Under the Insolvency and Bankruptcy Code, 2016, the corporate insolvency resolution process (CIRP) can be initiated by an operational creditor if there is no dispute in relation to the default on the part of the corporate debtor.
The application filed with the National Tribunal (NCLT) must be preceded, under section 8, by a demand to repay the debt. The corporate debtor should, within a period of 10 days from the date of receipt of notice, either repay the unpaid operational debt or mention the existence of a dispute or record of the pending suit or arbitration proceedings filed before the receipt of such notice or an invoice in relation to such a dispute.
While a record of a pending suit or an arbitration proceeding filed before the receipt of notice or invoice in relation to the dispute would lead to an immediate cessation of further proceedings, the stand-alone term “dispute” has lent itself to interpretation by the courts. Under section 5(6) of the code, “dispute” includes a suit or arbitration proceedings relating to (a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty.
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Abhishek Dutta is the founder and managing partner of Aureus Law Partners. Vineet V Shrivastava is a partner and Manish Parmar is a senior associate at the firm.
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