The expression “existence” has been understood as follows:
“Shorter Oxford English Dictionary gives the following meaning of the word “existence”:
- Reality, as opp. to appearance.
- The fact or state of existing; actual possession of being. Continued being as a living creature, life, esp. under adverse conditions.
Something that exists; an entity, a being. All that exists.
Two extremely instructive judgments, one of the Australian High Court, and the other of the Chancery Division in the UK, throw a great deal of light on the expression “existence of a dispute” contained in Section 8(2)(a) of the Insolvency and Bankruptcy Code, 2016. The Australian judgment is reported as Spencer Constructions Pty. Ltd. v. G & M Aldridge Pty Ltd., 1997 FCA 681 (Aust).
The expression “genuine dispute” was held to mean the following:
“Finn, J. was content to adopt the explanation of “genuine dispute” given to McLelland, C.J. Eq in Eyota Pty Ltd.v. Hanave Pty Ltd., (1994) 12 ACSR 785 (Aust) wherein it was held as under:
‘The expression connotes a plausible contention requiring investigation, and raises much the same sort of considerations as the “serious question to be tried” criterion which arises on an application for an interlocutory injunction or for the extension or removal of a caveat. This does not mean that the court must accept uncritically as giving rise to a genuine dispute, every statement in an affidavit ‘however equivocal, lacking in precision, inconsistent with undisputed contemporary documents or other statements by the same deponent, or inherently and probable in itself, it may not be having ‘sufficient prima facie plausibility to merit further investigation as to its truth or a patently feeble argument or an assertion of facts unsupported by evidence.”
Reliance was placed on Rohalo Pharmaceutical Pty. Ltd. v. RP Scherer, (1994) 15 ACSR 347 (Aust), wherein it was held as under:
“The provisions of Sections 459-H(1) and (5) of the Corporations Law assume that the dispute and offsetting have an “objective” existence the genuineness of which is capable of being assessed. The word “genuine” is included in “genuine dispute” to sound a note of warning that the propounding of serious disputes and claims is to be expected but must be excluded from consideration.”
A “genuine” dispute requires that:
- The dispute be bona fide and truly exist in fact;
- The grounds for alleging the existence of a dispute are real and not spurious, hypothetical, illusory or misconceived.
In Hayes v. Hayes, 2014 EWHC 2694 (Ch) under the UK Insolvency Rules, it was held:
“It is clear that on the one hand, the court does not need to be satisfied that there is a good claim or even that it is a claim which is prima facie likely to succeed. In Bayoil S.A., In re, (1990) 1 WLR 147 (CA) it was held:
“The majority decided in that case that, shadowy as the cross claim was and improbable as the events said to support it seemed to be, there was just enough to make the principle work, namely, that it was right to have the matter tried out before the axe fell.”
On the other hand the court should be alert to detect wholly spurious claims merely being put forward by an unwilling debtor to raise what has been called “a cloud of objections.”
Section 5(6) of the Insolvency Code only deals with suits or arbitration proceedings which must “relate to” one of the three sub-clauses, either directly or indirectly. A dispute is said to exist, so long as there is a real dispute as to payment between the parties that would fall within the inclusive definition contained in Section 5(6). Mobilox Innovations Pvt. Ltd. v. Kirusa Software Pvt. Ltd., (2018) 1 SCC 353.