appellant is  

trying to avoid its financial obligations, and that a sum of  

Rs.19,08,202.57 should be paid within one week, failing which  

the respondent would be forced to explore legal options and

89  

initiate legal process for recovery of the said amount.  This e-

mail was refuted by the appellant by an e-mail dated 26th  

February, 2015 and the appellant went on to state that it had  

lost business from various clients as a result of the  

respondent’s breaches.  Curiously, after this date, the  

respondent remained silent, and thereafter, by an e-mail dated  

20th June, 2016, the respondent wished to revive business  

relations and stated that it would like to follow up for payments  

which are long stuck up.  This was followed by an e-mail dated  

25th June, 2016 to finalize the time and place for a meeting.  On  

28th June, 2016, the appellant wrote to the respondent again to  

finalize the time and place. Apparently, nothing came of the  

aforesaid e-mails and the appellant then fired the last shot on  

19th September, 2016, reiterating that no payments are due as  

the NDA was breached.    

44. The demand notice sent by the respondent was disputed  

in detail by the appellant in its reply dated 27th December, 2016,  

which set out the e-mail of 30th January, 2015.   The appellant  

then went on to state:

90  

“Sometime during June and September 2016, an  officer of your Client, one Mr. Jasmeet Singh wrote  to our Client that he wanted to meet and revive  business relationship and exploring common  interest points to work together. In fact, in his email,  he admits that there should be resolution to the  impending payments thereby implying that there  was (a) a dispute (as defined under the Code) and  (b) there was a breach of the NDA which needed to  be resolved. Mr. Singh’s emails to our client were  sent after       1 year and 6 months had elapsed  from the date of our Client’s email of     30 January  2015. This clearly shows that your Client was silent  during this period and had not bothered to answer  the questions raised by our Client. Hence, once  again in September, our Client called upon your  Client to explain its breach of the NDA. Your Client  instead of explaining its breach of the NDA  remained silent for about 3 months and thereafter  chooses to issue the Notice as a form of pressure  tactic and extort monies from our Client for your  Client’s breach of the NDA. All the conduct of your  Client explicitly shows laches on its part.  

Your Clients should note that under the NDA, it has  agreed that a breach of the NDA will cause  irreparable damage to our Client and our Client is  entitled to all remedies under law or equity against  your Client for the enforcement of the NDA.  Accordingly, given the severity of the breaches of  the NDA committed by your Client, the delay and  laches committed by your Client and the conduct of  your Client, our Client is not liable to make  payments to your Client against the breaches of the  NDA and the delay and laches committed by your  Client. In fact, at this stage, our Client is  contemplating initiating necessary legal actions  against your Client and its parent company for the  breach of the NDA to seek further compensations

91  

and damages and other legal and equitable  remedies against your Client and its parent  company.”  

 45. Going by the aforesaid test of “existence of a dispute”, it  

is clear that without going into the merits of the dispute, the  

appellant has raised a plausible contention requiring further  

investigation which is not a patently feeble legal argument or an  

assertion of facts unsupported by evidence. The defense is not  

spurious, mere bluster, plainly frivolous or vexatious.  A dispute  

does truly exist in fact between the parties, which may or may  

not ultimately succeed, and the Appellate Tribunal was wholly  

incorrect in characterizing the defense as vague, got-up and  

motivated to evade liability.    

46. Learned counsel for the respondent, however, argued  

that the breach of the NDA is a claim for unliquidated damages  

which does not become crystallized until legal proceedings are  

filed, and none have been filed so far. The period of limitation  

for filing such proceedings has admittedly not yet elapsed.  

Further, the appellant has withheld amounts that were due to  

the respondent under the NDA till the matter is resolved.

92  

Admittedly, the matter has never been resolved. Also, the  

respondent itself has not commenced any legal proceedings  

after the e-mail dated 30th January, 2015 except for the present  

insolvency application, which was filed almost 2 years after the  

said e-mail. All these circumstances go to show that it is right to  

have the matter tried out in the present case before the axe  

falls.  

47. We, therefore, allow the present appeal and set aside the  

judgment of the Appellate Tribunal.  There shall, however, be  

no order as to costs.   

…………………………......J.  (R.F. Nariman)  

..……………………...........J.  (Sanjay Kishan Kaul)  

New Delhi;  September 21, 2017.