Akshay Kumar endorsement fee row can’t trigger insolvency proceedings: NCLAT

The National Company Law Appellate Tribunal (NCLAT) has held that a claim arising from a dispute over unpaid endorsement fees under a celebrity contract does not qualify as an “operational debt” under the Insolvency and Bankruptcy Code, 2016 (IBC) [Akshay Kumar Bhatia v. Cue Learn Private Limited].A coram of Justice N Seshasayee (Judicial Member) and Indevar Pandey (Technical Member) dismissed an appeal filed by actor Akshay Kumar, affirming an earlier order of the National Company Law Tribunal (NCLT) which had rejected his plea to initiate corporate insolvency resolution proceedings (CIRP) against ed-tech company Cue Learn under Section 9 of the IBC..The dispute arose out of a tripartite endorsement agreement dated March 8, 2021, under which Kumar agreed to provide endorsement services to Cue Learn for a consideration of ₹8.10 crore plus taxes. The agreement contemplated that the actor would make himself available for up to two days during the contract term of two years.Cue Learn paid ₹4.05 crore as the first instalment. While Kumar’s services were utilised for one day, the company did not pay the balance ₹4.05 crore. Claiming that the second instalment had become due by April 15, 2022, Kumar issued a statutory demand notice under Section 8 of the IBC and subsequently filed a Section 9 petition before the NCLT.Cue Learn opposed the petition, contending that payment of the second instalment was contingent on utilisation of services for the second day and that, at best, the actor’s claim amounted to damages for breach of contract, which could not be treated as an operational debt.The NCLT accepted this defence and dismissed the petition on the ground that there was a pre-existing dispute. It held that the claim did not fall within the scope of Section 5(21) of the IBC..In appeal, the NCLAT underscored that insolvency can be triggered only where the existence of debt and default is “beyond doubt or debate.”“The existence of a debt and default, the two fundamental factors which provide a cause for initiating a CIRP, should be beyond doubt or debate.”It clarified that where a genuine dispute exists prior to the issuance of a statutory demand notice, the corporate debtor is entitled to protection from insolvency proceedings..Examining the endorsement agreement, the NCLAT found that the second instalment was directly linked to whether services were actually utilised.It further held that Cue Learn's interpretation - that ₹4.05 crore was payable for each day of actual performance - was a plausible one based on the contractual clauses. Crucially, the Bench concluded:“Since we are not constructing the contract, but merely are in the process of identifying any plausible pre-existing dispute in understanding the contract, even if a prima facie view could be made on a plain reading of the contract in support of a pre-existing dispute, then the finding has to be entered in favour of the corporate debtor.”.Rejecting the actor’s contention that non-payment automatically gave rise to an operational debt, the NCLAT drew a clear distinction between a “claim” and a “debt” under the IBC. It held:“While a claim may include a debt, not every claim will constitute a debt for commencing a CIRP.”It clarified that even if the dispute ultimately amounted to a breach of contract, the remedy would lie outside the insolvency framework..Kumar was represented by Senior Advocate Krishnendu Datta, along with Advocates Anish Agarwal, Pratik Chakma, Natasha Bagga, Abinav Maurya, Alina Merin Mathew and Tanisha Chaudhary..Cue Learn was represented by Advocates Prithu Garg, Shivam Singh and Ashutosh Arvind Kumar..[Read Judgment].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.