If Genuine Pre-Existing Dispute With Regard To Operational Debt Is Established, Petition U/S 9 Of IBC Must Be Rejected: NCLAT

The NCLAT New Delhi bench of Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member) affirmed that a petition under section 9 of the IBC can be rejected if the dispute raised by the corporate debtor with respect to the debt is genuine and not a moonshine or a bluster just to avoid the liability. Brief Facts This appeal has been filed by the Appellant- Law & Kenneth Saatchi & Saatchi Private Limited (hereinafter called the 'Operational Creditor' or 'OC') against the order dated 30.05.2023 passed by NCLT, wherein application of the Appellant under Section 9 of the Insolvency and Bankruptcy Code, 2016 (hereinafter called the 'IBC, 2016') was dismissed. Appellant- Operational Creditor had undertaken to provide services for production of Television Commercial (hereinafter called the 'TVC'), print shoot and digital content for the Respondent -Patanjali Paridhan Private Limited (hereinafter called the 'Corporate Debtor' or 'ÇD') under the terms of proforma invoice dated 17.10.2018. As per Clause 26 of Invoice, operational creditor was required to provide No Objection Certificate (NOC). Contentions The appellant submitted that since no payment was forthcoming from the Corporate Debtor, the Appellant had filed application under Section 9 of the IBC, 2016 before the Ld. NCLT which was dismissed by impugned order dated 30.05.2023. That there was no need for NOC as the writer/lyricist of the song, in the TVC, was an employee of the Operational Creditor and that the debt has been admitted and acknowledged by the Corporate Debtor and application under Section 9 of IBC, 2016 ought to have been admitted by Ld. NCLT. Per contra, the respondent submitted that Rule 70(3) Copyright Rules, 2013 which specified the requirement of the original copy of 'no objection certificate' issued by the author in case the application is submitted by the owner of right therefore it shows that the original no objection certificate is essential requirement for submitting application for registration of copyright. That they have not used the TVC in absence of the copyright and they have, thus, also lost the advance given to the Operational Creditor. NCLAT's Analysis The tribunal referred to the Supreme Court judgment in Mobilox Innovation P Ltd. v. Kirusa Software Pvt. Ltd. (2018) wherein it was held that the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor. The court in the above case further observed that “all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence. The Court does not at this stage examine the merits of the dispute except to the extent indicated above.” The tribunal while applying the above ratio to the facts of the present case noted that it is undisputed that the Corporate Debtor was demanding NOC from the Operational Creditor, through various emails and legal notice to enable him to register the copyright of TVC, which the Operational Creditor has failed to provide. Clause 26 of the Terms and Conditions stipulated in the proforma invoice, without any exception, state that “LKSS or Producer will provide the necessary NOC or any other paper which may require for the IP registration to the Client.” The tribunal further noted that the dispute was real and genuine, and not moonshine or feeble, and is supported by evidence, and also that the Corporate Debtor, despite having made substantial payment as advance, had not used the TVC in absence of copyright. The correspondence and dispute regarding issuance of NOC is prior to the issuance of notice under Section 8 of the IBC, and thus, qualifies to be treated as “pre-existing dispute”, which is a valid ground for rejection of application under Section 9 of the IBC. Accordingly, the present appeal was dismissed and decision of the NCLTdismissing the application was upheld. Case Title: LAW & KENNETH SAATCHI & SAATCHI PRIVATE LIMITED Versus PATANJALI PARIDHAN PRIVATE LIMITED Case Reference: Company Appeal (AT) (Insolvency) No. 1033 of 2023 Judgment Date: 13/11/2024 Click Here To Read/Download The Order

If Genuine Pre-Existing Dispute With Regard To Operational Debt Is Established, Petition U/S 9 Of IBC Must Be Rejected: NCLAT

Mohd Malik Chauhan

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