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2021 (7) TMI 564 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - Operational debt or not - payment of Minimum Guaranteed Royalties to the Operational Creditor - use of Trademark - licensed product - existence of debt and dispute or not - HELD THAT - As per the judgment VIKAS SALES CORPORATION AND ANOTHER VERSUS COMMISSIONER OF COMMERCIAL TAXES AND ANOTHER (AND OTHER APPEALS AND WRIT PETITIONS) 1996 (5) TMI 363 - SUPREME COURT it is held 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 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 . 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 Adjudicating Authority that 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. 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 pre-existence of dispute can be categorized as a moonshine dispute. The Application is admitted and the commencement of the CIRP is ordered - Moratorium declared.
Issues Involved:
1. Whether the unpaid Minimum Guaranteed Royalties (MGR) under the Licensing Agreement constitute an "Operational Debt" under the Insolvency and Bankruptcy Code (IBC). 2. Whether there was any pre-existing dispute regarding the payment of MGR. 3. Jurisdiction and limitation period for filing the application. 4. Appointment of Interim Resolution Professional (IRP) and imposition of moratorium. Issue-wise Detailed Analysis: 1. Whether the unpaid Minimum Guaranteed Royalties (MGR) under the Licensing Agreement constitute an "Operational Debt" under the Insolvency and Bankruptcy Code (IBC): The Applicant, Knight Riders Sports Private Limited, filed an application under Section 9 of the IBC to initiate the Corporate Insolvency Resolution Process (CIRP) against Global Fragrances Pvt. Ltd. The Applicant claimed unpaid MGR as an "Operational Debt." The Corporate Debtor contended that MGR, being a fixed payment irrespective of sales, does not qualify as an "Operational Debt" under Section 5(21) of the IBC, which requires the debt to be in respect of goods or services. The Tribunal, relying on the judgment in Broadcast Audience Research Council V. Mi Marathi Media Limited, concluded that the MGR for using the trademark amounted to an "Operational Debt." The Tribunal emphasized that the right to use the trademark falls within the scope of "services" under the IBC, and the non-payment of MGR constitutes a default. 2. Whether there was any pre-existing dispute regarding the payment of MGR: The Corporate Debtor argued that the dispute over the MGR should be adjudicated by a Civil Court due to various triable issues. They claimed that the MGR was conditional upon the Applicant promoting the brand, which the Applicant failed to do. However, the Applicant denied any such obligation and provided evidence of promotional activities on social media. The Tribunal found that the Corporate Debtor had admitted its liability multiple times, including part payments and email communications acknowledging the debt. The Tribunal ruled that the Corporate Debtor did not raise any dispute as per Section 8(2)(a) read with Section 5(6) of the IBC, and any defense of pre-existing dispute was deemed a "moonshine dispute" as per the Supreme Court judgment in Mobilox Innovations Pvt. Ltd. Vs. Kirusa Software (P) Limited. 3. Jurisdiction and limitation period for filing the application: The Tribunal confirmed its jurisdiction as the registered office of the Corporate Debtor is situated in Delhi. The date of default was determined as 15.09.2015, and the application was filed on 30.08.2018, within the three-year limitation period. 4. Appointment of Interim Resolution Professional (IRP) and imposition of moratorium: The Tribunal appointed Ms. Arti Baluja as the IRP and imposed a moratorium under Section 14 of the IBC, which includes: - Suspension of suits or proceedings against the Corporate Debtor. - Prohibition on transferring or disposing of assets. - Suspension of actions to recover or enforce security interests. - Continuation of essential goods or services supply. The Applicant was directed to deposit ?2 lakhs to cover immediate expenses for the IRP, which will be accounted for as CIRP costs. The order was communicated to relevant parties, including the IRP, IBBI, and ROC. Conclusion: The Tribunal admitted the application, initiating the CIRP against the Corporate Debtor, and ordered the commencement of the process. The unpaid MGR was deemed an "Operational Debt," and no substantial pre-existing dispute was found. The Tribunal's jurisdiction and the application’s timeliness were affirmed, and the IRP was appointed with a moratorium imposed.
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