2022 (8) TMI 836 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - non-payment of Minimum Guaranteed Royalties as compensation in lieu of Licensing Agreement entered into with the Corporate Debtor - Operational Debt u/s 5(21) of the Code or not - case of the Appellant is that the payment of Minimum Guaranteed Royalties under the Agreement does not arise out of any goods or services and therefore does not fall within the ambit of 'Operational Debt' as defined under Section 5(21) of the Code - pre-existing dispute or not - service of notice - HELD THAT - In the instant case, the Respondent has permitted the (a) use manufacture, sell, distribute and advertise the licensed products (b) use of intellectual property rights i.e., the trademark Kolkata Knight Riders /( KKR ) brand logo and any other trademark which as the first Respondent may designate in its sole and absolute discretion or in association with the licensed products in India as well as on packaging, promotional and advertising material associated therewith - the 'Claim' of the Respondent is in respect of the provision of the Goods and Services for which the 'Corporate Debtor' is contractually obligated to make the payments towards such 'Claim'. The clauses of the Agreement provided for Royalties to be paid as a variable amount to the first Respondent and the minimum guaranteed amount to be paid as a fixed payment as stipulated under Clause 4.2 of the Agreement. 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. Pre-Existing Dispute between the parties - HELD THAT - It is relevant to peruse the emails exchanged between the parties where nowhere did the 'Corporate Debtor' raise any dispute in terms of Section 8(2)(a)read with section 5(6) of the Code, either with regard to existence of the amount of debt or with regard to the quality of goods or services or regarding the breach of the representation or warranty either directly or indirectly. Service of section 8 notice - HELD THAT - The contention of the Learned Counsel for the Appellant that in the very same email dated 25.04.2018, it is stated that the record establishes that the 'Corporate Debtor' had willfully and actively avoided service of the Notice and therefore, this statement proves that the Notice was never received by them is untenable, keeping in view that the Demand Notice was sent to the Email ID of the 'Corporate Debtor' which is the registered Email ID shown in the Master Data as stipulated by the Ministry of Corporate Affairs. Thus, there is no illegality or infirmity in the well-reasoned Impugned Order of the Learned Adjudicating Authority - appeal dismissed.

Summary

Issues Involved:
1. Whether the amounts claimed by the first Respondent fall within the definition of 'Operational Debt' as defined under section 5(21) of the Insolvency and Bankruptcy Code (IBC).
2. Whether there was any 'default' in the payment of the 'Operational Debt'.
3. Whether there was any 'Pre-Existing Dispute' between the parties.

Issue-Wise Analysis:

1. Definition of 'Operational Debt':
The primary issue is whether the amounts claimed by the first Respondent qualify as 'Operational Debt' under Section 5(21) of the IBC. The Appellant argued that the payment of Minimum Guaranteed Royalties (MGR) under the Licensing Agreement does not arise out of any 'goods or services' and thus does not fall within the ambit of 'Operational Debt'. The Tribunal referred to various legal provisions and judgments to assess this claim. It highlighted that trademarks and other incorporeal rights are considered 'goods' under the Sale of Goods Act, 1930 and are included in the definition of 'property' under Section 3(27) of the IBC. The Tribunal also noted that the use of intellectual property rights, such as trademarks, constitutes a 'provision of service' under the Central Goods and Services Tax Act, 2017. Consequently, the Tribunal concluded that the claim for MGR, which arises from the use of the trademark 'Kolkata Knight Riders' (KKR), falls within the definition of 'Operational Debt' as it pertains to the provision of goods and services.

2. Default in Payment of 'Operational Debt':
The Tribunal examined whether there was a default in the payment of the 'Operational Debt'. The evidence included emails and cheques from the Corporate Debtor acknowledging the debt and committing to pay the outstanding amounts. For instance, an email dated 01.10.2015 from the Corporate Debtor admitted the obligation to pay the royalties and promised to make the payments. Additionally, cheques issued by the Corporate Debtor were dishonored, further indicating a default. The Tribunal found clear admissions from the Corporate Debtor that the amounts were due and payable, thus establishing a default in the payment of the 'Operational Debt'.

3. Pre-Existing Dispute:
The Tribunal also addressed whether there was any 'Pre-Existing Dispute' between the parties that could affect the admission of the insolvency application. The Appellant contended that the Section 8 Notice was not served with complete annexures and that there was a pre-existing dispute. However, the Tribunal found that the Demand Notice was sent to the registered email ID of the Corporate Debtor, and the annexures were appended. The Tribunal also reviewed the email exchanges between the parties and found no evidence of any dispute regarding the existence of the debt, the quality of goods or services, or any breach of representation or warranty. The Tribunal concluded that the defense of a pre-existing dispute was untenable.

Conclusion:
The Tribunal upheld the decision of the Adjudicating Authority, affirming that the amounts claimed by the first Respondent constitute 'Operational Debt' under Section 5(21) of the IBC. It also confirmed that there was a default in the payment of the 'Operational Debt' and that there was no pre-existing dispute between the parties. Consequently, the appeal was dismissed, and the commencement of the Corporate Insolvency Resolution Process (CIRP) was ordered.