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Company & Insolvency LawSupreme Court of India

Mobilox Innovations Private Limited v. Kirusa Software Private Limited

Civil Appeal · 2017 INSC 975Decided 21 Sept 2017
Civil Appeal No. 9405 of 2017
Justice Rohinton Fali Nariman · Justice Sanjay Kishan Kaul

Background

Mobilox had sub-contracted toll-free voting services for the "Nach Baliye" TV show to Kirusa Software, but later withheld payment alleging Kirusa breached a non-disclosure agreement by publicising its involvement in the project. Kirusa sent a demand notice under Section 8 of the Insolvency and Bankruptcy Code, 2016 claiming an unpaid operational debt of about Rs. 20 lakh, and when Mobilox disputed the claim, filed an application before the National Company Law Tribunal (NCLT) under Section 9 of the Code to trigger insolvency proceedings. The NCLT dismissed the application, but the National Company Law Appellate Tribunal (NCLAT) reversed this and admitted the insolvency petition, holding Mobilox's defence was vague and motivated.

Decision Breakdown

The Supreme Court set aside the NCLAT's order and restored the dismissal of the insolvency petition. It laid down the test for what counts as a "dispute" under Section 5(6) and 8(2) of the IBC: a dispute need not already be the subject of pending litigation or arbitration: it is enough that a plausible contention exists which requires further investigation and is not spurious, frivolous, hypothetical, or illusory. Examining the correspondence between the parties, the Court found Mobilox had raised a genuine, non-frivolous defence (breach of the NDA) well before the demand notice was issued, so a real "dispute" existed and the operational creditor's application could not be admitted under the summary IBC process.

Lesson Learnt

A company facing an insolvency petition over a disputed debt can defeat it at the threshold simply by showing a genuine, pre-existing dispute (even an email exchange raising a real grievance): the IBC's fast-track insolvency process is not meant to be used as a debt-recovery shortcut where a bona fide dispute already exists between the parties.

Mobilox Innovations Private Limited v. Kirusa Software Private Limited – Legal Case Shots | LegalAware