Plausible Contention Test explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Civil Appeal No. 9405 of 2017, decided on 21 September 2017, remains the governing authority on what defeats an operational creditor\'s petition. The Supreme Court set a deliberately low bar for the debtor and a correspondingly narrow enquiry for the tribunal.
The facts
Mobilox engaged Kirusa to provide services for a television programme, which included conducting tele-voting. A non-disclosure agreement was executed as part of the arrangement, imposing confidentiality obligations on Kirusa.
Mobilox alleged that Kirusa breached the NDA by disclosing its involvement in the programme, withheld payment and communicated that to Kirusa. Kirusa responded with a demand notice under section 8 for non-payment. Mobilox asserted that there were serious disputes regarding the NDA breach, challenging the validity of the notice.
The question of law
What constitutes the "existence of a dispute" in an application by an operational creditor to initiate a corporate insolvency resolution process.
The Supreme Court's ruling
The Court sided with Mobilox, holding that the expression must be interpreted broadly:
- the correspondence between the parties indicated that Mobilox had raised plausible contentions regarding the NDA breach;
- the word "and" in section 8(2)(a) should be read as "or" — so that if any dispute exists, it is sufficient to invalidate a CIRP application; and
- a dispute need not be resolved at this stage; it must merely be plausible and not frivolous or vexatious.
In applying the plausible contention test, all that the NCLT is to see is whether there is a plausible contention which requires further investigation.
"A spurious defence which is mere bluster" should be rejected. And in determining whether a dispute exists, the NCLT is not required to satisfy itself that the defence is likely to succeed, or to examine the merits of the dispute.
Why the enquiry is deliberately shallow
A section 9 admission is a summary proceeding. It results in a moratorium, the displacement of management and the start of a 330-day clock — and the NCLT reaches that outcome without pleadings, discovery or evidence in the ordinary sense.
The plausible contention test matches the enquiry to the forum. If the tribunal had to decide whether a quality dispute or a breach of contract was made out, it would be trying a commercial suit in an admission hearing. If it could ignore the dispute entirely, the Code would become a debt-collection mechanism for contested claims. The Court chose the middle position: is there something here that needs to be tried somewhere else?
The "and" read as "or"
This is the point most often missed. Section 8(2)(a) is framed so that the corporate debtor brings to the operational creditor's notice the existence of a dispute and the record of the pendency of a suit or arbitration. Read literally, a debtor with a genuine dispute but no pending proceeding would fail.
By reading the conjunction disjunctively, the Court held that either suffices. A dispute raised in correspondence, without litigation on foot, is enough.
Where the limits lie
| Defence | Outcome under the plausible contention test |
|---|---|
| Documented disagreement predating the demand notice | Defeats the petition |
| Pending suit or arbitration | Defeats the petition |
| Assertion first made in the reply to the demand notice | Not a pre-existing dispute |
| A spurious defence that is "mere bluster" | Rejected |
| A weak but genuine contention | Sufficient — merits are not examined |
How to use it
- For the corporate debtor: the plausible contention test is satisfied by contemporaneous correspondence. Assemble what was said at the time, not what can be argued now.
- For the operational creditor: the answer to a bluster defence is to show it is unsupported by any record — not to argue that it would fail at trial.
- For both: remember that the tribunal will not decide who is right. It will decide whether the question is worth asking.
Common mistakes
- Arguing the merits of the dispute at the admission hearing.
- Reading section 8(2)(a) conjunctively and insisting on a pending proceeding.
- Treating any assertion by the debtor as satisfying the plausible contention test.
- Expecting the NCLT to assess the strength of the defence.