- The National Company Law Appellate Tribunal ("NCLAT"),adjudicated an appeal filed in Somesh Choudhary v Knight Riders Sports Private Limited &Ors.
- And has held that claims arising out of grant of an exclusive right and license to use intellectual property rights falls within the ambit of the definition of 'Operational Debt'.
- Proceedings before the NCLT included the NCLT Bench had admitted the Petition and initiated CIRP against the Appellant while observing that incorporeal rights like trademarks, copyrights, patents and rights in personam capable of transfer or transmission are included in the ambit of "goods".
- Further, 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.
- Knight Riders Sports Private Limited ("Respondent") and M/s. Global Fragrances Private Limited ("Appellant/Corporate Debtor") had entered into a Licensing Agreement whereby the Respondent had permitted the Appellant to use manufacture, sell, distributeand advertise the licensed product of the respondent.
- Due to the non-payment the Respondent filed a petition under Section 9 of the Insolvency and Bankruptcy Code.
- The Appellant had opposed the petition on the ground that claims arising out of non-payment of MGR were not Operational Debt as it did not pertain to any goods or services.
- However NCLT held this as operational debt.
- Aggrieved by this decision the Appellant had filed an appeal before the NCLAT.
- The Bench observed that a Guaranteed Minimum Royalty is a payment made periodically by a licensee to a licensor pursuant to a licence, regardless of sales success for a licensed product over that year.
- The NCLAT Bench relied on the Supreme Court judgment in Vikas Sales Corporation v Commissioner of Sales Tax. It was held in ths case that in which it was held that even incorporeal rights like trademarks, copyrights, are 'Movable Property' and are included in the ambit of definition of 'goods' under the provisions of Sale of Goods Act
- The Bench held that the Respondent has established a 'Right to Payment' in respect of the provisions of goods and services provided by it. The grant of an exclusive right and license to the Corporate Debtor, to use manufacture, sell, distribute and advertise the licensed products and to use the associated trademark has a direct nexus with the business operations, sales and the actual product supplied by the Corporate Debtor. Hence, the 'Claim' in respect of such provisions of 'goods and services', under the terms of the License Agreement, falls within the ambit of the definition of 'Operational Debt' under Section 5(21) of the IBC. The Bench upheld the decision of the NCLT.(livelaw.in, n.d.)
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