Interpretation of the definition of “Dispute” and “existence of disputes” under the Insolvency and Bankruptcy Code, 2016

The definition of the term “dispute” has been expanded and is not restricted to pending suits and arbitration. It includes correspondences exchanged between parties showing a dispute relating to payment of debt as well.

The Hon’ble Supreme Court delivered a landmark judgement in the matter of Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. regarding the interpretation of the terms ‘dispute’ and ‘existence of disputes’.

Challenge

The interpretation of the terms ‘dispute’ and ‘existence of disputes’ and the extent of the authority of the National Company Law Tribunal (adjudicating authority) to ascertain if a dispute exists under section 8 and 9 of the Insolvency and Bankruptcy Code, 2016.

Held

The Apex Court held that the definition of ‘dispute’ is an inclusive definition. The word ‘and’ occurring in Section 8(2)(a) must be read as ‘or’ considering 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 include only a pending suit or arbitration proceedings and not otherwise.

Therefore, a dispute is said to exist when there is a real dispute as to payment between the parties that would fall within the inclusive definition contained in Section 5(6) of the Code. However, Section 5(6) only deals with suits or arbitration proceedings, which must relate to one of the three sub clauses directly or indirectly.

The Apex Court also held that the adjudicating authority must determine whether there is a plausible contention, which requires further investigation and that the term ‘dispute’, is not a patently feeble legal argument or an assertion of fact not supported by evidence. It includes correspondences exchanged between parties showing a dispute relating to payment of debt as well.