Gloster’s Appeal Allowed to Exclude Trademark from the List of Assets in Insolvency Proceedings

Gloster’s Appeal Allowed to Exclude Trademark from the List of Assets in Insolvency ProceedingsIn the recent matter of Gloster Cables Ltd v. Fort Gloster Industries Ltd. & Others, Hon’ble Mr. Justice Rakesh Kumar Jain heard an appeal filed by the aggrieved appellant – Gloster Cables Ltd, which was incorporated as Crest Cables Private Ltd in 1995 by the Modi Family and the Rathi Family, both having equal stakes in the company, which was set up to take over the assets of the sick company Sputnik Cables Pvt Ltd and commenced the business of manufacturing cables. In 2004, S. K. Bangur Group was included as an investor with equity participation and the name of the entity was changed from Crest Cables to Gloster Cables Ltd.

The Corporate Debtor, Fort Gloster Industries Ltd, the first Respondent in the present appeal, was incorporated in 1890 and owns the Trademark ‘GLOSTER’ duly registered in Class 9. The Second Respondent Gloster Limited was incorporated in 1923 and is in the business of Jute Products. A former employee of the Corporate Debtor filed an application bearing no. CP (IB) 61/KB/2018 under Section 9 of the Insolvency and Bankruptcy Code, 2016. The Resolution Professional, Respondent No. 3, had filed a Resolution Plan as shared by Respondent No. 2, which was duly approved by 73.21% of the members of the CoC.

While this plan was pending approval, the appellant, Gloster Cables Ltd, filed an application bearing no. CA (IB) 713/KB/2019 before the Kolkata Bench of National Company Law Tribunal seeking intervention to exclude the Trademark “GLOSTER” from the list of assets of the Corporate Debtor as the same was duly assigned to the appellant herein.

However, the application was dismissed by the Adjudicating Authority via order dated 19.09.2019, accepting all three objections regarding the assignment being hit by the ongoing IBC proceedings that had commenced before the registration of the mark in favour of the appellant herein.

Aggrieved by the impugned order, the appellant filed the present appeal before the National Company Law Appellate Tribunal Principal Bench, New Delhi, vide Comp. Appeal (AT) (Ins) No. 1343 of 2019. The Appellate Tribunal examined the arguments of all the parties afresh, and the first point was that the Corporate Debtor was referred to BIFR in 2001, and vide order dated 10.09.2001, the Corporate Debtor was instructed not to dispose of any assets (which includes the impugned Trademark GLOSTER) without approval from BIFR.

Since the assignment deed dated 20.09.2017 was executed after this order, it was alleged that the assignment would be null and void. Further, the appellant was aware of the Insolvency and Bankruptcy Proceedings that were underway and the consequent moratorium on any disposal of assets of the Corporate Debtor but still proceeded with the assignment of the Trademark GLOSTER. There were further allegations of undervaluation of the trademark in the said assignment deed executed on 20.09.2017. Lastly, the Registration Certificate in respect of the trademark GLOSTER was issued to the appellant on 27.09.2018, even though the CIRP was initiated on 09.08.2018. As such, the assignment and the registration were both hit by the IBC proceedings and were null and void.

The Counsel for the appellant clarified the above points by stating that the Corporate Debtor and the Appellant had executed a Technical Collaboration Agreement on 02.05.1995 by which the appellant was permitted to use the trademark GLOSTER for a period of 8 years at the cost of paying 2% royalty on the ex-works price of the products sold or leased. This technical collaboration agreement expired by efflux of time, and a new technical collaboration agreement was executed on 02.05.2003 granting the right to use for a further period of 5 years on payment of 1% royalty. On 29.07.2004, the arrangement between the Corporate Debtor and the appellant herein changed when a long-term exclusive license-to-use agreement was executed for an annual royalty of Rs 2 lakh and a consolidated license fee of Rs 3 crores. The new agreement was valid for 33 years and had an auto-renewal clause.

Thereafter, the appellant executed a loan agreement in favour of the Corporate Debtor on 10.11.2006 by way of hypothecation of the trademark GLOSTER. The loan amount of Rs 10 crores was repayable within 5 years, i.e. on or before 30.12.2011, failing which 15% interest will be charged on the loan amount. The deed of hypothecation of the trademark was executed on 31.01.2008, by which the trademark was hypothecated in favour of the appellant herein by way of first and exclusive charge.

Since the BIFR order of 10.09.2001 was already subsisting on date, the Corporate Debtor, on 15.07.2008, also executed a Supplementary Trademark Agreement by which the Trademark GLOSTER was assigned in favour of the appellant for a consideration of Rs 10 lakhs only. Further, it was stated in this agreement that the assignment would become effective without any further act or deed, i.e. actions or documentation, once the BIFR order dated 10.09.2001 gets discharged or vacated. Further, during the period 2008-2010, all parties before BIFR, including banks, were fully aware of the status of the transfer of exclusive rights and exclusive use of the trademark GLOSTER in favour of the appellant as per the disclosures made by Allahabad Bank (now Pegasus Asset Reconstruction Company) and that an additional amount of Rs 3 crores was paid by the appellant to the Corporate Creditor in lieu of these rights.

Thereafter, on 1.12.2016, SICA was repealed, and all references made to BIFR under SICA stood updated unless the company in question made a specific application to NCLT within 180 days of the repeal of SICA. However, no such application was made by any of the creditors of the Corporate Debtor, and the 180 days expired on 29.05.2017. Consequently, in terms of the Trademark Agreement dated 15.07.2008, the trademark stood assigned to the appellant herein. As a matter of abundant caution, on 20.09.2017, the appellant executed a Deed of Hypothecation with the Corporate Debtor to enable the record of the assignment of the trademark GLOSTER along with the associated goodwill in favour of the appellant in the records of the Trademark Registry.

Only after all these activities were over that CIRP was initiated, an IRP was appointed on 09.08.2018, and a moratorium was imposed on any sale or transfer of assets of the Corporate Debtor. At this late stage, the trademark GLOSTER was already conclusively assigned and delivered to the appellant by the corporate debtor. The only thing that was left for the appellant to do was to get the assignment recorded in the Trademark Registry to show that they were the rightful owners of the mark. An application for the same was made on 25.08.2018 and the recordal of the name of the appellant in the trademark registry was affected on 17.09.2018.

Decision of the Appellate Tribunal

Consequently, the appeal was allowed, and the trademark GLOSTER was considered to be excluded from the list of assets of the Corporate Debtor on the date that the moratorium was announced and IRP was appointed, i.e. on 09.08.2018. The Appellate Tribunal held that it is a mere recordal of the name that happened after the moratorium was announced on 09.08.2018 and not the actual transfer or assignment of the trademark by the Corporate Debtor to the appellant. The transfer of title was effected by the deed of assignment and not by recording the name of the appellant on the Trademark Register. The consideration was also not found to be inadequate at any stage, and as such, the Appellate Tribunal set aside the order of the Kolkata Bench of NCLT and allowed the appeal in favour of the appellant, thereby upholding the rights of the appellant to exclusive use and ownership of the trademark GLOSTER for due consideration paid to the Corporate Debtor much before the initiation of the CIRP proceedings.

Authors: Manisha Singh and Puja Tiwari

First Published By: Mondaq here