NCLT Has No Jurisdiction to Decide Trademark Ownership Disputes Outside CIRP | Supreme Court
- REEDLAW
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REEDLAW Legal News Network reports: In a significant ruling clarifying the jurisdictional boundaries of insolvency forums, the Supreme Court held that questions relating to ownership and title of intellectual property, including trademarks, fall outside the scope of insolvency proceedings. It was ruled that the adjudicating authority under the Insolvency and Bankruptcy Code, 2016, cannot decide substantive civil disputes or invalidate transactions without a statutorily instituted avoidance application, and any declaration beyond an approved resolution plan amounts to an impermissible modification of the plan.
The Bench comprising Justice J.B. Pardiwala and Justice K.V. Viswanathan reiterated that the residuary jurisdiction of the NCLT under Section 60(5)(c) of the Code is strictly confined to matters arising out of or in relation to the insolvency resolution process. The Court clarified that insolvency fora are not substitutes for civil courts and cannot adjudicate disputed questions of title to intellectual property, nor can they invoke avoidance provisions suo motu in the absence of a specific statutory application supported by pleadings and evidence.
The Supreme Court examined the correctness of the judgment of the Appellate Authority, which had partly reversed the findings of the Adjudicating Authority on the ownership of a trademark and on the jurisdiction of the NCLT to decide questions of title. It was noted that the dispute had arisen during the CIRP of the Corporate Debtor when the Respondent sought exclusion of the trademark from the assets of the Corporate Debtor on the ground of independent ownership. While the Successful Resolution Applicant was aggrieved by the setting aside of the finding that the trademark was an asset of the Corporate Debtor, the Respondent was aggrieved by the conclusion that the Adjudicating Authority had jurisdiction to adjudicate upon the issue of title. The Court recorded that the CIRP had been initiated on the application of an Operational Creditor and that the resolution plan submitted by the Successful Resolution Applicant had been approved by the Committee of Creditors and had attained finality under the scheme of the Insolvency and Bankruptcy Code, 2016.
The Court noted that during the pendency of approval of the resolution plan, the Respondent had invoked Section 60(5) of the IBC seeking exclusion of the trademark from the resolution process by asserting ownership on the basis of various agreements and registration rights. The Resolution Professional, the Committee of Creditors and the Successful Resolution Applicant had opposed the claim by contending that the assignment and allied agreements were void, being contrary to the restraint orders of the BIFR, violative of the moratorium under Section 14, and hit by the avoidance provisions relating to preferential and undervalued transactions under the IBC. The Adjudicating Authority had accepted these submissions and had held that the trademark formed part of the assets of the Corporate Debtor and that the assignment deeds were invalid, even in the absence of any specific application under Sections 43 to 46 of the IBC, thereby approving the resolution plan while declaring title in favour of the Successful Resolution Applicant.
The Supreme Court observed that the Appellate Authority had correctly interfered with this approach by holding that although the Adjudicating Authority had jurisdiction under Section 60(5)(c) of the IBC to entertain disputes connected with the insolvency process, it could not have recorded findings on preferential, undervalued or fraudulent transactions in the absence of a specific application by the Resolution Professional. The Court endorsed the reliance placed by the Appellate Authority on the principles laid down in Anuj Jain Interim Resolution Professional for Jaypee Infratech Limited v. Axis Bank Limited, etc., REEDLAW 2020 SC 02502, wherein it was held that avoidance proceedings were distinct statutory actions requiring a properly instituted application, strict pleadings, and adherence to principles of natural justice. It was further noted that the forensic audit report had not indicated any suspect transactions and that mere disparity between valuation figures could not by itself establish undervaluation.
The Supreme Court laid significant emphasis on the contents of the approved resolution plan, which itself acknowledged the existence of rival and unresolved claims over the trademark. It was observed that the plan merely recorded the “belief” and “understanding” of the Successful Resolution Applicant regarding invalidity of the assignment and ownership of the trademark, without containing any definitive adjudication or declaration of title. The plan, therefore, proceeded on the clear premise that ownership of the trademark was disputed and unresolved. In the absence of any application for avoidance of transactions under the IBC and without notice to the Respondent of such statutory proceedings, the Adjudicating Authority could not have travelled beyond the scope of the plan and declared ownership in favour of the Successful Resolution Applicant. Such a declaration, the Court held, amounted to rewriting the resolution plan and conferring an unadjudicated benefit upon the Successful Resolution Applicant.
The Court reiterated that Section 60(5)(c) of the IBC conferred only a limited residuary jurisdiction upon the NCLT to decide questions of law or fact arising out of or directly related to the insolvency resolution process. It was held that this provision could not be expanded to permit adjudication of complex and substantive questions of title in respect of intellectual property. Relying on the settled principle that the NCLT was not a substitute for a civil court in matters involving the determination of independent civil rights, the Court held that disputes relating to ownership and validity of assignments of trademarks were de hors the insolvency process and therefore beyond the jurisdictional ambit of Section 60(5)(c). The declaration of title in favour of the Successful Resolution Applicant was thus held to be wholly without jurisdiction.
The Supreme Court further held that an approved resolution plan constituted the binding charter governing the rights and obligations of all stakeholders, as recognised in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others, REEDLAW 2019 SC 11505 and Ghanashyam Mishra and Sons private Limited Through The Authorised Signatory v. Edelweiss Asset Reconstruction Company Limited Through The Director and Others, REEDLAW 2021 SC 04534. Any judicial order granting rights beyond what was contemplated in the plan amounted to an impermissible modification of the plan. The NCLT, while deciding an application under Section 60(5), could not have conferred any superior or additional rights upon the Successful Resolution Applicant in respect of the trademark, especially when the plan itself did not recognise any settled declaration of ownership.
The Court also held that the suo motu invocation of Sections 43 and 45 of the IBC by the Adjudicating Authority was legally unsustainable. It was reiterated that proceedings under the avoidance provisions were required to be initiated only through a properly instituted application supported by pleadings, evidence and compliance with principles of natural justice. Such issues could not be incidentally examined while approving a resolution plan or while deciding an application under Section 60(5). The findings of the Adjudicating Authority on preferential and undervalued transactions were therefore held to be perverse, procedurally flawed and beyond jurisdiction. The Court approved the view that transactions under Sections 43, 45, 46, 47 or 66 of the IBC could not be examined unless a specific application was filed and affected parties were put on clear notice, failing which the proceedings would suffer from a grave violation of natural justice.
The Supreme Court clarified that its decision was confined only to setting aside the declaration that the trademark was an asset of the Corporate Debtor and that neither the NCLT nor the Appellate Authority had jurisdiction to determine title to the trademark in the present insolvency proceedings. It was expressly left open for the parties to agitate the issue of ownership and validity of the assignment before the competent civil court or appropriate forum, which would decide the matter independently on its own merits. Accordingly, the appeal and cross appeal were disposed of by setting aside the findings of the Adjudicating Authority and the Appellate Authority insofar as they related to declaration of title and invocation of avoidance provisions, while reaffirming the narrow, contextual and insolvency-centric scope of the NCLT’s jurisdiction under Section 60(5)(c) of the IBC.
Mr. Shyam Divan, Senior Advocate, with Ms. Pratiksha Mishra, AOR, Mr. Diwakar Maheshwari, Mr. Rongon Choudhary and Mr. Karan Bhootra, Advocates, represented the Appellant.
Mr. Ranjit Kumar and Mr. Chander M. Lall, Senior Advocated with Mr. Alok Dhir, Ms. Maneesha Dhir, Ms. Varsha Banerjee, Ms. Ayushi Misra, Ms. Nancy Roy, Ms. Prakriti Varshney, Ms. Annanya Mehan, Mr. Akash Dikshit, Mr. Ayush Gupta, Mr. Adwait Sharma, Mr. Krishna Kumar, Ms. Nandani Gupta, Advocates, Mr. Anand Varma, AOR and Dr. Mrs. Vipin Gupta, AOR, appeared for the Respondents.
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