The Supreme Court held that IBC forums cannot adjudicate substantive intellectual property disputes where resolution plans acknowledge rival claims. In Gloster Limited v. Gloster Cables Limited, the Court clarified Section 60(5) IBC limits on NCLT jurisdiction in insolvency proceedings.
NEW DELHI : The Supreme Court of India disposed appeals with the clear finding that IBC forums cannot be used to settle substantive intellectual property disputes, particularly where resolution plans themselves acknowledge unresolved rival claims.
The bench of Justice J B Pardiwala and Justice K.V. Viswanathan ,in Gloster Limited v. Gloster Cables Limited & Ors. (Civil Appeal Nos. 2996 and 4493 of 2024), delivered an important judgment clarifying the limits of jurisdiction of the National Company Law Tribunal (NCLT) under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC), particularly in disputes involving title to intellectual property.
The controversy arose during a Corporate Insolvency Resolution Process (CIRP) where rival claims were raised over ownership of the trademark “Gloster”. While the successful resolution applicant asserted that the trademark formed part of the corporate debtor’s assets, a related entity claimed absolute ownership by virtue of prior agreements and assignment deeds.
Factual Background of the Case:
Fort Gloster Industries Limited (FGIL), the corporate debtor, was admitted into CIRP on 9 August 2018 following an application under Section 9 of the IBC. During the resolution process, Gloster Limited emerged as the successful resolution applicant (SRA), and its resolution plan was approved by the Committee of Creditors with a majority vote.
While the approval application was pending before the NCLT, Gloster Cables Limited (GCL) filed an application under Section 60(5) of the IBC, seeking directions that the trademark “Gloster” should be excluded from the assets of the corporate debtor. GCL contended that it was the rightful owner of the trademark and that FGIL merely held limited licensing rights.
The relationship between FGIL and GCL dated back several decades. Initially, FGIL was the registered proprietor of the trademark “Gloster”. Over time, multiple agreements were executed between the parties, including a technical collaboration agreement, a trademark licensing agreement, loan arrangements with hypothecation of the trademark, and a supplemental trademark agreement providing for conditional assignment.
GCL claimed that after the repeal of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA), a deed of assignment executed in 2017 became effective, resulting in absolute transfer of the trademark in its favour. FGIL, however, was undergoing insolvency proceedings when the trademark was formally registered in GCL’s name.
The NCLT rejected GCL’s application, holding that the trademark was an asset of the corporate debtor and that the alleged assignments were invalid due to statutory prohibitions under Section 45 (2) (b) of IBC and preferential transaction concerns. On appeal, the NCLAT reversed this finding, though it upheld the NCLT’s jurisdiction to decide the issue.
This led to cross-appeals before the Supreme Court.
Legal Issues
The central legal issue before the Supreme Court was:
Whether the NCLT, while exercising jurisdiction under Section 60(5)(c) of the IBC and approving a resolution plan, could conclusively determine title to a trademark claimed by third parties ?
Ancillary issues included the scope of the residuary jurisdiction under Section 60(5), the effect of rival claims acknowledged in a resolution plan, and whether insolvency proceedings could be used to settle complex disputes relating to intellectual property ownership.
Arguments of Parties:
Arguments of the Successful Resolution Applicant: It was argued that
- The trademark formed part of the corporate debtor’s assets as reflected in audited balance sheets and the information memorandum.
- Any purported assignment in favour of GCL was illegal, undervalued, and executed in violation of statutory restraints imposed during BIFR proceedings.
- The registration of the trademark in GCL’s name during the moratorium period violated Section 14 of the IBC.
- The Adjudicating Authority had the power to scrutinise suspicious transactions even in the absence of a formal avoidance application filed by the resolution professional.
- Since GCL had itself invoked the jurisdiction of the NCLT, it could not later challenge the tribunal’s authority to decide the issue.
Arguments of Gloster Cables Limited: GCL contended that
- The NCLT lacked jurisdiction to adjudicate disputes relating to title of a trademark, as such disputes did not arise “in relation to” insolvency resolution.
- Section 60(5) could not be expanded to decide substantive civil rights, particularly where such disputes required detailed evidence and interpretation of trademark law.
- GCL maintained that the assignment of the trademark had taken effect prior to the commencement of CIRP and that registration was merely a ministerial act.
- It emphasised its long-standing use of the trademark and argued that public perception associated the brand exclusively with GCL.
- The resolution plan itself acknowledged rival claims over the trademark, and therefore the SRA could not obtain a better title than what was expressly contemplated in the approved plan.
ALSO READ: Big Relief for Dunzo! NCLT Dismisses Insolvency Case Amid Ongoing Financial Struggles
Analysis of the Court:
The Supreme Court undertook a detailed examination of the scope and purpose of the IBC, reiterating that insolvency proceedings are intended for resolution of financial distress and maximisation of asset value, not for adjudication of complex civil disputes.
- On resolution plan: The Court closely analysed the resolution plan and noted that it explicitly recognised the existence of rival claims over the trademark. The plan recorded the SRA’s “belief” and “understanding” that the assignment in favour of GCL was invalid, but it did not contain any definitive adjudication or conclusive assertion of ownership.
- Binding nature of an approved resolution plan : Emphasising the binding nature of an approved resolution plan under Section 31 of the IBC, the Court held that the SRA took over the corporate debtor with open eyes, fully aware that the trademark’s title was disputed. In such circumstances, the NCLT could not, under the guise of approving the plan or disposing of an application, grant a declaration that effectively resolved the title dispute.
The Court said,
The plan, as approved, is a binding document which would govern the relationship between the stakeholders and on which terms the new management takes over the Corporate Debtor.
- Interpreting Section 60(5)(c) : The Court reiterated earlier precedents, including Embassy Property Developments Pvt. Ltd. v. State of Karnataka, to hold that the phrase “arising out of or in relation to” insolvency proceedings cannot be stretched to include matters that are only incidentally connected to insolvency.
The 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. This Court reiterated that nexus must remain with the insolvency of the Corporate Debtor for adjudication of an issue and grant of relief under Section 60(5)(c).”
- Trademark ownership involve substantive rights: The Court reasoned that disputes over trademark ownership involve substantive rights governed by the Trade Marks Act, 1999, and typically require comprehensive evidence, something incompatible with the summary nature of insolvency proceedings. Allowing such adjudication would convert the NCLT into a parallel civil court, contrary to legislative intent.
Also Read: CBI to Probe Lawyers’ Bribery Demand for Favourable NCLT Order
Final Order:
The Supreme Court ultimately held that the NCLT exceeded its jurisdiction in declaring that the trademark “Gloster” was an asset of the corporate debtor. While the tribunal had jurisdiction to entertain GCL’s application under Section 60(5), it could not conclusively adjudicate title to the trademark in insolvency proceedings.
The Court observed that had GCL not filed its application, the resolution plan would still have been approved with the trademark dispute unresolved. The mere filing of an application could not confer jurisdiction on the NCLT to decide issues beyond its statutory mandate.
The Supreme Court also rejected the argument that the absence of an avoidance application could be cured by the tribunal acting suo motu, noting that avoidance proceedings under the IBC follow a specific statutory scheme requiring proper pleadings and notice.
Accordingly, the Court upheld the NCLAT’s decision insofar as it set aside the NCLT’s declaration on ownership of the trademark, while affirming that such disputes must be resolved before an appropriate civil or commercial forum.
Case Title: Gloster Limited v. Gloster Cables Limited & Ors. (Civil Appeal Nos. 2996 and 4493 of 2024)
Read Attachment:
FOLLOW US FOR MORE LEGAL UPDATES ON YOUTUBE
