Suchitra Kanuparthi, Member (Judicial)
1. Applause Entertainment Private Limited (hereinafter called as ‘Petitioner’) has sought the Corporate Insolvency Resolution Process of Eros
International Media Limited (hereinafter called as the ‘Corporate Debtor’) on the ground that the Corporate Debtor committed default to the
extent of Rs. 5,37,60,000/- (with taxes) as on 18.04.2021 by invoking the provisions of Section 8 and 9 of the Insolvency & Bankruptcy Code
(hereinafter called ""Code"") read with Rule 5 and 6 of Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016.
Contentions of the Petitioner:
2. The Counsel for the Petitioner submits that the Petitioner and the Corporate Debtor had entered into a License Agreement dated 02.11.2020
through which the Corporate Debtor was granted a non-transferable and non-sublicensable license to stream Season-1 of two series created by the
Petitioner, namely “Udan Patolas†and “Salt City†(hereinafter called as ‘Series’) on the audio-visual platform “Eros Nowâ€. The
total consideration amount for both the above said Series was ₹16,00,00,000/- plus applicable taxes as per the Clause 3 of the License Agreement.
3. The Counsel for the Petitioner further submits that the two invoices towards the initial 30% of the License Fees for each Series, i.e., Rs.
1,80,00,000/- and Rs. 3,00,00,000/- plus taxes were raised by the Petitioner on 04.11.2020 and delivered to the Corporate Debtor on 10.11.2020. Thus,
the Corporate Debtor, as per Clause 3(b)(i) of the License Agreement, was under a contractual obligation to make payment of ₹4,80,00,000/- along
with applicable taxes to the Petitioner on or before 25.12.2020. The Petitioner had also paid the GST for both the said invoices to the Government.
Clause 3 of the License Agreement is extracted below:
4. The Counsel for the Petitioner submits that the Petitioner, upon execution of the License Agreement, delivered preview episodes (low resolution) of
both the Series for marketing planning purposes and ensuring compliances with the standards and practices of the Corporate Debtor. The Corporate
Debtor, vide an email dated 30.11.2020, confirmed that all episodes of series “Udan Patolas†are as per its standards and practices and requested
to share the master episodes of the said series. By a separate email dated 30.11.2020, the Corporate Debtor indicated that it was trying to release the
series ‘Udan Patolas’ on its platform between 18th to 23rd December, 2020. Moreover, the Corporate Debtor unilaterally made a public
announcement on 11.12.2020 on various social media platforms and in the press about their content slate which featured both the Series as part of the
Corporate Debtor’s content slate for 2021. The Corporate Debtor even uploaded a promotional video of its content slate on its official Twitter and
Instagram page which featured both the Series. Thereafter, on 21.12.2020, the representative of the Corporate Debtor requested for extension of time
till 31.01.2021 to make the payment in terms of Clause 3(b)(i) on the ground that a board approval was pending with respect to the same. The
representative of the Petitioner, by an email dated 24.12.2020, granted an extension of time for making payment till 15.01.2021 to the Corporate
Debtor.
5. The Counsel for the Petitioner submits that an official joint press release was also made by the Petitioner and the Corporate Debtor on 24.12.2020
regarding ‘Udan Patolas’. Further, the Corporate Debtor, vide an email dated 28.12.2020, sent the script for the promotions which also included
the dates for streaming of the series ‘Udan Patolas’ on its Eros Now from 12.02.2021/ 19.02.2021/ 26.02.2021. The Petitioner kept following up
for payments with the Corporate Debtor through the month of January, 20201 but did not receive any confirmations. The Petitioner was informed by
an email dated 12.02.2021 sent by the representative of the Corporate Debtor that they were trying to ascertain the definitive internal plan on release
schedule of their overall content slate and the amount will be paid latest by 31.03.2021. In its Reply dated 19.02.2021 to the Corporate Debtor’s
email dated 12.02.2021, the Petitioner responded stating that the payment should be processed by the end of February, 2021 owing to its business and
financial planning. However, when the Corporate Debtor made no payments, the Petitioner’s representative wrote a detailed email on 03.03.2021
to the Corporate Debtor and requested to honor the signed and publicly announced mutually agreed deal. It was reiterated that once the payment is
made, the Petitioner shall further deliver as per the terms of the License Agreement.
6. The Counsel for the Petitioner further submits that as no payment was being made by the Corporate Debtor, the Petitioner issued a legal notice
dated 18.03.2021 upon the Corporate Debtor thereby putting the Corporate Debtor to 30 days notice period as per the terms of the License
Agreement to pay dues of Rs. 4,80,00,000/- along with applicable taxes towards payment due under Clause 3(b)(i) of the License Agreement.
However, the Corporate Debtor failed to make any payment and an operational debt came into existence on 18.04.2021. The Petitioner thus issued a
Demand Notice dated 30.04.2021 under Section 8(1) of the Code in Form 3 under Rule 5 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016 calling upon the Corporate Debtor for the unconditional payment of the unpaid operational debt within ten days
from receipt thereof. The Corporate Debtor responded to the Petitioner’s Demand Notice dated 30.04.2021 through its email dated 04.05.2021. In
the said Reply, the Corporate Debtor stated that the project is commercially unviable and sought to terminate the License Agreement.
7. The Counsel for the Petitioner submits that the Petitioner responded to the Reply of the Corporate Debtor through an email dated 12.05.2021 to
which the Corporate Debtor again responded through an email dated 26.05.2021.
Contentions of the Corporate Debtor:
The Counsel for the Corporate Debtor submits that the
8. The Petitioner claims to own the copyright of cinematograph Films/Web Series ""Udan Patola"" and ""Salt City"" (hereinafter referred to as ""the
Content'). Having considered the popularity, reach and the presence of the Corporate Debtor in the Indian Entertainment Industry and the fact that the
Corporate Debtor owned and operated its own over the top (OTT) platform ""Eros Now"", the Petitioner approached the Corporate Debtor sometime in
September-October 2020 and offered the License to exploit the Content.
9. After the preliminary discussions, the Corporate Debtor was reluctant to acquire the License of the Content as the Corporate Debtor did not see a
good commercial potential in the Content. However, after much persuasion from the Petitioner, the Corporate Debtor agreed to acquire a License of
the Content on the basis that the Corporate Debtor would explore the commercial potential of the Content on best effort basis and if the Corporate
Debtor was satisfied with the commercial potential liability to pay the License Fees and in the event the Corporate Debtor did not find the Content
commercially viable the Petitioner would terminate the License and exploit the Content as it deem fit.
10. By the License Agreement dated 02.11.2020 (hereinafter referred to as ""License Agreement""), the Petitioner entered into an Agreement with the
Corporate Debtor. Under the License Agreement the Petitioner agreed to grant to the Corporate Debtor a non-transferable, non-sublicensable
License in the two Web-Series titled ""Udan Patolas"" and ""Salt City' i.e., the Content for exploitation of the same on the platforms of the Corporate
Debtor.
11. The terms of the License Agreement interâ€" alia provided the following:
(i) Clause 3(b)(i) provided that 30% of the License Fee i.e., Rs. 4,80,00,000/- (Rupees Four Crores Eighty Lakhs Only) shall be payable by the Licensee therein i.e., the
Corporate Debtor to the Licensor i.e., the Petitioner within 45 days of the signing of the said Agreement or receipt of Valid Tax Invoice from the Petitioner whichever
is later.
(ii) Clause 3(b)(ii) Stipulated Technical Check/Quality Check (TC-QC) of the Content
(iii) Clause 3(c) stipulated that the Corporate Debtor was not entitled to exploit the rights until the complete payment of the licensee fee stipulated under the said
Agreement was made to the Licensor therein i.e., the Petitioner in accordance with Clause 3 of the said Agreement.
(iv) Clause 4(a) envisaged Delivery of the Materials containing the Contents whereunder the Petitioner was enjoined to deliver the Content to the Corporate Debtor
within 30 days of the receipt by the Petitioner of the Advance of the first tranche Rs.4,80,00,000/) as per the clause 3(b)(i) of the said Agreement as stated therein.
12. Under the License Agreement, the parties agreed the License Fee of Rs.16 Crores plus applicable taxes for the license to exploit the Content
subject to the Corporate Debtor ascertaining commercial viability of the Content, delivery of the Content and Technical Check/Quality Check (TC-
QC) of the Content. The License Agreement under Clause 3 provided the breakup of the License Fee for each of the Licensed Content. Even after
the execution of the License Agreement, the Corporate Debtor was not entitled to exploit the License Rights. The License Agreement stipulated that
a sum of Rs.4.8 Crores plus applicable taxes would be payable by the Corporate Debtor to the Petitioner as an Advance of the License Fee within 45
days of the License Agreement. The reason behind the period of 45 days for payment of advance License Fees was that the period of 45 days was to
be utilized by the Corporate Debtor to ascertain commercial use of the Content. The Petitioner is claiming, albeit erroneously, the advance of Rs. 4.8
crores under the License Agreement as the Operational Debt. All further payments after the Advance of Rs.4.8 Crores were subject to completion of
T.C.-Q. C. of the Licensed Content or 10 days prior to the release/ screening of the Licensed Content by the Corporate Debtor on the platform or
receipt of valid tax invoice from the Licensor whichever was later. Under the License Agreement the delivery of the Licensed Content was
contemplated after 30 days of receipt of advance of Rs.4.8 Crores as more particularly stated in Clause No.4.
13. The principal term of the License Agreement was that if the Corporate Debtor did not find the Content commercially viable and did not exploit the
Content or decided not to exploit the Content, the Corporate Debtor would not be liable to pay any advance to the Petitioner. Under Clause 10(b) of
the License Agreement the Petitioner has a right to terminate this Agreement if the Corporate Debtor breached any of the material terms of the
License Agreement and failed to cure the alleged breach within 30 days from the receipt of written notice. Thus, in the event the Corporate Debtor
did not pay the advance of Rs.4.8 Crore plus applicable taxes and/or further payments within the time stipulated in the License Agreement, the
Petitioner could terminate the Agreement and retain the License Fee, if any, received by the Petitioner till the date of the termination. Further, Clause
10(e) of the License Agreement stipulated that upon termination by the Petitioner all rights, title, and interests in or to the Content granted to the
Corporate Debtor under the License Agreement would revert to the Petitioner and the Petitioner be free to exploit the same as it deem fit including
granting License of the same to the third party. Clause 10(e) further contemplated that once the Agreement is terminated by the Petitioner under
Clause 10(d) r/w 10(d) and 10(e), the Corporate Debtor would be discharged from the obligation under the License Agreement. Perusal of clause 10
clearly indicates that if the Corporate Debtor did not pay the advance of Rs.4.8 Crores plus applicable taxes, the Petitioner would be entitled to
terminate the Agreement and is entitled to exploit the Content as it deem fit and proper and in such an eventuality, the Corporate Debtor was
discharged from its obligation. Moreover, approval of the Board of Directors of the Corporate Debtor was necessary for proceeding with the License
Agreement and for taking further steps with respect to the Content.
14. On 04.11.2020, the Petitioner raised Invoice bearing No.2020 - 21/014 dated 04.11.2020 for Rs.2,01,60,000/- purportedly towards 30% of License
Fee for the Content i.e., ""Udan Patolas"" and Invoice No.2020- 21/015 dated 04.11.2020 for Rs.3,36,00,000/- towards 30% of License Fee for the
Content ""Salt City"". It is emphasized that the aforesaid Invoice was towards the Advance and not towards the exploitation of the goods and services.
15. Although, the Petitioner raised Invoices totaling Rs.5,37,60,000/ towards the advance of License Fees, the Content i.e., the Series ""Udan Patolas
and ""Salt City"" were not delivered to the Corporate Debtor. Consequently, on the date of issuance of Invoice, no goods or services were provided or
rendered by the Petitioner to the Corporate Debtor. In fact, as more particularly stated in the License Agreement sum of Rs.5,37,60,000/- was an
advance payable by the Corporate Debtor to the Petitioner. It is pertinent to - note that an obligation to pay advance towards purchase of goods or
availing of services, does not constitute an Operational Debt within the meaning of Section 5(21) of Insolvency & Bankruptcy Code, 2016 (l&B).
16. Between 05.11.2020 and 30.11.2020 the Petitioner shared the preview links to enable the Corporate Debtor to ascertain commercial viability of
the Content. It is pertinent to note that the License Agreement stipulated a period of 45 days to the Corporate Debtor to pay the advance to enable the
Corporate Debtor to ascertain the commercial viability of the Content. It was also agreed between the parties that the Corporate Debtor did not find
the Content commercially viable and did not pay the advance License Fees, the Petitioner could terminate the Agreement and would deal with or
dispose of the Licensed Content as deem fit and proper. The Petitioner suo moto and on their own free will and accord also gave to the Corporate
Debtor the promo episode of ""Udan Patolas"" for marketing and S&P purposes and made available Udan Patolas' talent for 2 days to shoot
promotional materials. The License Agreement did not mandate that the Petitioner was required to do so.
17. The Corporate Debtor during the month of November 2020, while it was ascertaining the commercial viability of the Content also interacted with
the Petitioner on the plan for promotion, publicity of the Content. Various emails were exchanged regarding the requirements of the Corporate Debtor
for promotion of the Content. The Corporate Debtor submits that the payment of advance of Rs.4.8 Crores was although required to be made within
45 days either from signing of the Agreement or from the date of issuance of the invoice whichever is later, the term of 45 days for payment of
advance was not an essence. Consequently, the Petitioner did not insist for payment of advance of Rs.4.8 Crores plus applicable taxes within 45 days
of the issuance of Invoices dated 04.11.2020. In fact, appreciating the fact that the Corporate Debtor was yet to decide the commercial viability of the
Content and date of their release etc., the Petitioner was willing to extend the time for payment of advance to enable the Corporate Debtor to
undertake the aforesaid exercise.
18. By an email dated 21.12.2020, the representative of the Corporate Debtor requested the representative of Petitioner that as the Corporate Debtor
was yet to approve the Content and decide the date of exploitation, the parties should extend the time to pay the advance towards the License
continuation up to 31. 01.2021. in response to aforesaid request, the representative of the Petitioner suggested that it would be ideal for the Petitioner
if the Corporate Debtor processed the advance of Rs.4.8 Crores plus applicable taxes by 15.01.2021. Further, the representative of the Petitioner
requested the Corporate Debtor to give Petitioner advance notice before the payment towards the advance. In the months of November, December
2020, the representatives of Petitioner and the Corporate Debtor had various discussions on the promotion of the Content.
19. Towards the end of January 2021 and early February 2021, the Petitioner enquired to the Corporate Debtor about the payment of advance
towards the Licensed Content. By an email dated 12.02.2021 the Chief Executive Officer informed the representative of the Petitioner that the
Corporate Debtor was still trying to ascertain the definitive internal plan on the reschedule of Corporate Debtor's overall Content slate. As the
Petitioner was insisting on some estimated dates for payment of advance, the representative of the Corporate Debtor informed the representative of
the Petitioner to consider 31.03.2021 as the outermost date for payment of advance.
20. By an email dated 19.02.2021, the representative of the Petitioner requested the Chief Executive Officer of the Corporate Debtor to disburse the
advance under the License Agreement by end of February 2021, failing which the Petitioner would take 2-3 weeks to complete the delivery of the
Content. Towards early March 2021, the Board of Directors of the Corporate Debtor were of the view that the Content of the Petitioner was not
commercially viable and consequently had decided not to exploit the Content of the Petitioner. However, The Corporate Debtor expressed interest to
exploit the web series ""Salt City"" in the latter half of 2021 on the revised terms and conditions to be agreed upon between the Corporate Debtor and
the Petitioner.
21. The Advocates for the Petitioner issued the Notice dated 18.03.2021 alleging that a Corporate Debtor was in breach of its obligation to pay
advance towards the License Fee of the Content under the License Agreement and issued the Notice under Clause 10(b) of the License Agreement
and called upon the Corporate Debtor to pay to the Petitioner a sum of Rs.4.8 Crores along with the applicable taxes towards the advance stipulated
under clause 3(b)(i) of the License Agreement.
22. After issuing the Notice dated 18.03.2021, the Petitioner issued a Demand Notice dated 30.04.2021 demanding payment of sum of Rs.4.8 Crores
plus applicable taxes being advance payable under Clause 3(b)(i) of the under the License Agreement. It is pertinent to note that the claim of Rs.4.8
Crores of the Petitioner does not constitute an Operational Debt. In response to the Notice dated 30.04.2021 issued by the Petitioner, the Corporate
Debtor addressed a Letter dated 04.05.2021 denying that there was any Operational Debt Due and payable by the Corporate Debtor to the Petitioner.
23. In response to the letter dated 04.05.2021 issued by the Advocate for the Corporate Debtor, the Advocate for the Petitioner issued a reply dated
12.05.2021 claiming that by an email dated 21.12.2020 and 12.12.2020, the Corporate Debtor has admitted the viability and consequently the claim of
the Petitioner constituting an Operational Debt.
24. The Advocate of the Corporate Debtor by its letter dated 25.05.2021 responded to the letter dated 12.05.2021 of the Petitioner and set out true
and correct facts. It was clearly mentioned that the Corporate Debtor did not wish to exploit the Content and the Petitioner was free to take aforesaid
recourse under the License Agreement.
25. From the facts and circumstances aforesaid, it is apparent that the Petitioner alleged that the Corporate Debtor committed a breach of a term of
License Agreement viz. 3(b) by failing to pay the advance towards the License Fees and issued Notice to rectify the breach. It is pertinent to note
that the insistence of the Petitioner that the Corporate Debtor ought to pay the License Fees, even when the Corporate Debtor does not wish to
exploit the Content or avail the License, amounts to the Petitioner seeking specific performance of the License Agreement. The License Agreement
clearly stipulates the consequences of non-payment advance towards the License Fees.
26. The Corporate Creditor having not given the delivery of the Content, the claim of Rs.4,80,00,000/- or any part and proceedings under IBC claiming
the sum of Rs 4,80,00,000/-plus applicable taxes as Operational Debt the thereof is patently absurd, illegal, misconceived, and untenable in law and all
assertions and claims of the Petitioner to the contrary are false and incorrect.
Rejoinder filed by the Petitioner
27. The Petitioner contended that the present demand is in operational debt and had raised invoices towards the license fee for grant of rights under
the License Agreement. It was never meant to be the against the delivery of material as sought to be contended by the Corporate Debtor.
28. The Rights in the License content (i.e. rights to use ) were granted and was not conditional or contingent on the happening of any event. It is no
longer res integra that in corporeal right such as copy rights, trade mark, right in personam capable of transfer or transmission comes with in the ambit
of course. Thus the goods, i.e. the rights in the license contents were transferred to the Corporate Debtor and hence the first tranche of license fee
was to be paid in terms of clause 3(b)(i), which the Corporate Debtor failed to pay.
29. The Petitioner further claim that episodes were given to the Corporate Debtor to enable the Corporate Debtor to assess the commercial viability
and content. The Corporate Debtor further confirmed that the Petitioner had shared the trailers and episodes of some shows and after viewing and
upon multiple discussions between the parties, the Corporate Debtor initiated discussion of Udan Patolas and Salt City.
Sur-rejoinder
30. The Corporate Debtor claimed that the Petitioner has raised an irrelevant and unconnected issues with a view to obfuscate the fact that there are
real and serious disputes between the parties and an application under section 9 is not maintainable. It is clear that the parties are ad idem on the
nature of agreement and interpretation of the same and there is a bonafide dispute between the parties and therefore this is no debt payable.
31. The allegations regarding publications dated 16.06.2021 and 26.07.2021 are false and baseless and the claim that the purported news report
suggest that the chief operating officer of the Corporate Debtor and their team resigned due to non payment of debt is false.
32. The allegation regarding the acknowledgement and confirmation of debt by the Corporate Debtor with reference to emails dated 25.12.2020 and
12.02.2021 is completely misconstrued. The said emails do not in any manner admit or acknowledge the debt of Rs. 4.8 crores. It is well settled
provisions in the contract to pay in advance towards goods and services does not constitute a debt much less an operational debt. Without delivering
the goods i.e. the license content there is no question of transferring the rights to use goods. Is a trite law, license of copyright does not constitute any
right to transfer. A bare perusal of the License Agreement, especially the definition of “the License period†and the definition of
“commencement date†completely contradicts and belies the submission of the purported Petitioner. Under clause 1(u), the License period means
a period that commences from the commencement date and continues for a period of 9 years. Under clause 1(g) the commencement date means date
of receipt of TC QC approval from the License or within 14 days from the date of delivery of the License content or as mutually discussed and
agreed between the parties. Thus, the License never came in force on execution of the Licensed Agreement and the Licensed Rights did not come in
to existence. The purported Petitioner has also overlooked clause 4 of the License Agreement which pertains to delivery of the material. Clause 4
states that License contents would be delivered within 30 days from the receipt of the advance of Rs. 4.8 crores. It is apparent that the purported
Petitioners in a desperate attempt to recover monies is trying to misconstrue the provisions of the Licenses Agreement.
Findings
33. The Petitioner has filed the present Petition due to nonpayment of Operational Debt amounting to Rs. 4.8 crores. The Petitioner and the Corporate
Debtor has executed the license agreement wherein the Corporate Debtor was granted a non-transferrable, non-sublicense to stream season 1 of two
series created by the Petitioner on the audio vision platform of Eros Now. The contentions of the Petitioner is that upon execution of the said license
agreement the Corporate Debtor is liable to pay the license fee to the Petitioner in terms of clause 3 of the License Agreement. The Clause 3 of
License Agreement is reproduced below;
34. The Petitioner raised two invoices dated 04.11.2021 and the same was received by the Corporate Debtor on 10.11.2021. the Corporate Debtor
was liable to pay an amount of 4.8 crores along with GST within 45 days of receipt of the invoice as per clause 3(b)(i) i.e. 25.12.2020. The Petitioner
has also paid the GST which is reproduced as below;
35. The Petitioner had delivered preview link of all episodes of both the series for marketing planning purposes and ensuring compliances with
standards and practices (S& P). The Corporate Debtor vide an email dated 30.11.2020 confirmed that all episodes of Udan Patola are in conformance
with its S& P and requested the Petitioner to share a time line of delivery of master episodes of the series. On 30.11.2020,the Corporate Debtor
indicated that they were trying to release on its platform between 18 to 23rd December, 2020.they also made a public announcement on 11.12.2020 on
various social media platforms about their content slate which featured both the series and therefore the petitioner claimed that the rights already been
granted to the Corporate Debtor and hence, they are liable to pay 30 % of License Fee.
36. The Petitioner relied upon certain official joint press release on 24.12.2020 regarding Udan Patalos and email dated 28.12.2020 sent by the
Corporate Debtor which includes the dates of streaming series “Uran Patolas†on its platform Eros Now on 12.02/ 19.12/ 26.02.2021. The
Corporate Debtor vide its email on 21.12.2020 sought an extension to make the payment till 31.01.2021, the Corporate Debtor also sent another email
on 12.02.2021 that they are trying to ascertain the definitive internal plan on release schedule of their over all contents slate and the amount would be
paid latest by 31.03.2021. However, no payments were forthcoming, and the Petitioner issued legal notice dated 18.03.2021 demanding the payment of
Rs. 4.8 crores. Further, the Petitioner issued the demand notice under section 8(1) of IBC. The Corporate Debtor for the first time vide reply on
04.05.2021 raised the contentions that no goods or services are availed and hence terminated the contract.
37. The Corporate Debtor claimed that the demand for a sum of Rs. 4.8 crores is a mere unadjudicated claim and does not constitute a debt much less
a operation debt defined under section 5(21) of IBC. Admittedly the Petitioner has not delivered the content thus there is no provision of any goods
and services by the Petitioner to the Corporate Debtor. Provision i.e. delivery or supply of goods and services is sine qua non for Operational debt.
38. It a trite law that obligation to pay an advance towards the purchase of goods or services do not constitute a legally enforceable debt or liability
much less an operational debt. The contention that the Corporate Debtor has acknowledged the liability is absolutely false. Failure to pay an advance
for a purchase of goods or availing of service is yet to be delivered does not constitute a operational debt.
39. Under the License Agreement there is no transfer of any right to the Corporate Debtor but as per clause 2(a) of the Agreement, the petitioner
agreed to grant the Corporate Debtor the nontransferable and non-licensable license for exploitation on the platform for the License period. As per
clause 1(g) the commencement date of the agreement would be 14 days from the date of delivery of the License or has mutually discussed or agreed
between the parties. Execution of license agreement does not per se deliver the material to the Corporate Debtor whereas the petitioner exclusively
continued to retain the content and ownership with itself.
40. The License Fee was to be paid in the manner stipulated in Clause 3(b). Clause 3(b)(i) stipulated that 30% of total license fees i.e. Rs. 4.8 crores
was payable within 45 days from signing of the agreement or within 45 days or receipt of tax invoice whichever was later and the balance 70 % was
payable on delivery of the content subject to completion of TC/QC i.e. Technical Check/ Quality Check of the content or 10 days prior to the release/
streaming of the content. Clause 3(c) expressly provided that until the payment of entire license fees, the Corporate Debtor was not entitled to exploit
the Content.
41. The first tranche of payment as contemplated under clause 3(b)(i) was advance of Rs. 4.8 crores. The agreement granted promotion right of
Corporate Debtor under clause 6 which does not constitute the exploitation of content. Clause 10(b)(i) stipulates that if the Corporate Debtor did not
make the payment as stipulated in clause 3(b)(i) including the payment of advance towards the license fee, the Petitioner has right to give written
notice to cure the breach within 13 days. Clause 10(b)(i) also gives right to terminate the financial obligation, the Petitioner also had the right to forfeit
the advance of payment of rights upon termination. Further, the Agreement also contemplates that under clause 10(e) that once the agreement is
terminated by the Petitioner under clause 10(d) r/w 10(e), the CP is discharged for the obligation under the License Agreement.
42. Admittedly, the Corporate Debtor has not exploited the license rights with respect to the license content and the agreement was terminated.
Therefore, merely because the Petitioner has raised the invoices there is no obligation to pay such advance, as the Corporate Debtor had not exploited
the content.
43. The Corporate Debtor vide email dated 24.12.2020, indicated that the advance to be processed by 15th January, 2021. The relevant extract of the
email is reproduced below;
“it would be ideal to get the advance processed by Jan 15th that why we can Attempt to deliver episodes, process the balance payment and launch UP towards
the end of January and SC in Februaryâ€.
44. Further, the email dated 03.03.2021 refers the amount of Rs. 4.8 crores as an advance. The email is extracted below;
45. This Bench, is of the considered opinion that payment of advance does not constitute a legally enforceably debt and therefore the definition of
claim under section 3(6) of the Code is not crystallized unless it is adjudicated by the competent court by the way of a decree of a Arbitral Award.
The counsel for the Petitioner relied upon on the judgement of SC in the matter of Union of India Vs. Raman Iron Foundary (AIR1974SC1265), a
claim becomes a debt only upon adjudication or crystallization thereof by the Competent court by the way of a decree of a Arbitral Award as the case
may be. Thus, until the debt is crystalized by the competent court or by the Arbitrary Tribunal the claim does not constitute a debt. Thus, a debt a
defined under section 3(11) of the IBC means a liability or a obligation from a claim which is due from many persons includes a Financial debt.
46. Thus, the advance of Rs. 4.8 crores payable by the Corporate Debtor upon execution of the license agreement does not become an Operational
Debt as there is no service rendered or goods provided by the Petitioner, but in fact the Petitioner was to share the content which was agreed to be
exploited by the Corporate Debtor. However, no content was shared and hence, there is no question of payment of any advance money by the
Corporate Debtor to the Petitioner.
47. The counsel for the Corporate Debtor also relied upon the judgment of the Hon’ble Supreme Court in the matter of Indus Airways Private
Limited Vs. Magnum Aviation Private Limited and Anr (2014) 12 SCC 539 (refer paragraph 9 and 15) has laid down a proposition of law that the
obligation to pay an advance towards the purchase of goods or services does not constitute a legally enforceable debt or liability. Thus, if at the time of
entering into the contract it is one of the conditions of the contract that the purchaser has to pay the amount in advance and there is a breach of such
condition then the purchaser, the obligation of the purchaser does not constitute debt much less an operational debt.
48. The counsel for the Corporate Debtor also relied upon the judgment of the Hon'ble NCLT (New Delhi) in the case of KLA Constructions Vs.
CKG Realty (CP. No. IB394/(ND)/2007, The Hon'ble NCLT in that case has held that a claim towards the mobilization advance payable under the
contract does not constitute an operational debt. The Hon'ble NCLT has held that nonpayment of advance cannot give rise to a claim under Section
5(21) of IBC as an operational debt and it will arise only when the Petitioner is able to establish that there is a debt due and payable arising out of
provision of goods or rendering of services. It was held that in case where provisions of goods or rendering of services has not occurred, the claim of
the Petitioner cannot constitute as an Operational Debt
49. The only question for consideration is whether the advance as claimed by the Petitioner is an Operational Debt.
50. Given the factual matrix, in strict interpretation of terms and conditions of the Agreement dated 02.11.2020, at clause 3(c) the license shall not be
entitled to exploit the rights under a complete payment of license fee has been made to the licensee in accordance with clause 3. Further, clause 4
envisages delivery of the material within 30 days or receipt by the license of the advance (first tranche) of License Fee. The termination clause also
captures that upon happening of certain contingent events, the Licensee (Corporate Debtor) shall terminate the agreement under clause 10(a). There
is no debt/ liability which is due to the Petitioner under the agreement in the given circumstances, where the agreement is terminated. Moreover, mere
reference to certain amounts wherein the Corporate Debtor has sought further time to pay the advance per se does not establish a debt and when the
content was not transferred, the parties were only contemplating if it is viable to proceed further, it can be said that there is no definite agreement
between the parties. This Bench, concludes that there is no debt due and payable by the Corporate Debtor. The obligation is to pay advance does not
constitute to be a Operational Debt and hence, the Petition is dismissed.
