NCLT Is Not Competent Forum To Adjudicate Disputes Relating Copyrights Violations Or Contract Termination: NCLT Mumbai

The National Company Law Tribunal (NCLT), Mumbai Bench of Shri Sameer Kakar (Hon'ble Member Technical) and Shri Nilesh Sharma (Hon'ble Member Judicial ) has held that it is not the appropriate forum to adjudicate matters related to copyright violations and contract termination. Such disputes must be pursued before a competent forum having jurisdiction The present application has been filed under section 9 of the Insolvency and Bankruptcy Code, 2016 seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor (CD). The Applicant submitted that the amount of the Applicant's claim, even excluding GST, exceeds the threshold prescribed under the Code, and therefore the present Application deserves to be admitted and CIRP deserves to be initiated against the CD. It was further contended that the issuance of an invoice is not a condition precedent to the payment of the consideration. The said clause only gives the CD the right to demand an invoice. Per contra, the Respondent submitted that the Applicant seeks to recover damages/compensation for breach of contract from the CD as 'operational debt'. The said claim for damages/compensation cannot be termed as `Operational Debt' as the said claim is not yet crystallized and can only be crystallized after effective adjudication of the issues at hand. It was further argued that notice under Form-3 can only be issued in cases where, as per the transaction between the parties, no invoices need to be issued. The present case, as per the Remake Rights Agreement it was recorded in writing that the raising of invoices shall be a pre-condition to payment by the CD to the Applicant. The Tribunal observed that as per clause 4.6 of the Remake Rights Agreement, the payment was conditional upon the receipt of a valid notice which has not been furnished by the Applicant in the present case. The Agreement was terminated after issuance of a demand notice on 28.10.2024. When the Agreement was terminated, the rights in the Agreement were also reverted to the Applicant. It held that once the Agreement was terminated and the rights reverted, the consideration ceased to be payable. Such claims may give rise to damages or compensation but not a debt. It further observed that the appropriate relief in this case would be to seek injunction or claim damages, not initiation of the CIRP under section 9 of the IBC. Since in the present case, the debt is not crystallised, disputed and does not fall within the definition of the operational debt under the IBC, the Application under section 9 of the IBC cannot be entertained. It further held that unlike in Smartworks case, where damages could be quantified under the Agreement, in the present case the claim is uncrystallised and the rights under the Agreement have reverted to the Applicant after its termination. Therefore, damages can be claimed in the present before a competent forum having jurisdiction, not before the NCLT under the IBC. The Tribunal found Somesh Choudhary and Heritage Oil case inapplicable to the facts of the present case as the claim here does not constitute a clear operational debt under the IBC. It further held that it is not an appropriate forum to decide the copyright violation and termination of contract. Such cases must be pursued through appropriate legal remedies. Since the Applicant failed to establish a clear operational debt, the petition under section 9 cannot be admitted. Case Title: Dream Warrior Pictures Vs Reliance Entertainment Studios Pvt. Ltd. Case Number:C.P. (IB)/156(MB)2025 Order Date: 04/08/2025 Click Here To Read/Download Order

NCLT Is Not Competent Forum To Adjudicate Disputes Relating Copyrights Violations Or Contract Termination: NCLT Mumbai

Mohd Malik Chauhan

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