MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA SOFTWARE PRIVATE LIMITED

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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 B (Section 8(1)). Within a period of lOdays 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)). c 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 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 a operational creditor has encashed 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 I0 days, the operational creditor does not either receive payment from the corporate debtoror 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 F . post or speed post, a copy of the application to th\! registered office of the corpor~te 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 reiating to a dispute of the unpaid operational debt and a copy of G . 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, H

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SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

the adjudicating authority, under the proviso to sub-section 5, may give a 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 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 of7 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 invoic~ 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)). F 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 G 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 · H

1058 SUPREME COURT REPORTS [2017] JO S.C.R.

A 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 reject the application, as the case may be, depending upon the factors mentioned in Section 9(5) of the Act.

26Copy pinpoint26. 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.

27Copy pinpoint27. 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 appeals to the Supreme Court from the Appellate Tribunal under Section 62, 45 days time is given from the date of receipt of the orderoftheAppellate Tribunal in which an appeal to the Supreme Court F 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 G 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.

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SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

28Copy pinpoint28. It is now important to construe Section 8 of the Code. The A 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, 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 defaultfrom 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 pbint 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: D "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 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 (I), 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 re.cords of the information utility or other evidenc.e 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 H

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A adjudicating authority may reject an application and not otherwise."

29Copy pinpoint29. 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 B 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 have also seen the notes on clauses annexed to the Insolvency and Bankruptcy Bill of2015, in which "the existence ofa dispute" alone is mentioned. Even otherwise, the word ''and" occurring in Section c 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". Ifread as "and", disputes would only stave off the bankruptcy process if they are already pending in a suit or arbitrati.on 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 per~ons 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 such debts, which is usually smaller than that of financial debts, does not enable operational creditors to put the p 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.

30Copy pinpoint30. 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.

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SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

Here again the word "and" need not necessarily be understood as denoting a conjunctive sense. In Stroud:5 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 lshwar Singh Bindra v. State of U.P. [AIR 1968 SC 1450: 1969CriLJ19]. The principle of noscitur a sociis can profitably be used to construct the words "and may also" in the sub-rule:"

31Copy pinpoint31. In Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd. C. (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" D 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 rriean "and" (vide G.P. Singh's Principles of Statutory Interpretation, 9th Edn., 2004, p. 404). E

27. In ouropinion 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 obvious! y 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"."

32Copy pinpoint32. In a recent judgment in Mah.arishi Mahesh Yogi Vedic Vishwavidyalaya v. State ofM.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 rendered by this Court in lshwar Singh Bindra [lslnvar 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) H

1062 SUPREME COURT REPORTS . [2017] IO S.C.R.

A "lJ . ... 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 B 'or'. Similarly in Maxwell on Interpretation of Statutes, 11th Elin., it has been accepted that 'to carry out the intention of the legislature it i.~ occasionally found necessary to read the conju11ctio11s "or" and "and" one for the other'."

94. We may also refer to para 4 of the decision rendered by this c 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 (I) 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 attract the proviso to clauses (a) and (b) of sub-section (I) 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."

33Copy pinpoint33. This being the case, is it not open to the adjudicating authority to then go into whether a dispute does or does not exist? G

34Copy pinpoint34. 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 H in Section 271 of the Companies Act.

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SOFTWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

35Copy pinpoint35. We have already noticed that in the first Insolvency and A Bankruptcy Bill, 2015 that was annexed to the Ban~uptcy 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 B 8(2)(a) in order to judge whether a dispute exists or not.

36Copy pinpoint36. The expression "existence" has been understood as follows: "The Shorter Oxford English Dictionary gives the following meaning of the word "existence": · ·"·" a) ~eality, as opp to appearance. c 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 D 894 - Oxford English Dictionary)"

37Copy pinpoint37. 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 of a dispute" contained in Section 8(2)(a) of the Code .. TheAustralianjudgment is reported as· E . 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 F 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: G Finn J was content to adopt the explanation of "genuine dispute" given by McLelland CJ in Eq in Eyota Pty Ltd v Hanave P°ry Ltd (1994) 12 ACSR 785 l!t 787 where his Honour said: "In my opinion [the] expression connotes a plausible H

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A 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 B 'however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same 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 c 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 at194." His Honour also referred to the judgment of Lindgren Jin Rohala D Pharmaceutical Pty Ltd (supra) where, at 353, his Honour said: "The provisions [bf s 459H(l) 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 fin 'genuine dispute'} to sound a E 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 F 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: G "... 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 H that there is a dispute and that it is a genuine dispute".

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SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

See Mibor Investments Pty Ltd v Commonwealth Bank of A Australia (1993) 11 ACSR 362 at 366-7,followed by Ryan J in Mayall 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 B between mere assertion and the proof that would be necessary in a court of law. Something niore 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 C Kilpatrick Green Pty Ltd (1994) 12ACLC 716 at 718, followed by Northrop J in Aquatown Pty Ltd v Holder Stroud Pty Ltd (Federal Court of Australia, 25June1996, unreported). In Re Morris Catering (Australia) Pty Ltd (1993) 11 ACSR 601 at 605, Thomas J said: D "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 ascertai11me11t 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 beyo11d a perception of genuineness (or the lack of it) the 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 iikely result of it). " H

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A In Scanhill Pty Ltd v Century 21 Australasia Pty Ltd (1993) 12 ACSR 341at357 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". B 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 c 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 D . Beazley J's test will vary according to the circwnstances 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 E that the court must be satisfied that there is a dispute that is not plainly 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 F in Re Morris Catering (Australia) Pty Ltd (1993) 11 ACLC 919, 922 and Hayne J in Mihor Investments Pty Ltd v Coml1U!nwealth 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,

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SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

it cannot be said that there is a genuine dispute. This does A 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; B

• 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 c particular case, so long as the formulation used does not become a substitute for the words of the statute." '

38Copy pinpoint38. 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: D "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 pne 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 · E ·facie likely to succeed. In In re Bayoil SA [1999] l WLR 147 itself, Nourse LJ referred, at p 153, to wharHarman 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- F 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 otht;r hand, the court should be alert to detect wholly G 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."

39Copy pinpoint39. Interestingly enough in In Re: Portman Provincial Cinemas Ltd. (1999) 1WLR157, a sharply divided CourtofAppeal had to decide H

1068 SUPREME COURT REPORTS [2017) IO S.C.R.

A whether a winding up petition should be 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 B 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 c debt and I would allow the appeal accordingly." On the other hand, Justice Harman in agreeing with the Chancery Di vision 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 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." G 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 H

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SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.]

prepared, merely on the basis of affidavits and circumstances appearingin the Companies Court, to hold that really not only is their story strange, but palpably untrue."

40Copy pinpoint40. 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" ofa dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the "dispute" is not a patently feeble legal argument or an assertion of fact unsupported by evidence. 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 cif 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 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. G

42Copy pinpoint42. 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. H

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43Copy pinpoint43. 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 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 30'h 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 I01h February, 2015, the respondent referred to the NDA of 261hDecember, 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 ofRs.19,08,202.57 should be paid within one week, failing which the respondent would be forced to explore legal options and initiate legal process for recovery of the said amount. This e-mail was refuted by the appellant by an e-mail dated 261hFebruary, F 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 201hJune, 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 251hJune, 2016 to finalize G the time and place for a meeting. On 28 1h 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 191hSeptember, 2016, reiterating that no payments are due as the NDA was breached. H

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SOFfWARE PRIVATE LIMITED [R. F. NARIMAN, J.J ·

44Copy pinpoint44. The demand notice sent by the respondent was disputed in A . detail by the appellant in its reply dated 27'h December, 2016, which set out the e-mail of30•h January, 2015. The appellant then went on to state: . "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 B 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 underthe Code) and (b) there was a breach of the NOA which needed to be re.solved. Mr. Singh's emails to our client were sent after 1 year and 6 months had elapsed from the date of our Client's C 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 NOA. Your Client instead of explaining its breach of the NOA D remained silent for about 3 months and thereafter chooses to a issue the Notice as 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 !aches on its part. Your Clients should note that under the NOA, it has agreedthat E a breach of the NOA 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 NOA. Accordingly, given the severity of the breaches of the NOA committed by your Client, the delay and !aches 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 NOA and the delay and !aches 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 NOA to seek further compensations and damages and other legal and equitable remedies against your Client and its parent company."

45Copy pinpoint45. 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 H

1072 SUPREME COURT REPORTS [2017] IO S.C.R.

A 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. B

46Copy pinpoint46. 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. Admittedly, the matter has never been resolved. Also, the respondent itself has not commenced any legal proceedings after the e-mail dated 30'h 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. E Devika Gujral Appeal allowed.