Tribunal admits CIRP application for unpaid royalties, appoints IRP under Insolvency Code

The Tribunal admitted the application, initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor. The unpaid Minimum Guaranteed Royalties (MGR) were considered an "Operational Debt," with no substantial pre-existing dispute found. The Tribunal affirmed its jurisdiction and the timeliness of the application, appointing an Interim Resolution Professional (IRP) and imposing a moratorium under Section 14 of the Insolvency and Bankruptcy Code.

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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 Rs. 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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