National Company Law Appellate Tribunal
Kirusa Software Private Ltd vs Mobilox Innovations Private Ltd on 24 May, 2017
oat "ENAHE THE NAT IONAL COMPANY LAW APPELLATE TRIBUNAL
oe COMPANY. APPELLATE JURISDICT TION .
| Company Appeal (AT) (insolvency) 6 of 2017
- {arising out of order dated 27.01.2017 passed by the National Company Law
: Tribunal, Mumbai Bench in Company Petition 02/A&BP/NCLT/MAH/2017)
IN THE MATTER OF:
"Kirusa Software Private Ltd. . . . Appellant |
: "hii pniraton Private Lid. | ..- Respondent -
Present: Mr Amar Gupta, Mr. Sanjeev Jain, Ms Apoorva Agrawal, Mr
=... . Alok Dhir, Ms Varsha Banerjee, Mr. Milan Negi and Mr. Kunal
/ i» 4Godhwani, Advocates for the appellant.
_ Mr. Devansh Mohta, Mr. Shyam Pandya, Mr. Puneet Singh :
'Bindra and Mr. Rohan Kaushal, Advocates for the respondent.
HAN SU JYOTI MUKHOPADHAYA, J.
we The. appellant --~ operational creditor filed petition under section 9 of the -
"anveney & Bankrupicy Code 2016 (hereinafter referred to as q &B Code' oe 2016) which was rejected by the 'Adjudi icating Authority'. Mumbai Bench by the pugned tier dated 27* January 201 1, with following observations: -
. "When this Bench has directed the petitioner to furnish the requisite documents as described u/s 9 of _. the Insolvency & Bankruptcy Code, the Petitioner a fi fed the Notice of dispute raised by the Corporate . ~ Debior disclosing the Corporate Debtor di. sputing the . - elaim made by the Petitioner. : | a Though the petitioner filed all the invoices raised on % the Debior Company aggregating, debt .
Rs, 20, 08, 202, detail s of transaction on account of : . which debi fell dine default thereof and demand
- notice served upon the Debtor, for this Bench having | noticed that notice of dispute raised by Respondent : side has not. been annexed to the CP. this Bench . s hereby directed fo furnish the documents as : : prescribed u/s 9 of the I&BP Code. in compliance of : i the Petitioner fi led the notice of disgnite issued by the Corporate Debtor disclosing the corporate debtor - ~ disputing 'the claim made by the Petitioner. On "perusal of this sub-section (5) of Section 9 of this - . Colle, it is evident that notice of dispute has been : received by the Operational Creditor.
; 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 _. Waived by the Petitioner in this CP, hereby holds that the default payment being disputed by the Corparate -- Debtor, for the petitioner has admitted that the notice of dispute dated 27" December, 2016 has been : received by the operitional creditor, the claim made by the Petitioner is hit by Section OY) (5. Mii Wd) of The , Insolvency and Bankruptcy Code, hence this Petition _ ds hereby rejecied. "
lea taken by the appellant is that mere disputing a claim of default of _ be.a ground to reject the: application under Section 9 of y & B Code'; ' rate debtor refer any disptite pending. | : 2 only question arises for considered in this appeal is what does "dispute" -
; xistence of dispute" means for the purpose of determination ofa petition ' on 9 of the 'I & B Code'? - | . Section 7 of the Code, before making an application to thes:
ud cating A Authority under Section 9 of the Code, the requirements under 18 of the Code are required to be complied with, which reads as under: -
. B. "Insolvency Resolution by operational crediter-
- | (Dan operational creditor may, on the occurrence: -
ee - of a defiuult deliver a demand notice of unpaid : 'operational debtor copy of an invoice demanding ote 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 shail, within a period of :
| ten days of the receipt of the demand notice or copy | of the invoice. mentioned in sub-section (7) bring to"
the notice of the operational creditor-- .
fa) existence of a dispute, if any, and record of the pendency af the suit or arbitration _ proceedings filed before the receipt of such: | notice or invoice in relation to such dispute;
{bj the repayment of unpaid operational debt-- (i by sending an attested copy of the: | record of 'electronic transfer of the unpaid amourit 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 "mea. ns a notice. served by an .
operational creditor to. the. corporate debtor~.
respect af which the dleferult has occurred."
b-section a of Section 8 of the '1& B Cede' "though t the word "may" 7 used, 'but j in 'the context of Section 8 and Section. 9 reading asa "whole, rational Creditor,' on occurrence of a default, is S required to deliver a.
. notice of demand of »f unpaid dept or get copy of the invoice demanding payment 2 at 'the. defaulted amount served on the corporate debior. This is the condition, det! Séction 8 and 9. of the1& B Code', before making an application : | cating Authority.
ér sub-section @) of Section 8 of the 'I & B Code', once the demand :
served on the corporate debtor by the 'operational creditor', the corporate to bring to the notice of the operational creditor the payment of debi or.
"af ny with respect to such operational debt within. 10 days of the receipt oe 4a i noticerinvoice 7 | er Section 9-of the Code, as quoted. below, a right to file an application Step "expiry of ten an days from the date of delivery of the demand notice oF 7 vie as the case > may be, demanding payment under sub-section jot --
plication for initiation of corperate insolvency resolution . ©:
|" process by operational creditor: (1) After the expiry of the period "
ten days from the date of delivery of the notice or invoice Hy anding payment under sub-section (1) of section 8, if the rational. creditor does not receive payment from the 'corporate debto® or notice of the dispute under sub-section (2) of | tion 8, the operational creditor may fil ° an appi ication before the A djudicating Authority jor initiating a corporate insolvency resolution process, | . (2) The application under sub-section ( 4d) shall be filed in .
form and manner and accompanied with such fee as may be . GB The. operational creditor shatl, along with. the.
ication furnish--
s "notice delivered by the operational creditor to the ° "corporate debtor;
°46) an affidavit to the effect that there is no notice given by 12 corporate debtor relating to a dispute of the unpaid "operational deb;
ya copy of the certificate from the financial institutions eo maintaining accounts of the operational creditor .<"eonfirming that there is no payment of an. unpaid operational debt by the corporate debtor; and (dy such Other information.as may be specified.
{4) An operational creditor initiating a corporate
-ctnsolvency resolution process under this section, may propose a *~ solution professional to act -as an interim resolution . (3) The Adjudicating Authority shall, within fourteen days ofthe application under sub-section (2), by ant fi) 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;
(0) there is no repayment of the unpaid operational * debt:
(¢) the invoice or notice for payment to -the corporate debtor has been delivered by the operational creditar:
ti d) no notice of dispute has been received by the _ operational creditor or there is no record a édismnite inthe infor mation udility; and ~ / eo there is no | 0 disciplinary proceeding pending "
against any resolution professional Pr oposed under -.
sub-section Ab), if any. _ ick ) reject the application and communicate such decision * t6-the operational creditor and the corporate debtor, if--
_ fajthe application made under sub-section (2). is: ~ : incomplete; .
| @)ihere has been repayment of the unpaid"
- operational debt; | __(¢) thé creditor has not delivered the invoice or notice | for payment to the corporate debtor;
oe @ notice of dispute has heen received by the.
'operational creditor or there is arecoi rd of tis spute ;
. in the information utility; or _(@any disciplinary proceeding is pending against | " any proposed resolution professional:
ovided that Adjudicating Authority shall hefore rejecting. :
oh application iuicler sub clause fa) of clause fii) give a notice ae applicant to rectify the defect in his application within severt :
ny days of the date of receipt of such notice from the adjudicating (@ 'The corporate insolvency resolution. process shall : 'commence from ithe date of admission of the application under.
. sub-section t Sor this section"
has to, ither: admit or reject the application.
is with the information utility.
x Authority to reject the application if the operational creditor' t i 'evident from Section 9 of the 'I& B Code' that the Adjuaicating h within fourteen days of the receipt of the application int 'a der sub Hon 9 has two- fold situations in so far as notice of dispute is concerned. a b-section XE) of Section 9, the Adjudicating Authority. can. admit on in case no notice raising the dispute is received by the operational -
5 verified by the operational creditor on affidavit) and there is no-record-
he other 'hand, 'sub-section (S)Gi) of Section 9 mandates: the 8 of dispute from the corporate debtor. Section 9. thus makes ri Section 7. While in Section 7, occurrence of default has © be . and. satisfaction recorded by the Adjucicating Authority, there: BO lar: pr vision under Sections 9. The use of language i in sub-section @. 'of.
ofthe 1é& B B Code' provides that the "corporaie debtor shal, 'within a.
10of ten days of the receipt of the demand notice or copy. of thé inveice -
in sub-section (1), 'bring to the notice of the operational creditor s:. the.
dicial authority -must refer the parties to arbitration if the matter before.
"to.van arbitration agreement 'Section 8 as amended in 2018.
tes. the judicial authority to. forma a prima facie view in relation Ss alid arbitration agreement, thereby conferring limited jurisdiction. | sh the words 'prima facie' are missing in Sections 8 and 9.of the Code, idicating Authority would examine whether notice of dispute in fact ~ ses, the dispute and that too within the parameters of two definitions = 'debt' atid then it has to reject the application if it. apparently finds that the .
dispute does really raise a dispute. and no other factual ascertainment igs. -
"Oi the other hand, if the Adjudicating Authority finds that the notice of ~ articulars or does not raise-a dispute, it may admit the applicat ion.
¢ Case; there is neither an ascertainment of the dispute, nor satisfaction' _ ing Authority.
© "of ' Adjudicating Authority may become easier ohee 'ithe® jon lity starts functioning for it is a record of dispute that would then to reject the application of the operati ional creditor.
e terms "Claim", "Debt" "and "Default" are define under Part l of the .
étion #0) of the Code defines "claim" to- mean a sight to payment. and Ain | its ambit disputed and undisputed, legal, 'equitable, secured, .
ng out-of 'breach of contract. Therefore, "right to payment" is the.
on for making'a claim under the Code.
ion 3G 1) defines "debt" to mean; the Hability or obligation in 'respect ° which is due. from any person. Thus, claim transforms into a-debt;
operational, once liability or obligation to pay gets attached 40 the © on3(4 2) define g "default" to mean "non- payment of the debt" once it :
ue and payable and the same is not cepaid 'by the debtor, "Default" : rent of twin: conditions: | | se b eoming due and payable and (b on-payment thereof. | i & purposes of Part II only of the Code, some terms/words have been.42
ection (6) of Section 5 defines "dispute", to include, unless the.
herwise requires, a dispute. pending in any 'suit -or. arbitrati stence of amount of the debt _ | quality of good or service;
_ (epbreach of a representation or warranty. hé-definition-of "dispute" is "inclusive" and not "exhaustive". The same.
én wide meaning provided it is relatable to the existence of the ie Legislature was 'that a demarid by an operational creditor can n be uly by' showing 'a record of a suit or arbitration proceeding, the:
' ispute would have simply said dispute means a dispute pending i in le : tasuit. at
43.
ata'19 it Observed as under:
particular expression is often defined by the Legislature by using xd 'means', or tite word 'includes'. Sometimes the words. ears and includes' are used. 'The use of the word 'means' in cates that "definition isa hard-andfast definition, and no other Cmeening can be assigned 10 the expression than is put. down in:
efron'. a (See: Gough V Gough: Punjab Land Development and Reclamation + Compn Ltd Vs. Presiding Officer, Labour Court ) The.
"eum that they shall include."
Adinittedly in sub-section (6) of Section 5 of the 'I & B Code', "the ¥ bie Supreme Court in P. Kasil ingam Vs. PSB Colleze. p po ey d 9 95. Supp. (2} SCC 348 was dealing with the question' a liege" includes as used in the relevant Rule. The Hon'ble Supreme sieeve what i is the intent of, thie of the Legislature when the expression ~ the definition is 'means' and when the expression used is s "includes? ' At.
re used 'the words 'dispute includes ¢ a@ suit or arbitration proceedings'. : Fmoniously tead with Section (2) of Section 8 of the: 1 & B Code' ee ordé't: used are 'existence ofa dispute, i any, and record of the pendency Sit er arbitration proceedings, the result is disputes, if any, applies be all 44 utes, in. relation to debt and default, The expression used in sub-
of ection 8 of the 'T & B Code' 'existence of a dispate, if any 48.
n: the expression ' 'record aor the * pendency of the suitor: arbi ; be Supreme Court in Mithiesh Singh Vs. 'Union of India (2003) . 3 'observed that the Legislature i is deemed not to waste its words or: to. .
in vain. If the intent of the legislature Was to limit the dispute: te. :
"suit or arbitration proceedings, sub-section (2) of Section 8@), equired a notice of dispute to only refer to.a record of pendence r rf bittation proceedings and not to 'existence of a dispute if any' fn 'the Hon'ble Supreme Court at page 316 para 8 observed as under:
ot a sound principle of ec construction to brush aside word ae aye statute as 8 being inapposite sirplusage: if they car have 28 opriate application in cireumstances conceivably within the ioe _porieniplasion 'of the statute. in thé interpretation of statutes 5 the ay ris'always presume that the Legislature inserted every part. :
the statute for a purpose and the legisiative intention is that y part of the statute should have effect. The Legislature is .
deemed not fo waste its words or to say anything in vain? statutory requirement. in sub-section (2) of Section 8. of the T& B S 1S. that the dispute | has to be brought io the notice of the Operational "
het two comes post | the word "spate a any) have been. added as se :
& B Code'. _ Without going into the grammar and punctuation being, .
sv: ictim of pace of life, if one discovers the true meaning of sub-section .
Seétion 8.of the T&B Code', having regard to the context of Section , 8 o i e Code, it emerges. both from the object and purpose of the 4 & BL.
the context in which the. expression is used, that disputes: raised i in: n the . :
y the = corporate, debtor to the 'Operational Creditor would get con 6 ction (2) of: Section 8 oft the T&B Code'.
ue meaning of sub-section @e) of Section 8 read. with sub-seotio 1 Section 3 of the 'I & B Code' clearly brings out the wntent. of. the c ode, a Corporate Debtor must raise a dispute with su ficient particulars: And .
nite is bein g raised by simply showing arecord of di spute in a pending, fut, 'the dispute must also: be relatable to the three condi ton "Le wader sub-section (6) of Section 5 (a)-(c) only. The words 'and record :
y of the suit or arbitration proceedings' under sitb-section (2)fa) of * » see inest:of the ¢ Legislature clear tha disper ae ee:
the 'expression, "dispute, if i any', The record of suit "or ie Section! §! of the 4 & B Code', it would violate the 'definition of me inconsistent thereto, and would bar Operational Creditor 6 :
é ions 8 8 and 9 of the Code.
a section 6) of Section 5. read with sub-section xa) of Se Stion | g als 5 disputes a as to existence of debt or default etc., 1 would.s sati si 3 ; 7 Section 8 of the '.& B. Code'.
fe ore, as per sub-section (2) of the T & B Code', there are two ways no demand of an Operational Creditor can be disputed:
47.
. By bringing to the notice of an operational creditor; 'existence of . ~ a dispute'. In this case, the notice of dispute will bring to thie notice oe 'of the creditor, an 'existence of a dispute' under the Code. This. tm - would mean disputes as tovexistence of debt or default cic, or :
- "x By simply bringing to the notice of an operational creditor, record - of ti the pendency of a suit 'or. arbitral proceedings i An lesion fea a : dispute In this case, the e dispute in the suit/arbitral proceeding should oe 7 relate to matiers fa)-{c) i in sub-section (6) of 'Section Sanid-id th | 'case, showing a record of pendency of a suit or arbitral proceedings : .
" "on a dispute is enough andto intent of the , Legislature is clear, Tess | ~~ nee the dispute (on matters relating to 3 classes in sub-section (6)... -
- of Section 5 of the I & B Code') is pending adjudication, that in" ss itself would bring it within the ambit of sub-section (6) of Section's "of the 'I & B Code'.
finition of "dispute" for the purpose of Section - gy must be read : goods 0 or services including employment ora debt in respect of | "repayment of dues arising under any law for the time being i force 2 'and payable to the Central Government, any State Government or 'gity Toéal authority:"18
| > definition of 'dispute', 'operational debt' is read together fe ection 48 clear that the intention of legislature to lay down the ature .
"aot been limited to suit or arbitration proceedings pending bit"
er proces "af. any".
operation. creditor for the: purpose of Section 9 of 1&B Code, 2 "ati L sed the dispute with the State Government concerning 'the suibjedi istence of amount of debit.and pending consideration before 'the * Jovetnment. Similarly,.a dispute may be pending in a Labour Court' stence of amount of debt. A party can move before a High Court under:
isdictions "against Government, "corporate debtor: (public. "geetor -
41s ding). Thete may be cases where one of the party has moved before the Oo:
Oure. under 'Section 433 of the Companies Act, 1956 for initiation of, ati on proceedings against the corporate debtor | and dispute is pending. a y. vith regard to quality of foods, 'if the * corporate debtor' has raised a a ha ought tothe notice of the operational creditor' to take appropriate 2 tor receipt of notice under sub-section (1) of Section 8 of the y & B ssin'as say that a. dispute j is spending about the debt: Mere raising a dispute e sf dispute, unrelated or related. to clause (a) or (by or x (c) of Sub- Lo (6).of§ Section 5, af not raised prior to application and not pending before | OF petent co court of law or authority cannot be relied upon to hold that there a spruts raised by the corporate debtor. The scope of existence of * dispute' :
A hi includes pending suits and. arbitration proceedings cannot be limited ' ed, to sitit: and arbitration proceedings only. he includes: any: of her. :
3 é prior to 'Section 8 in this'in relation to clause (a) or &) or ©) of on { 8) of Section 5. It must be raised i in a court of law-or. authority and 8 sed to be moved before the court of law or authority and not: any got up OF 3 ide: dispute just to stall the insolv ency resolution process.
may "be: other cases such as a suit relating to existence ofa amount of wg?
id decided and decree i is pending for execution. 'Similarly, existence f _ dete or quality of goods or service for which a suit have been 5 led ad | AF. dbase and Reconciliation Act, 1996 may be pending. Tn Ch.
2°.
zi estion: will arise whether a petition under Section... wi : ularly when: it was a suit or arbitration proceeding. j nd decided? T hough one may arcue that insolvency resolutio cutority "to > verify adequscy of the dispute: tt prohibits om .
"and arbitration proceedings. Mere a dispute giving a colour. of.
default on the part o of the coiporate debtor.
yt us toy prove that there. is no: default or debt.or that there j is a di spat = vside ation before a court of law or adjudicating authority shift ve 1 | o- debtor and operational creditor to corporate debtor. --23
in view.of the aforesaid discussions we hold that the dispute as defined in ae a) of Séction.5 cannot be limited to a pending proceedings or "lis, imnited ambit of suit or arbitration. proceedings, the word "includes"
! a "means and includes" including the proceedings initiated or -
ngb sfore c consumer court, tribunal, labour court or mediation, conciliation:
action 3 is taken by corporate debtor under any act or law including . 'hile replying to a. notice under section 80 of CPC, 1908 « or toa notice issued -
Se ion 433 of the Companies Act or Section 59 of the Sales and. Goods . arding quality of goods or services provided by | "operational creditor" . in ¢ within the ambit of dispute, raised and pending within the' meaning of ., O)of Section 5 read with sub-section (2) of Section 8 of I&B code, < 1! ie: present Gabe we find that thé notice in Form. 'pe under the Iap * ' lication to Adjudicating Authority Rules, 2016, was given aby = eben creditor' on 23rd December, 2016 urider the said rules was .
orwarded. 'One. M/s Desai & Diwanii, "Advocates, Solicitors and Notaries.
lated 278 December, 2016 replied to the same on behalf of respondents debtor: Mis Mobilox Innovations Private Limited, relevant of whieh'.
have chgaged yourselves: into a protracted sorrespondorice.
220ith 0 our Client on the issues raised in the Notices. Our . Client disputes and denies gach of the statements and false, - fivolous, misconceived, devoid bof merits: cand "ervoncons. Nothing stated i in 1 the said Notices "should be , deemed to have been - admitted by our Client... unless * specin cally admitted herein cand the same be treated as :
Notices are liable to be disregarded at the threshold and :
does not deserve to be entertained as the samme are not --
- 2 'maintainable inlaw.
3-H is stated that the claim on behalf of your Client aisstatiod | ; 7 the Notices are not contractually due and pisiable 10 you lent, as there exist serious and bonafide dispute between os
- your elient aud our client; and neither a winding up natice is "é
- : maintainable nor any application befare the Adjudicating. -
Author ity (as defi ned in the Code) for initiating a 'corporate :
| "insolvency resolution process under the Code;23
'as Seriously and bonafide disputed by our client and the same
-avith other applicable provisions of the Code."
knowledge of our client that your chi ient in n flagrant breach ents of our 'client: further, your client had indulged in .
seach: of trust-and breach of the NDA by displaying our"
4: The Notices are not only misconceived but also mala fide 4 nature und has been colowrable issued as. a "pressure is not liable to be paid for reasons more specifically notice nor any insolvency resolution process is a legitimate | ona fide disputed by a party A disputed sum can neither be ° ermed as 'inability to pay' the saiie SO as 101 incur the of the: Companies Act, 2013 nor can it be termed as: 'a : oft the terms and conditions of the NDA, had divulged our mo client's Confidential I nformation and approached certain | atin 10 your client by ont client. "Phe piped deb We :
"mentioned herein. It is well settled that neither winding up"
means of seeking to enforce payment of an amount that is iabiiy under Section 271 OMe fread with Section 27 i a a , .
7 "default" as defined under section 3(12) of the Code read :
ejln and around 30 January, 2015, it had come tothe ~ oe
- cites confidential - ghent: information and client...
sep: dfeisal puirsérver com! page _id=34-- vend .
. htips Wind inkedin. com. pubvikram-agarwal/ 77. 3al/83b.. . Your client should note that any client information of 'any-
- party ¢ carries intrinsic: confi dentality obligations (inchiding es snder the NDA 0 and your client's 5 | breach of the NDA + violated the basic keystone of a business relationship."
. : Notice it is. denied that a an amount of Rs. 20,08, 202. $5 is. aint .
é x admitted debt on the part of our client based On the : "contracts in the form of POs placed by our Client and the -
2 corresponding Invoices raised by your client for Bene -
Oe the required services for the campaign under the POs. Our -
os client deny: that it had. failed fp discharge its admitted \ a liability; : therefore, it is evident that it is not unable to pay : . as debt. lis pertinent to highlight that our client has, atne. oe point of time, confirmed or admitted its liability towards
- your. client to pay an amount of Rs. 20,08, 202.55. fn this:
regard otir - client repeats and reiterates the contents: of. o ve - paragraph number 6 of this reply. ° 25 from the quoted portion, if reply dated 27" December, 2016 ig read we find that the respo ndent-corporate debior has not raised any dispu eaning of sub-section (6) of Section $ or sub-section (2) of Sectix &, 2016 and in that : view of the maitér,' merely on some oF 6 ber.
ewéspondent has. dgputed to. pay, the amount, cannot be termed to be nd ie which is a safeguard prevent the. operational creditor to b Age ceo or baseless claim, similarly the ailjudicating authority. i is required .
ine s before admitting or rejecting an: application under Section 9 wheth ape raised by corporate debtor qualify asa 'dispute" as. defined under: -
10 (6) of Section 5 and. whether notice of dispute given by the corporate vs filling the conditions stipulated in sub-section (2) of Section 8 of RB: * present case the adjudicating authority has acted mechanically and Be 'the' application 'under. sub-section (8\GiNd)- of Section. 9 We and discussing the aforesaid issue. Ifthe adjudicating authority woul a | edithe provisions as s discussed above and what constitute arid ast dispute' in relation to services provided by operational creditor then.» 26 ome: to a 'conclusion that condition of demand notice unde of Section 8 has not been fulfilled by the corporate debtor. and the claiming dispute was not only vague, got up and motivated to evade the.
rhe reasons aforesaid we set. aside the iinpugned order dated 27, 1 2017 - y adjudicating eutherity in cP No.0 &BPINCLTIMAHV2017 and- , to adjudicating authority for consider ation of the application of the. admission if the application i is otherwise complete, . . | & appeal i is allowed with the aforesaid observations, However, in p the:
'itnstandes there shall be no order as to cost.
echnical)" es a "Chsepeson