2026 (1) TMI 1165 - SC - IBC

Declaration of trademark title and residuary jurisdiction under Section 60(5)(c) limited; approval of resolution plan upheld

Residuary jurisdiction under Section 60(5)(c) of the IBC does not permit an adjudicating authority to determine ownership of a trademark when the dispute ... Jurisdiction under Section 60(5)(c) - Declaration of title to a trademark - binding nature of an approved resolution plan - residuary jurisdiction u/s 60(5)(c) of the Insolvency and Bankruptcy Code, 2016 - adjudicating authority's limitation to matters arising out of or in relation to insolvency proceedings - avoidance of preferential and undervalued transactions - moratorium u/s 14(1)(b) of the Insolvency and Bankruptcy Code, 2016 - approval and binding effect of a resolution plan u/s 31 of the Insolvency and Bankruptcy Code, 2016 - HELD THAT:- No doubt in our mind that in exercise of power under Section 60(5)(c) of IBC and while adjudicating the application of GCL on the facts of the present case, the Adjudicating Authority could not have declared title in the trademark “Gloster” in favour of the appellant SRA. The issue of the title of the Trademark was not “in relation to the insolvency proceedings”, on the facts of the present case. As is clear from the statement in the plan filed by the SRA and approved by the COC, after setting out the series of transactions between FGIL and GCL, all that the SRA does is to assert that the transfer is mala fide and was barred by law. It also records its belief and understanding that the trademark is the lawful property of the Corporate Debtor. It is further alleged that the agreement is between related parties, though the steps available under the IBC to have it neutralized, have not been resorted to. The RP has an explanation which has been set out hereinabove, namely, that the RP became aware of the agreements only in April 2019 by which time it was too late to subject the agreements to a forensic audit. According to the RP, the net result was that the agreements could not be forensically audited. The RP further submitted that rigorous scrutiny of documents and other exercises are involved for filing appropriate applications under Sections 43 and 45 and because of the delayed disclosure, he was prevented from doing the same. In this case, while adjudicating the application of GCL alongside the application of the Resolution Professional for approval of the plan, by a sidewind as it were, the NCLT had recorded a finding that on the peculiar facts it was not able to shut its eyes or ignore the material on record to legitimize the transaction of assignment. Thereafter, the NCLT found that the Assignment Deed dated 20.09.2017 being within the period of two years preceding the commencement of insolvency, was hit by Section 43 and being undervalued, it would be hit by Section 45(2)(b). The findings of the NCLT are perverse and in gross violation of the principles of natural justice and beyond the scope of the enquiry as far as the present case is concerned. The enquiry was primarily on the approval of the plan and on the application of GCL. The NCLAT has set aside the finding by holding that specific material was required to be pleaded if a transaction is sought to be brought under the mischief of Sections 43, 45, 46, 47 or 66. The NCLAT has recorded a further finding that it would be expected of any Resolution Professional to keep such requirements in view while making a motion to the Adjudicating Authority and, in any case, action could not have been taken without an application moved by the Resolution Professional. The finding of the NCLT that the assignment could be neutralized in the present matter by resorting to Sections 43 and 45 of the IBC is completely untenable. We make it clear that the observations made hereinabove are only for the purpose of setting aside the finding of the Adjudicating Authority holding that the trademark “Gloster” is the asset of the Corporate Debtor as recorded in para 52 of its order dated 27.09.2019. These observations would not come in the way of any other Court or authority deciding the issue of title to the trademark “Gloster”, if the parties herein litigate upon and those proceedings will be decided on their own merits uninfluenced by these observations. Thus, the appeal and cross appeal are disposed of in the above terms. Issues: (i) Whether the Adjudicating Authority (NCLT) could, while adjudicating an application under Section 60(5) of the IBC, declare that the trademark 'Gloster' was an asset of the Corporate Debtor and thereby vest title in the Successful Resolution Applicant; (ii) Whether the Adjudicating Authority could, in the said proceedings and without a specific application by the Resolution Professional, resort to Sections 43 and 45 of the IBC to neutralise/avoid the assignment and declare it void.Issue (i): Whether NCLT could declare title in the trademark 'Gloster' in the process of adjudicating GCL's application under Section 60(5)(c) of IBC, contrary to the terms of the resolution plan approved by the Committee of Creditors.Analysis: The approved resolution plan recorded rival claims and the SRA's belief that the transfer might be mala fide; the plan thus did not represent an undisputed assertion of title in favour of the SRA. Section 31 makes an approved plan binding on stakeholders. Jurisdiction under Section 60(5)(c) extends to questions of law or fact arising out of or in relation to insolvency, but its exercise depends on factual nexus with insolvency and must not usurp fora competent to decide title disputes outside the insolvency context. Precedents require a contextual nexus to insolvency and caution against using residuary jurisdiction to short-circuit other courts or to modify approved plans. Where the plan records competing claims, a declaration of ownership that confers greater rights than the plan would amount to impermissible modification of the approved plan. The present facts involved highly contentious title issues and rival contentions going beyond matters 'in relation to' the insolvency proceedings as understood on these facts.Conclusion: NCLT could not, in the facts of this case, declare that the trademark 'Gloster' was an asset of the Corporate Debtor or vest title in the SRA; the declaration of title was beyond the scope of Section 60(5)(c) on these facts and impermissibly altered the effect of the approved resolution plan.Issue (ii): Whether NCLT could, while adjudicating GCL's application and in the absence of an application by the Resolution Professional, invoke Sections 43 and 45 of the IBC to set aside the Assignment Deed dated 20.09.2017 as preferential or undervalued.Analysis: Sections 43 and 45 involve detailed, fact-specific scrutiny (including identification of related parties, valuation and contemporaneous materials) and require that the party seeking avoidance set out specific material and put the affected party on notice. The statutory scheme contemplates that such avoidance proceedings ordinarily follow on a proper application (typically by the Resolution Professional) with full opportunity for investigation (forensic audit etc.). On the record, no such avoidance application was moved by the RP; relevant materials were disclosed late; the findings of undervaluation and preferential transaction were reached without the rigorous, adversarial procedure and notice contemplated by the avoidance provisions; and therefore the NCLT's invocation of Sections 43/45 in the summary course of approving the plan and deciding GCL's application was procedurally and substantively unsustainable.Conclusion: NCLT could not validly set aside or neutralise the Assignment Deed under Sections 43 and 45 in the absence of a proper avoidance application and the requisite material and notice; the NCLT's findings under those provisions are untenable.Final Conclusion: On the facts, the NCLT's declaration that the trademark 'Gloster' belonged to the Corporate Debtor and the consequential findings invoking Sections 43 and 45 are set aside; the matter of title remains open for determination by appropriate fora on merits and is not conclusively decided within the insolvency proceedings.Ratio Decidendi: The Adjudicating Authority's residuary jurisdiction under Section 60(5)(c) of the IBC is limited to disputes that arise solely from or bear a direct nexus to the insolvency process; it cannot be exercised to declare ownership or alter rights in a manner that effectively modifies an approved resolution plan or substitutes procedures required for statutory avoidance remedies which demand specific applications, materials and notice.