Case Law Details
B4U Broadband (India) Private Limited Vs Kyta Productions Private Limited (NCLT Mumbai)
Summary: The National Company Law Tribunal (NCLT), Mumbai, dismissed a petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) after holding that the claim did not qualify as an Operational Debt and, therefore, the petition was not maintainable.
The Operational Creditor sought initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor for recovery of Rs. 2,57,32,416 as principal and Rs. 5,58,358 as interest, aggregating to Rs. 2,62,90,774. According to the petition, the Corporate Debtor had entered into an agreement with Vishal Bhardwaj Films LLP for the production of the film “Pataakha” and subsequently agreed to share its rights and responsibilities with the Operational Creditor. The Operational Creditor agreed to invest 50% of the acquisition price, amounting to Rs. 7.5 crore plus applicable taxes, and claimed to have fulfilled its contractual obligations. It relied on a communication from the Corporate Debtor acknowledging dues of Rs. 1,60,11,086 plus applicable taxes, with an understanding that the amount would either be adjusted against a future project or refunded if no project was finalized within the stipulated period.
The petition stated that no future project was finalized within the agreed time. The Operational Creditor issued letters demanding payment, followed by a demand notice under Section 8 of the IBC. As no payment was received, the Section 9 petition was filed. The Corporate Debtor initially sought time to file a reply but failed to do so and was subsequently proceeded against ex parte.
During the proceedings, the Operational Creditor argued that under the agreement both parties were required to contribute Rs. 7.5 crore each towards printing and advertising expenses for the theatrical release of the film. It contended that it had invested funds and rendered services for the film’s release and that the Corporate Debtor was obliged to share revenues in accordance with the agreement. The Operational Creditor further relied upon the letter dated 5 April 2019, subsequent correspondence demanding payment, and the absence of any reply, defence, or pre-existing dispute from the Corporate Debtor to seek admission of the petition.
The Tribunal examined the contractual terms to determine whether the amount claimed constituted an Operational Debt. It noted that the agreement provided for the Operational Creditor to contribute Rs. 7.5 crore plus taxes towards the acquisition price, with 50% attributable to theatrical rights and 50% to non-theatrical exploitation and distribution rights. The agreement also required contributions towards printing and advertising expenses and granted the Operational Creditor 30% revenue share and 25% share in copyright, underlying works and derivative rights, while revenues from the film were to be distributed in accordance with the agreed revenue-sharing mechanism.
After considering these terms, the Tribunal held that the arrangement reflected an investment in the production and release of the film under a revenue-sharing arrangement rather than the provision of goods or services. It observed that the Operational Creditor had neither provided services nor sold goods to the Corporate Debtor. Instead, it had invested in a joint venture-like commercial arrangement where profits were to be shared after the film’s release. Since Section 5(21) of the IBC defines “Operational Debt” as a claim arising from the provision of goods or services or certain statutory dues, the Tribunal concluded that the claim did not satisfy the statutory definition of Operational Debt. Consequently, a petition under Section 9 of the IBC could not be maintained. The Tribunal therefore dismissed the petition as not maintainable under Section 9 of the Code.
FULL TEXT OF THE NCLT JUDGMENT/ORDER
1. The above Company Petition is filed by B4U Broadband (India) Private Limited hereinafter called as Operational Creditor seeking to initiate Corporate Insolvency Resolution Process (CIRP) against Kyta Productions Private Limited herein after referred to as Corporate Debtor by invoking the provisions of Section 9 Insolvency and Bankruptcy code (hereinafter called “Code”) read with Rule 6 of the Insolvency & Bankruptcy (Application to Adjudication Authority) Rules, 2016 for a Resolution of Operational Debt of Rs.2,57,32,416 as principal amount and Rs. 5,58,358/- as interest amount aggregating to Rs. 2,62,90,774/-.
2. The case of the Petitioner/Operational Creditor is that Vishal Bhardwaj Films LLP (hereinafter referred to as VBLLP) entered into an agreement for the production of the film titled “Pataakha”. As per the said agreement, all rights including the copyrights with regard to the said film were jointly held by the VBLLP and the Corporate Debtor. The Corporate Debtor further agreed to equally share its rights and responsibilities under the said agreement with the Operational Creditor. In this regard, the Operational Creditor entered into an agreement with the Corporate Debtor whereby the Operational Creditor agreed to invest 50% towards acquisition price of the film i.e. the sum of Rs. 7.5 crores plus applicable taxes. The Operational Creditor has complied with its obligation incorporated in the agreement and is entitled to receive its interest on investment and share of revenues as per the agreement executed between the parties. In this regard, the Corporate Debtor’s representative namely Mr. Prabhakar Jain addressed an email to the Operational Creditor admitting that an amount of Rs. 1,60,11,086 plus applicable taxes was due and payable to the Operational Creditor under the Agreement. In the said letter dated 05.04.2019, the Corporate Debtor further agreed that the Operational Creditor, Corporate Debtor and VBLLP would discuss / decide about the quantum of dues payable to the Operational Creditor. It was also agreed that the pending dues of the Operational Creditor would be adjusted against the future project, which was to be finalized on or before 05.10.2019. It was also agreed that in case, the future project was not finalized within 6 months, the Corporate Debtor would refund the pending dues of Rs. 1,60,11,086 plus applicable taxes to the Operational Creditor within 3 months after the expiry of the due date.
3. It is further claimed by the Operational Creditor that the Corporate Debtor failed to finalize the future project by the due date. As a result, the Operational Creditor through its letter dated 08.11.2019 called upon the Corporate Debtor to pay the amount of Rs. 1,60,11,086 plus taxes on or before 04.01.2020. Further reminder dated 19.12.2019 was also sent to the Corporate Debtor. Thereafter, the Operational Creditor again sent a notice calling upon the Corporate Debtor to make the payment of Rs. 1,60,11,086, with applicable taxes amounting to Rs. 2,57,32,416/-within 7 days of receipt of the notice. The Demand Notice under section 8 of the IBC Code was also delivered to the Corporate Debtor on 07.02.2020 but no payment has been made by the Corporate Debtor. Hence the Petition.
4. In this case, Mr. Prakhar Parekh, Advocate appeared on behalf of the Corporate Debtor on 21.02.2022 and sought time to file reply and he further requested two weeks’ time to file reply. Time was granted to the Corporate Debtor and till date no reply has been filed on behalf of the Corporate Debtor. On 07.02.2023, when the matter was called, nobody was present on behalf of the Corporate Debtor. Under the circumstances, the respondent was proceeded against ex-parte.
5. We have heard the counsel for the Petitioner / Operational Creditor and gone through the records.
6. During the course of the arguments, the counsel for the Operational Creditor has pointed out that as per Clause 6 of the agreement dated 18.07.2018 (Exhibit A) which was executed between the parties, both the parties had agreed to spend a sum of Rs. 7.5 crores each towards the printing and advertising expenses for the theatrical release of the movie call “Pataakha”. Accordingly, the Petitioner/ Operational Creditor invested money and rendered services to the Corporate Debtor with regard to the release of the movie. It is further been pointed out that as per the terms and conditions of the contract, the Corporate Debtor had to share the revenues collected from the release of the film in consideration of the investment and services rendered by the Operational Creditor. The counsel for the Petitioner/ Operational Creditor has further referred to the letter dated 5th April 2019 (Exhibit B) whereby the parties agreed with the pending dues payable to the Operational Creditor by the Corporate Debtor in respect of the film ‘’Pataakha’ which would be mutually discussed and finalised and in case the parties were unable to arrive at consensus about the exact quantum of the pending dues, the pending dues referred to an e-mail dated 7th March 2019 of Rs. 1,60,11,086/- shall be treated as due and payable by the Corporate Debtor. It was further stated in the letter (Exhibit B) that the parties agreed that the pending dues of the Petitioner would be adjusted against the future project and in case the future project was not finalised within six months, the Corporate Debtor would refund the pending dues without interest within six months. In this regard, it is further pointed out by the counsel for the Corporate Debtor that future project could not be finalised between the parties by the agreed due date and, therefore, the Petitioner sent letter dated 8th November 2019 (Exhibit C) again requesting the Corporate Debtor to make due payment of Rs. 1,60,11,086 with interest. Thereafter, reminder dated 19th December 2019 (Exhibit D) was also sent to the Corporate Debtor and another letter (Exhibit E) dated 22nd January 2020 was also sent requesting for payment of the due amount along with the GST, TDS amounting to Rs. 2,57,32,416/- and finally, the demand notice (Exhibit F) was also send to the Corporate Debtor dated 6th February 2020 but the same was not responded to by the Corporate Debtor. The counsel for the Petitioner has further argued that no reply has been filed nor any defence has been raised nor any pre-existing dispute has been raised by the Corporate Debtor. In these circumstances, the petition under section 9 must be admitted and CIRP be initiated against the Corporate Debtor for non- payment of the aforesaid dues payable on account of the operational debt.
7. We have thoughtfully considered the aforesaid contentions raised by the counsel for the Petitioner.
8. The Petitioner has filed an instant Petition under section 9 of the Code, on account of the default of payment of Operational Debt by the Corporate Debtor to the tune of Rs. 2,57,32,416/-. The claim of the Petitioner emanates from the contract/ agreement (Exhibit A) executed between the parties i.e. the Operational Creditor and the Corporate Debtor which was with regard to the certain rights in respect of the film titled “Pataakha”. In order to ascertain as to whether or not the amount claimed in the Petition is covered under the definition of Operational debt, all the terms and conditions of the agreement (Exhibit A) has to be perused. Clause 2 of the agreement states that the Corporate Debtor had already entered into an agreement with M/s. VBLLP dated 16th May 2018 in the production of the film whereby all the rights including copyright with regard to the said film and all underlying works, derivatives etc were jointly to be held by the Corporate Debtor and VBLLP for acquisition price of Rs. 15 crores. Clause 2 of the agreement further provides that with consent of VBLLP, the Corporate Debtor has agreed to equally share its rights and responsibilities under this agreement dated 16th May 2018 with the Operational Creditor and this agreement was accordingly being executed between the Corporate Debtor and the Operational Creditor.
9. Clause 5 of the agreement further provides that out of the acquisition price of the film a sum of Rs. 7.5 crores plus taxes shall be paid by the Operational Creditor to the Corporate Debtor and 50% of the acquisition price would be attributed to the theatrical rights and 50% of the acquisition price would be attributed to the non-theatrical exploitation and distribution rights. As per clause 6, it was further agreed between the parties that the sum of Rs. 7.5 crores would be spent towards the printing and advertising expenses for the theatrical release of the movie in India and the Operational Creditor would pay its share of 50% of agreed printing and advertising expenses to the Corporate Debtor
10. Clause 11 of the agreement further provides that the Corporate Debtor would assign to the Operational Creditor 30% revenues share and 25% share in the copyright underlying works, derivatives rights in perpetuity along with the credits in the film. Clause 13 of the agreement further provides that the Operational Creditor, Corporate Debtor and VBLLP shall be entitled to the share the revenues as set out in clause 14 and clause 14 provides that the revenues of the film shall be recouped in the following manner:
11. From perusal of the aforesaid terms and conditions as extracted from the agreement (Exhibit A), it emerges that the Corporate Debtor was in contract with the VBLLP with regard to the production and release of the film called “Pataakha”. The Corporate Debtor with the consent of VBLLP further entered into an agreement with the Operational Creditor to perform its part of the contract with VBLLP, as can be made out from above referred terms and conditions of the contract between the Operational Creditor and the Corporate Debtor. The former was to make certain investments in the promotion and release of the film along with the Corporate Debtor and after the film was released, the revenue generated from the release of film were to be shared as defined in Revenue Share Clause (Clause No. 14 of the agreement exhibit A). Therefore, in our considered view, the Operational Creditor /Petitioner did not provide any services to the Corporate Debtor. Rather the Petitioner/ Operational Creditor made an investment in the movie and profits were to be shared between the parties after the release of the film. It is very settled that as per section 5(21) of the Insolvency Bankruptcy Code, 2016, ‘Operational Debt’ means a claim in respect of the provision of goods or services including employment or a debt in respect of the repayment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority.
12. A plain reading of the aforesaid section 5(21) clearly reveals that the Operational Debt comes into being only when some service is provided or some goods were sold whereas in the instant case, none of the two requirements are being met. The Petitioner has not provided any services nor sold any goods to the Corporate Debtor. Therefore, the claim referred in the Petition cannot be equated with an Operational Debt on the basis of which the provision of Section 9 of the Code could be invoked. Rather it is evident from the terms and conditions of the Agreement that Petitioner made investment by the way of joint venture in the production and release of the movie titled “Pataakha” and the revenue generated from the release of the film was to be shared by all the stakeholders including the Petitioner. Accordingly, in our considered view, the Petition under Section 9, which can be filed only in case of default of payment of the Operational Debt, is not maintainable.
13. As a result of the above discussion, the petition is dismissed being not-maintainable under section 9 of the Code.
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