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JC - Legal Updates - Claims arising out of a license to use of IP rights fall within the definition of ‘Operational Debt’

Legal Updates

23 Aug 2022

Claims arising out of a license to use of IP rights fall within the definition of ‘Operational Debt’

In the matter of Somesh Choudhary vs. Knight Riders Sports Private Limited & Anr. (Order dated 18th August, 2022, Company Appeal (AT) (Ins) No. 501 of 2021), the Hon’ble National Company Law Appellate Tribunal, Delhi (“NCLAT”) has held that, claims arising out of a grant of an exclusive right and the license to use of intellectual property rights, fall within the ambit of the definition of ‘Operational Debt’ as defined under Section 5(21) of the Insolvency and Bankruptcy Code, 2016 (“I&B Code”).

The NCLAT observed that the Hon’ble Apex Court in the case of Vikas Sales Corporation vs. Commissioner of Sales Tax, (199) 4 SCC 433, examined the definition of ‘goods’ and observed that ‘even incorporeal rights like trademarks, copyrights, are ‘Movable Property’ and are included in the ambit of definition of ‘goods’ under the provisions of Sale of Goods Act, 1930.

Accordingly, the NCLAT observed that granting an exclusive right and license to the Corporate Debtor, to use manufacture, sell, distribute, and advertise the licensed products and to use the trademark in association with such licensed products as well as on packaging, promotional advertising material had a direct nexus with the business operations and sales and the actual products supplied by the Corporate Debtor. Hence, the 'Claim' in respect of such provisions of ‘goods and services’, under the terms of the License Agreement, fall within the ambit of the definition of 'Operational Debt' as defined under the I&B Code.


For any further information, please contact Mr. Shubhabrata Chakraborti (shubhabrata.chakraborti@jclex.com) or Ms. Jinal Shah (jinal.shah@jclex.com).