The Supreme Court recently held that the National Company Law Tribunal (NCLT) cannot adjudicate or declare title over a trademark merely because the issue arises during a corporate insolvency resolution process (CIRP), unless the dispute has a direct and intrinsic nexus with insolvency. [Gloster Limited v. Gloster Cables]
A Bench of Justice JB Pardiwala and KV Viswanathan delivered the ruling while deciding cross-appeals arising from the insolvency resolution of Fort Gloster Industries Limited (FGIL), involving rival claims over the trademark “Gloster” by the successful resolution applicant Gloster Limited and Gloster Cables Limited (GCL).
The Court held,
"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."
FGIL was admitted into CIRP in August 2018 on an application filed by a former employee. During the resolution process, Gloster Limited emerged as the successful resolution applicant, with its plan receiving over 72% approval from the committee of creditors.
However, during the pendency of the plan approval, Gloster Cables Limited filed an application under Section 60(5) of the Insolvency and Bankruptcy Code (IBC), seeking a direction that the trademark “Gloster” be excluded from the assets of the corporate debtor. GCL claimed ownership based on a series of agreements.
The NCLT (Kolkata Bench) dismissed GCL’s application but incidentally recorded a finding that the trademark was an asset of the corporate debtor, thereby vesting it in the successful resolution applicant.
On appeal, the National Company Law Appellate Tribunal (NCLAT) held that the NCLT did have jurisdiction under Section 60(5) to examine the issue, but ruled in favour of GCL on ownership. Both parties approached the Supreme Court.
Interpreting Section 60(5)(c) of the IBC, the Supreme Court emphasised that the provision does not confer a blanket power on the NCLT to decide all disputes involving the corporate debtor.
Relying on precedents, the Court reiterated that disputes which do not arise solely because of insolvency cannot be pulled into insolvency jurisdiction.
"This Court held that under 60(5)(c) the Adjudicating Authority had jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the Corporate Debtors. Administrating a note of caution, this Court observed that in doing so the authorities under IBC should ensure that they do not usurp the legitimate jurisdiction of other Courts, Tribunals and fora when the dispute is one which does not arise solely from or relate to the insolvency of the Corporate Debtor...NCLT cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters fall outside the realm of the IBC.”
It went on to hold that the approved resolution plan itself did not confer any clear or undisputed title over the trademark “Gloster” in favour of the successful resolution applicant and, therefore, no declaration of ownership could be made while approving the plan.
The Court emphasised that the resolution applicant took over the corporate debtor with this understanding, and without initiating proceedings under the avoidance provisions of the IBC.
“There is no definite assertion about any undisputed claim to the title of trademark ‘Gloster’....To the contrary, it recognises rival claims.”
The Supreme Court also set aside the NCLAT’s finding that title in the “Gloster” trademark vested in Gloster Cables under the 2008 supplemental agreement, holding that insolvency fora could not enquire into vesting of trademark title at all on the facts and circumstances of the case.
Thus, the Court disposed the appeals.
The appellants were represented by Senior Advocate Shyam Divan with Advocates Diwakar Maheshwari, Pratiksha Mishra, Rongon Choudhary and Karan Bhootra from Khaitan & Co.
Gloster Cables Limited was represented by Senior Advocates Ranjit Kumar and Chander Lall with Advocates Alok Dhir, Maneesha Dhir, Varsha Banerjee, Ayushi Misra, Nancy Roy, Prakriti Varshney, Annanya Mehan, Akash Dikshit, Adwait Sharma and Karan Batura.
The other respondents were represented by Advocates Anand Varma, Ayush Gupta, Vipin Gupta, Krishna Kumar and Nandani Gupta.
[Read Judgment]