NCLT confirms BCCI as an operational creditor under the IBC, citing ongoing marketing rights as operational debt despite the agreement's expiry.
The National Company Law Tribunal 9NCLT), Bengaluru Bench of K. Biswal (Judicial Member) and Manoj Kumar Dubey (Technical Member) were hearing a petition filed by the Board of Control for Cricket in India (BCCI) against Byju's firm Think & Learn Private Limited and affirmed BCCI's classification as an operational creditor under the IBC, emphasizing that the marketing and promotional rights granted constituted operational debt, regardless of the agreement's expiration. The NCLT Bench further noted that this decision was based on the Corporate Debtor's continued utilization of services and acknowledgement of outstanding payments, leading to the admission of the section 9 petition and rejection of arbitration proceedings seeking to delay the insolvency process.
In September 2023, the National Company Law Tribunal (NCLT) faced a significant case involving a petition under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) filed by the Board of Control for Cricket in India (BCCI) against Think & Learn Private Limited (the 'Corporate Debtor'). The petition highlighted a substantial default of Rs. 1,58,90,92,400 owed by Think & Learn to BCCI, stemming from a Team Sponsor Agreement that granted exclusive marketing, advertising, and promotional rights related to Indian cricket teams.
The dispute arose when Think & Learn failed to fulfil its financial obligations under the agreement, which originally ended on 31st March 2022 but continued informally until 31st March 2023. Despite BCCI's issuance of demand notices and multiple invoices for services rendered during this period, Think & Learn disputed the claim, arguing that the payments demanded did not constitute operational debt under the IBC. They claimed ongoing negotiations and pandemic-related disruptions as reasons for non-payment.
The matter involved complex legal arguments concerning the definition of operational debt under the IBC and the applicability of GST on outstanding amounts. BCCI contended that the services provided, including advertising and promotional activities, qualified as operational debts under judicial precedents. They argued that invoices raised against Think & Learn included GST charges, further solidifying the operational debt claim.
As the case progressed, both parties presented their arguments before the NCLT. BCCI emphasized the corporate debtor's acknowledged liabilities and contractual obligations, while Think & Learn challenged the petition's maintainability, citing ongoing arbitration proceedings and disputing the nature of operational debt.
After careful consideration of the arguments and evidence presented, the NCLT made several critical determinations:
1. Operational Creditor Status: The NCLT upheld BCCI's classification as an operational creditor under the IBC. It concluded that the marketing, advertising, and promotional rights granted under the Team Sponsor Agreement constituted services falling within the ambit of operational debt as defined by Section 5(21) of the Code. The Tribunal referred to precedents where similar rights were deemed operational debts and dismissed Think & Learn's objections on this basis.
2. Existence of Contractual Arrangement: Despite the expiration of the agreement in March 2022, the NCLT acknowledged that operational debts could still be claimed based on invoices issued for services provided post-agreement. It noted ongoing negotiations and the continued use of services by Think & Learn, supported by a renewed bank guarantee, as evidence of the agreement's ongoing nature.
3. Default on Payment Obligations: The Tribunal examined Think & Learn's payment history and correspondence, concluding that despite acknowledging debts and proposing payment schedules, Think & Learn had defaulted on several occasions by not paying the due amounts within agreed timelines. This default status under Section 3(12) of the IBC was crucial in the Tribunal's decision.
In its final decision, the NCLT dismissed Think & Learn's objections regarding BCCI's operational creditor status, the validity of the agreement post-expiry, and the default under the IBC. The Tribunal admitted BCCI's section 9 petition, initiating the Corporate Insolvency Resolution Process (CIRP) against Think & Learn. It declared a moratorium under Section 14 of the IBC, appointing an Interim Resolution Professional to oversee the process and dismissed Think & Learn's application for arbitration, emphasizing the primacy of the IBC in resolving insolvency matters.
This case underscores the complexities involved in interpreting contractual obligations, defining operational debts under the IBC, and navigating legal disputes in high-value commercial agreements. The NCLT's decision set a precedent in clarifying these issues within the framework of insolvency law, ensuring adherence to statutory provisions and procedural fairness in resolving creditor-debtor disputes.
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