Somesh Choudhary Vs Knight Riders Sports Private Limited (NCLAT Delhi)
Held that the ‘Corporate Debtor’ was permitted to use the trademark of ‘KKR’ in relation to its licensed products, accordingly, there was temporary transfer/permission to use, constituting ‘provision of service’. Hence, due and payable arising out of such service is an operational debt
Facts-
Respondent (Knight Riders Sports Private Limited) and Corporate Debtor (M/s. Global Fragrances Private Limited) had entered into a Licensing Agreement. Accordingly, the Respondent had permitted the Corporate Debtor to the used the trademark KKR and the Corporate Debtor is obligated to Minimum Guaranteed Royalties to the Respondent.
Against the invoices raised by the Respondent, the Corporate Debtor made part payment. Accordingly, the respondent filed a petition u/s 9 of the Insolvency and Bankruptcy Code, 2016 (IBC), seeking initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor.
The Corporate Debtor contented that claims arising out of non-payment of Minimum Guaranteed Royalties were not Operational Debt as it did not pertain to any goods or services.
Conclusion-
In this case, the ‘Corporate Debtor’ was permitted to use the trademark of ‘KKR’ in relation to its licensed products and hence we note that there was temporary transfer/permission to use, constituting ‘provision of service’ rendered by the first Respondent and therefore falls within the definition of service and any amounts ‘due and payable’ arising out of such service is an ‘Operational Debt’.
We hold that granting an exclusive right and license to the ‘Corporate Debtor’, to use manufacture, sell, distribute and advertise the licensed products and to use the trademark in association with the licensed products as well as on packaging, promotional advertising material has a direct nexus with the business operations and sales and also with the actual product supplied by the ‘Corporate Debtor.’
Hence, we hold that the ‘Claim’ in respect of such provisions of ‘goods and services’, under the terms of the Agreement, fall within the ambit of the definition of ‘Operational Debt’ as defined under Section 5(21) of the Code.
FULL TEXT OF THE NCLAT JUDGMENT/ORDER
Aggrieved by the Impugned Order dated 05.07.2021, passed by the Learned Adjudicating Authority (National Company Law Tribunal, New Delhi, Court No. IV), in C.P. (IB) No.- 1112/ND/2018, the Shareholder of the ‘Corporate Debtor’ preferred this Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘The Code’). By the Impugned Order, the Adjudicating Authority has admitted Application filed under Section 9 of the code observing as follows:
“30. We would like to draw conclusion as per the judgment Vikas Sales Corporation vs. Commissioner of Commercial Taxes AIR 1996 SC 2082, hence we are of the view that incorporeal rights like trademarks, copyrights, patents and rights in personam capable of transfer or transmission are included in the ambit of “goods”. Further having considered the facts and circumstances and the material available on record the Adjudicating Authority is of the view that that for a claim to fall within the definition of ‘operational debt’, the operational creditor must establish that it has a “right to payment” “in respect of the provision of “goods or services” and also that Corporate Debtor has committed a “default” towards its “liability or obligation in respect of such outstanding claim”. We would also like to place our reliance on the judgment Broadcast Audience Research Council V. Mi Marathi Media Limited [C.P. I 688/IBC/NCLT/MB/MAH/2018] and we hereby observe that in the present case, the MGR was a fixed payment due and payable by the Corporate Debtor to the Operational Creditor under the Agreement and the non-payment by the Corporate Debtor, for using the “Trademark” which is the Licensed “Product” of the Operational Creditor, amounted to an “operational debt” under the IBC. It has been observed that time and again the Corporate Debtor has admitted its liability be it by way of making a part payment (first and second quarter payment) or by submitting before the “admittedly the claim of the Applicant arises out of failure to pay the Minimum Guaranteed Royalties and were not paid on the condition that the Operational Creditor under the obligation to promote the brand for the Corporate Debtor” therefore, it is a clear admission of default and this Adjudicating Authority does not have to indulge in the details or the terms of the Agreement. Further in order to deal with issue in hand with respect to “pre-existence of dispute” as the alleged by the Corporate Debtor that the Operational Creditor was under the obligation to promote the brand for the Corporate Debtor, We are of the view that the Corporate Debtor did not raise any dispute in terms of Section 8(2)(a) read with Section 5(6) of the IBC, either with regard to the (a) existence of the amount of debt, (b) the quality of goods or service, or (c) the breach of a representation or warranty, either directly or indirectly. Therefore, the defense of preexistence of dispute can be categorized as a moonshine dispute as explained in the judgment of “Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited2017 1 SCC OnLine SC 353”, of the Hon’ble Supreme Court. Therefore, the Application is admitted and the commencement of the CIRP is ordered.”
2. Submissions of the Learned Counsel appearing on behalf of the Appellant:
