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In the recent case of Gloster Limited vs Gloster Cables Limited, the intersection between insolvency law and intellectual property rights was discussed by the Hon’ble Supreme Court of India wherein it decided the jurisdictional scope of National Company Law Tribunal (NCLT) under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC). The case pertained to cross-appeals being filed by Gloster Limited (the Successful Resolution Applicant) and Gloster Cables Limited raising disputes over ownership of the trademark “Gloster”. The Supreme Court in its final decision has laid down the principle that the NCLT’s jurisdiction is limited to deciding issues which relate to the insolvency of the Corporate Debtor and other ancillary issues are to be determined inter-se parties through appropriate courts.
Brief Facts
The dispute in the matter pertained to the trademark “Gloster” bearing No. 690772 in Class 9, which was held by Fort Gloster Industries Limited (FGIL), the Corporate Debtor herein, which was admitted into the Corporate Insolvency Resolution Process (CIRP) under an application under Section 9 of the IBC. However, through a series of agreements spanning from 1995 to 2017, between the Corporate Debtor and Gloster Cables Limited (GCL), the said trademark was first hypothecated and then assigned in favour of GCL.
On 02.05.1995, a Technical Collaboration Agreement was entered between FGIL and GCL, whereunder, GCL was permitted to manufacture and market electric cables under the "Gloster" mark for an agreed royalty. Subsequently, on 29.07.2004, a Trademark Agreement was executed, granting GCL an exclusive license for thirty-three years to use the trademark (along with a first right of purchase) in consideration of a lump sum payment of three crore rupees and annual royalties of two lakh rupees. Further, in 2006, GCL extended a loan of ten crore rupees to FGIL which was again secured by an exclusive charge on the trademark.
Finally, on 15.07.2008, a supplemental Trademark Agreement was executed between FGIL and GCL, whereby trademark “Gloster” was assigned to GCL for ten lakh rupees. However, this assignment was contingent upon discharge of restraint orders passed by the Board for Industrial and Financial Reconstruction (BIFR). After the repeal of Sick Industrial Companies Act, 2001, the BIFR reference abated on 01.12.2016, and a deed of assignment was executed on 20.09.2017, and the trademark “Gloster” was registered in the name of GCL on 17.09.2018, after the commencement of the CIRP against FGIL.
The CIRP of FGIL culminated in approval of a Resolution Plan filed by Gloster Limited and during the pendency of the application for approval of Resolution Plan, an application under Section 60(5)(c) of the IBC was filed by GCL before the NCLT seeking directions to the effect that “Gloster” trademark was not an asset of the Corporate Debtor, FGIL, and accordingly, it cannot be included in the assets acquired by Gloster Limited under its Resolution Plan.
The NCLT while adjudicating on GCL’s application and approving the resolution plan, held that the trademark “Gloster” was an asset of the Corporate Debtor, and consequently, it was directed to be transferred to the Successful Resolution Applicant, Gloster Limited. This finding was challenged by GCL before the National Company Law Appellate Tribunal (NCLAT) on the ground that NCLT had no jurisdiction under Section 60(5)(c) of the IBC, as the NCLT only has a limited jurisdiction to adjudicate upon issues “arising out of or in relation to the insolvency resolution or liquidation proceedings” under such provision.
The appeal filed by GCL was allowed by the NCLAT. While recognizing GCL’s right in the trademark “Gloster”, NCLAT held that NCLT had jurisdiction to decide issue pertaining to ownership of trademark under Section 60(5)(c) of the IBC. This led the parties to approach the Hon’ble Supreme Court of India by filing their respective appeals as Gloster Limited challenged the NCLAT findings which rejected its right in the trademark “Gloster” and GCL challenged the findings on the issue of jurisdiction of NCLT under Section 60(5)(c) of the IBC.
The primary issue raised before the Supreme Court was whether under Section 60(5)(c) of IBC, which confers broad residuary jurisdiction, the NCLT can adjudicate matters entirely disconnected from the insolvency proceedings or determine ancillary rights of parties.
The Court's Reasoning and Analysis
The Hon’ble Supreme Court, while considering the matter emphasised the limited jurisdiction available with NCLT under Section 60(5)(c), wherein , it has been stated to have limited jurisdiction to decide on issues which are within the domain of the insolvency resolution of the company under CIRP. It relied on its earlier judgment in Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors. (2020) 13 SCC 308 where it was already held that decisions in the realm of public law or disputes arising de hors the insolvency cannot be adjudicated by NCLT under Section 60(5)(c).
The Hon’ble Supreme Court also relied on its other earlier judgments in Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) 7 SCC 209 and Tata Consultancy Services Ltd. v. SK Wheels (P) Ltd. (2022) 2 SCC 583, to again state that the NCLT or the NCLAT should be cautious while adjudicating an application under Section 60(5)(c), and 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.
The Hon’ble Supreme Court also considered the facts of the instant case and dwelled on the contents of the approved resolution plan wherein the existence of rival claims to the trademark was expressly acknowledged. The court also relied on the fact that in the Resolution Plan itself Gloster Limited stated that it was its “belief” and “understanding” that the transfer/ assignment of trademark “Gloster” to GCL was mala fide and barred by law. Such an acknowledgement was held to be an admission of the fact that competing claims existed with respect to the trademark and ownership of trademark being a public law issue, the same was not amenable to being adjudicated by the NCLT.
Further, the Hon’ble Supreme Court again relied on its judgment SREI Multiple Asset Investment Trust Vision India Fund v. Deccan Chronicle Marketeers and others, (2023) 7 SCC 295, where ownership of trademarks was in issue in a CIRP under the IBC, to state that any grant of rights beyond what was recognized in the approved Resolution plan would amount to impermissible modification or alteration, and that the NCLT in an application under Section 60(5)(c) of IBC cannot confer better rights upon a party than those contemplated in the approved Resolution Plan.
On the aspect of no application seeking avoidance having been filed under Sections 43 and 45 of IBC, inter alia, to declare the Assignment Deed as void was held to be a procedural irregularity, and any judgment without an application was stated to be in violation of principles of natural justice. It was emphasized that any adjudication under these provisions required rigorous scrutiny and examination of filed documents and no superficial inquiry can be conducted.
Final Decision
The Hon’ble Supreme Court disposed of both the appeals by setting aside the NCLT's finding that the trademark "Gloster" was an asset of the Corporate Debtor and the NCLAT's observations that the title of the trademark “Gloster” vested in Gloster Cables Limited by virtue of the Supplemental Agreement. It was held that such determinations exceeded the proper scope of inquiry under Section 60(5)(c) of IBC, and it was clarified that the observations in the judgment would not preclude any other court or authority in deciding the question of ownership of trademark, which was to be decided on its own merits in accordance with law.
The Road Ahead
The instant judgment establishes important principles about the inter-play of intellectual property rights and insolvency law. As IP rights form an integral part of company’s assets and since more and more companies are undergoing CIRP under the provisions of IBC, the judgment presents a watershed moment for both Resolution Professionals (RPs) and prospective Resolution Applicants (PRAs). It has now been categorically affirmed that disputed intellectual property claims cannot be resolved summarily through an application under Section 60(5)(c) when there exist competing ownership claims, and thus, it is important for the RPs to examine and make appropriate disclosures and critical for the PRAs to assess the viability of the claim of ownership and prospective costs and timelines for an independent adjudication on ownership.
Parallelly, the sanctity of a Resolution Plan being a binding charter has been reinforced and the NCLT has been cautioned from either augmenting or diminishing the rights available with the successful Resolution Plan beyond what is expressly provided. Another clear mandate that emanates from this judgment is that a formal application under Sections 43, 45, and 47 of the IBC is an essential pre-condition for any adjudication on avoidance of transactions, and these provisions cannot be invoked sua sponte or as an incidence of other issues.
It is now clear from this judgment that disputes surrounding ownership of trademark are not amenable to summary adjudication in insolvency proceedings as these disputes involve questions of public law, complex factual scenarios regarding validity of contracts, and the interplay between trademark registration and title transfer. Thus, the jurisdiction over intellectual property matters still lies with courts of competent jurisdiction irrespective of whether the company is a going concern or undergoing CIRP.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
