2024 (4) TMI 336 - AT - Insolvency and Bankruptcy

Disputed copyright claimant lacks standing to challenge scheme of arrangement under Sections 230-233 Companies Act 2013

NCLAT dismissed an appeal challenging a scheme of arrangement where appellant claimed creditor status under Copyright Act, 1957. The Tribunal held that ... Violation of principles of natural justice - opportunity of being Heard not provided - Abrogation of valuable right of appellant - Locus of appellant - Applicant is neither a Creditor nor a Shareholder of the First Respondent - It is the stand of the Appellant that the Tribunal, had not taken into consideration of the statutory force, establishing Appellant’s right, under the Copyright Act, 1957 - HELD THAT:- As far as the present case is concerned, the Respondents do not consider the Appellant / IPRS, as its Creditor and have consistently and seriously disputed the Appellant’s Alleged Claims. Indeed, the Appellant, was not recognised as Creditor in the Financial Statements of both the Respondents. Added further, once a Claim, is Disputed, and the Claimant, is not reflected as a Creditor, in the Audited Financial Statements, such Claimant, is disentitled to Intervene, demand Documents or Object, to a Scheme, and it is outside to the purview of Section 230 – 233 of the Companies Act, 2013, before the Tribunal, to enter into the Merits of the Dispute. This Tribunal, on a careful consideration of respective contentions, advanced on either side, taking note of the surrounding facts and circumstances of the instant Appeal, especially, in the teeth of the Appellant / Petitioner, not figuring as a Creditor of the Respondents, in terms of its Audited Financial Statement, and the List of its Unsecured Creditors, being duly authenticated, of course, based on verification, by the Statutory Auditor, this Tribunal, comes to a consequent conclusion, that the Impugned Order, dated 09.02.2024, passed by the National Company Law Tribunal, Court No. V, Mumbai Bench, by making an observation that the Appellant, is not a Creditor of the Respondent Nos. 1 & 2, and as such, has no Locus, to object to the process of the Scheme, is free from any legal infirmities. Appeal dismissed. Issues Involved:1. Locus of the Appellant to Object the Scheme2. Entitlement to Scheme Documents3. Appellant's Status as Creditor4. Application of Copyright Act, 19575. Merits of the Impugned OrderSummary:Locus of the Appellant to Object the Scheme:The National Company Law Tribunal (NCLT), Court No. V, Mumbai Bench, in its Impugned Order dated 09.02.2024, observed that the Appellant does not feature as a creditor of Respondent Nos. 1 and 2 as per their audited financial statements and the list of unsecured creditors. The Tribunal relied on Astorn Research Ltd. (2013 SCC OnLine Guj 1510), which held that only a creditor as per the audited financial statements or a shareholder has the locus to intervene in a scheme to oppose it. Consequently, the Tribunal dismissed the Company Application as the Appellant did not establish its locus to object to the Scheme.Entitlement to Scheme Documents:The Appellant contended that the Tribunal erred in not recognizing its entitlement to the Scheme Documents under Section 230-232 of the Companies Act, 2013. The Appellant argued that the Scheme is a public process, and any person, including creditors, shareholders, and members of the public, has the right to seek documents filed by the company. The Tribunal, however, held that the Appellant, not being a creditor as per the audited financial statements, does not have the right to demand these documents.Appellant's Status as Creditor:The Appellant claimed to be a creditor of the Respondents by virtue of the Copyright Act, 1957, and previous agreements. The Tribunal noted that the Appellant's name was not included in the list of unsecured creditors and that the letter agreement from June 2018 does not establish the Appellant's status as a creditor for future claims. The Tribunal emphasized that any disputed claims need to be settled in a competent court or forum and cannot be considered within the amalgamation proceedings.Application of Copyright Act, 1957:The Appellant argued that the Tribunal did not consider the statutory force of the Copyright Act, 1957, which establishes the Appellant's right to collect royalties. The Tribunal, however, maintained that the Appellant's claims under the Copyright Act are disputed and should be resolved in appropriate legal forums. The Tribunal also referenced Zee Interactive MultiMedia Ltd. (2002) 3 Comp Cas 733 (Bom), which held that unless a creditor shows that the scheme is malafide, fraudulent, or contrary to law, the court should not interfere with a bona fide scheme of amalgamation.Merits of the Impugned Order:The Tribunal found that the Appellant's claims were not substantiated by the audited financial statements and that the Scheme provided for the transfer of all liabilities to the transferee company, ensuring no impairment of creditors' claims. The Tribunal concluded that the Impugned Order was free from legal infirmities and dismissed the appeal.Disposition:The Comp. App (AT) No. 59 / 2024 is dismissed, and all connected pending interlocutory applications are closed.