Company Law

Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd.

(2018) 1 SCC 353

Facts

Kirusa Software provided services to Mobilox Innovations in connection with the television programme Nach Baliye.
Kirusa raised invoices for its services.
Mobilox did not pay the claimed amount.
Before the statutory insolvency demand notice, Mobilox had complained that Kirusa breached confidentiality obligations by disclosing programme-related information.
Correspondence between the parties showed that Mobilox disputed liability and asserted contractual breaches.
Kirusa later served a demand notice under Section 8 of the IBC and filed an operational-creditor application under Section 9.
Mobilox relied on the earlier correspondence as evidence of a pre-existing dispute.
The NCLT rejected the insolvency application.
The NCLAT reversed and ordered admission.
Mobilox appealed to the Supreme Court.

What constitutes the “existence of a dispute” under Sections 8 and 9 of the IBC?
How deeply should the NCLT investigate the merits of the dispute at admission?
Whether Mobilox’s confidentiality objection was genuine or merely invented to avoid insolvency.

An operational creditor must first deliver a demand notice.
The corporate debtor may show that:
the debt has been paid; or
a dispute existed before receipt of the demand notice.
At admission, the NCLT does not finally decide the contractual dispute.
It asks whether there is a plausible contention requiring investigation.
The dispute must not be:
a patently feeble legal argument;
unsupported assertion;
mere bluster;
hypothetical; or
created only after the demand notice.
The IBC is not a substitute for ordinary debt collection where a genuine dispute already exists.

The Supreme Court examined the chronology rather than merely the amount stated in the invoices.
Mobilox had raised confidentiality and performance objections well before Kirusa issued the statutory demand notice.
The correspondence showed that the objection was not manufactured only after insolvency was threatened.
Whether Mobilox would ultimately succeed on the confidentiality claim was not for the NCLT to decide.
That question could require:
interpretation of contractual clauses;
evidence regarding disclosure;
assessment of loss; and
ordinary civil or arbitral adjudication.
The NCLT’s function was only to determine whether the defence had a real foundation.
The confidentiality dispute was sufficiently connected with Kirusa’s claim for payment.
It was therefore more than an unsupported refusal to pay.
The Court rejected an approach requiring the corporate debtor to prove its entire defence at the admission stage.
Such an approach would convert summary insolvency proceedings into a full civil trial.
Conversely, the Court warned that the word “dispute” cannot permit companies to avoid insolvency through vague allegations.
The tribunal must separate genuine disputes from sham defences by looking at contemporaneous material.
Here, the earlier communication provided objective evidence of a real dispute.

The Supreme Court allowed Mobilox’s appeal and rejected Kirusa’s Section 9 application.
A pre-existing dispute existed before the demand notice.
The Court formulated the leading “plausible contention” test for operational-creditor cases.
Use this case for: an operational insolvency application must be rejected where contemporaneous material shows a genuine pre-existing dispute, even though its merits remain undecided.