LexMOBILOX INNOVATIONS PRIVATE LIMITED versus KIRUSA SOFTWARE PRIVATE LIMITED
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A B [2017] 10 S.C.R. 1006 MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA SOFTWARE PRIVATE LIMITED (Civil Appeal No. 9405 of2017) SEPTEMBER 21, 2017 [R. F. NARIMAN AND SANJAY KISHAN KAUL, JJ.] Insolvency Laws - Legislative history of legislation relating to indebtedness - Discussed. C Insolvency and Bankruptcy Code, 2016: D E Purpose of enactment - Discussed. s.9 - Application for initiation of Corporate Insolvency Resolution Process (CIRP) - The adjudicating authority, when examining an application under s.9 of the Act has to determine whether there is an "operational debt" as defined exceeding Rs. I lakh; whether the documentary evidence furnished with the application shows that the aforesaid debt is due and payable and has not yet been paid; and whether there. is existence of a dispute between the parties or the record of the pendency of a suit or arbitration proceeding filed before the receipt of the demand notice of the unpaid operational debt in relation to such dispute - If any one of these conditions is lacking, the application has to be rejected - Apart from that the adjudicating authority must follow the mandate of s.9 and in particular the mandate of s.9(5) of the Act, and admit or reject the application, as the case may be, F depending upon the factors mentioned in s.9(5) of the Act - Jn the instant case, correspondence between the parties showed that the respondent had breached the terms of agreement and, therefore, appellant withheld the payment against the invoices raised by the respondent - This shows that the appellant had raised the plausible G contention regarding further investigation and a dispute existed between them - Application under s.9 is, therefore, liable to be dismissed - Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 - Insolvency and Bankruptcy Board of India (l11Solvency Resolution Process for Corporate Persons) Regulations, 2016 - Regn 7. H 1006 MOBILOX INNOVATIONS PRIVATE LIMITED v. KIRUSA 1007 SOFI'WARE PRIVATE LIMITED s.8(2)(i:1) - Word "and" - Connotation of -Held: The word A "and" occurring in s.8(2)(a) must be read as "or" - If read as "and", disputes would only stave off the bankruptcy process if they are already pending in a suit or arbitration 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 B 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 persons would be outside the purview of s.8(2) leading to bankruptcy proceedings commencing against therii - Such an · C anomaly cannot possibly have been intended by the legislature nor has it so been intended. Companies Act, 2013: s.271 - A company being unable to pay its debts is no longer a ground for winding up a company - Old law contained in D Madhusudan case no longer valid. · Allowing the appeal, the Court HELD: 1.1 The legislative history of legislation relating to indebtedness goes back to the year 1964 when the 24'h Law E Commission recommended amendments to the Provincial Insolvency Act of 1920. This was followed by the Tiwari Committee of 1981, which introduced the Sick Industrial Companies Act, 1985. Following economic liberalization in the 1990s, two Narsimham Committee reports led to the Recovery of Debts and Bankruptcy Act, 1993 and the SARFAESI Act, 2002. F Meanwhile, the Goswami Committee Report, submitted in 1993, condemned the liquidation procedure prescribed by the Companies Act, 1956 as unworkable and being beset with delays at all levels - delaying tactics employed by· the management, delays at the' level of the Courts, delays in making auction sales . G etc. This then led to the Eradi Committee Report of 1999, which proposed amendments to. the Companies Act and proposed the repeal of. SICA. ·This Committee echoed the findings of the. Goswami Committee and recommended an overhaul of the liquidation procedure under the Companies Act. It was for the · first time, in 2001, that the L.N. Mitra Committee of the RBI H 1008 SUPREME COURT REPORTS [2017] IO S.C.R. A proposed a comprehensive Bankruptcy Code. This was followed by the Irani Committee Report, also of the RBI in 200
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