The M Ltd. (Corporate Debtor - CD) was engaged by 'BB' TV for conducting tele-voting for one of its prime program. M Ltd. in turn sub-contracted the work to the K Ltd. (Operational Creditor - OC) and issued purchase orde

CS Professional · Insolvency - Law and Practice · PYQS · December 2020
The M Ltd. (Corporate Debtor - CD) was engaged by 'BB' TV for conducting tele-voting for one of its prime program. M Ltd. in turn sub-contracted the work to the K Ltd. (Operational Creditor - OC) and issued purchase orders between October and December, 2013 in favour of the K Ltd. The bills so raised were payable within 30 days of receipt by the M Ltd. It is pertinent to note here that a Non-Disclosure Agreement (NDA) was executed between the parties (CD and OC) on 26th December, 2014 with effect from 1st November, 2013. In view of non-payment of dues, a demand notice dated 23rd December, 2016 was sent by the OC under Section 8 of Insolvency and Bankruptcy Code, 2016. To this notice, the CD responded that there exists serious and bona fide disputes between the parties and that nothing was payable as the OC had been told on 30th January, 2015 that no amount would be paid to the OC since it had breached the NDA. Based on the above facts examine by quoting relevant case, if any whether breach of Non-Disclosure Agreement amounts to default?

Answer & Explanation:

The facts of the case is similar to that of the case of Mobilox Innovations Private Limited Vs. Kirusa Software Private Limited, Civil Appeal No. 9405 of 2017 . In this case the Supreme Court opined 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. The Hon'ble Supreme Court was of the opinion that the breach of Non-Disclosure Agreement (NDA) was sufficient to construe the existence of a dispute to invalidate the CIRP application filed by the operational creditor. According to Section 8(2) of the Code the corporate debtor shall, within a period of ten days of the receipt of the demand notice or copy of the invoice mentioned in sub-section (1) bring to the notice of the operational creditor, existence of a dispute, if any, or record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute. It is clear that such notice must bring to the notice of the operational creditor the "existence" of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. According to Section 9(5) (ii) (d) of the Code, the Adjudicating Authority shall, within fourteen days of the receipt of the application, by an order, reject the application and communicate such decision to the operational creditor and the corporate debtor, if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. 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

Topics: Corporate Insolvency Resolution Process (CIRP)

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