This article has been written by Arpita Tripathy, pursuing BA LL.B at KIIT School of Law. This is an exhaustive article which deals with IP infringement vis-à-vis the Insolvency Code.
In the present time of the novel coronavirus pandemic, the world witnessed shutdowns and lockdowns in different parts of the world. Due to the increasing coronavirus cases in the country, the government of India was forced to bring the country under lockdown. The lockdown continued for months, which affected the economy drastically. The companies which were doing extremely well during pre-covid times are now under the danger of insolvency and bankruptcy. The Insolvency and Bankruptcy Code was introduced in 2016 to find a resolution for companies that are suffering from insolvency. The main focus of the code is not to suck out the money left and provide it to the creditors but to search for a resolution plan to improve the insolvent state of the company.
Insolvency and Bankruptcy Code
Insolvency and Bankruptcy Code, 2016 is a relatively new enactment introduced to increase ease of business in the country. Earlier companies were able to enter the market but the exit from the market was a tedious and difficult task. Therefore, foreign companies did not want to start their business in India. Startups also faced problems while looking for an efficient exit strategy. The overall rank of India in Ease of doing business before the introduction of the Insolvency and Bankruptcy Code was at 108. In the 2019 ranking, India has leveled up to 63rd rank. This improvement has also included India in the top 10 improvers of the world. Before the introduction of the Code, on average, it took more than 4 years to resolve insolvency. However, after the introduction of the Code, the time period has reduced considerably to 1.6 years.
SARFAESI Act, Code of Civil Procedure Code, Recovery of Debts due to the Bank and Financial Institution, Presidency Towns Insolvency Acts, The Provincial Insolvency Act, and Corporate Debt Restructuring and Strategic Debt Restructuring are the different Acts governing Insolvency and Bankruptcy in India. The messed up situation of the insolvency in the country led to the enactment of the Insolvency and Bankruptcy Code, 2016. The Insolvency and Bankruptcy Code consolidated the insolvency laws to bring all the provisions under one enactment. The process of insolvency can be initiated by the financial creditor, operational creditor, or the debtor himself.
Under Section 5(7) 0f Insolvency and Bankruptcy Code, 2016, the term ‘financial creditor’ has been defined. When a person owes a debt that is purely financial in nature to another person then the latter is called a financial creditor. These are the creditors who provide a person with money or financial credit. The financial debt under Section 5(8) of the Code, includes loan, securities, any acceptance of credit, amount due to be paid with respect to a hire-purchase agreement, the liability with respect of any guarantee or indemnity, or any other transaction which has an effect of financial borrowing.
When a person provides another person with some services or some material then such a person is an operational creditor. When in return the person or the party has to pay a certain amount of money but has defaulted in the same then such a party or person is an operational debtor. The employees, home buyers, parties that provide some goods or other services are included in the definition of an operational creditor.
Usage of intellectual property in the corporate sector
Every company uses the intellectual property for its success. Innovations and new technologies play an important role in surviving in the competitive market of today’s time. It was earlier believed that only physical assets are important for the growth of the business.
Every company has a trademark which makes it different and unique from all other companies. It is important to protect the logo so that the reputation of your organization is attached to the unique trademark of your company. The trademarks are protected under Trademarks Act, 1999. Any mark or logo is represented graphically to distinguish one business from others. The term period extends up to 10 years from the initial date of registration of the trademark. During the registration process, the opposition is invited from the public. For proving infringement of trademark it is important to prove that the trademark has been duly registered, the person infringing has not the same accident, the mark has been used to deceive the customers.
Companies can also protect their literary, cinematographic, theatre, musical, dance, educational artistic work by copyrighting them. It also protects computer programming. It tries to protect the creative ideas of a person. Copyright is granted only for a specified time period. The time period of copyright exists during the lifetime of the creator until 60 years after the death of the creator.
There are different designs for a product. In the tough competition, it is important to not only have good quality but designs of the same are equally important. The designs of the products like the design of shoes, furniture, dresses, watches, etc. A design to come under IP protection has to be a new design and not a common one. The design should be such that it attracts customers. The design should not have been registered before.
With the recent rise and dependence on information technology and artificial intelligence, the corporate sector has understood the importance of constant up-gradation of intellectual property. Companies spend a great deal of money on developing these innovations and patent the same so that they are ahead of their competitors. A patent is valid up to 20 years from the date of registration. If an invention has been given protection under intellectual property then no one else can use it without permission of the patent holder. It also enhances the value of the business.
How is IP and Insolvency Code related to insolvency and bankruptcy of an entity
A financial creditor or operational creditor can file for insolvency in the National Company Law Tribunal (NCLT) when there is a default of Rs. 1 Lakh, the default amount can be increased by notification by the government. Recently, due to the coronavirus pandemic, the threshold has been increased by the government. After receiving the application within 14 days NCLT would look if there has been a default by the debtor and would admit the case. The corporate insolvency process is different for different types of creditors.
According to the corporate insolvency resolution process when a creditor or the owner of an entity files for an entity then the management of such an organization gets suspended. The management of the company is handed over to the interim resolution professional who is appointed by the National Company Law Tribunal. The IRP acts like the Board of Directors of the corporate debtor. The interim resolution professional forms a Committee of Creditors.
The Committee of Creditors appoints a resolution professional who would prepare an information memorandum and submit the same to the committee. His duty extends to protect and preserve the value of the assets of the firm. The whole corporate insolvency resolution process is a time-bound process. Under Section 12 of the Insolvency and Bankruptcy Code has to be completed within 330 days.
Duty of interim resolution professional
Under Section 18 of the Insolvency and Bankruptcy Code, the interim resolution professional along with the management of corporate debtors has to also collect information regarding assets, finance, and operation. On the date when the corporate insolvency resolution process is initiated the IRP has to prepare a list of assets and liabilities. It is the duty of the professional to collect information regarding the business operations of the previous two years and look and collect information of the financial and operational payments in the last two years. He has ownership rights over the assets of the corporate debtor.
Section 18 also specifies what can be included in assets. The assets may be or may not be in the possession of a corporate debtor, it can be located in a foreign jurisdiction, can be tangible or intangible assets, or can be securities. The intangible assets include intellectual property like copyright, trademark, patent, etc.
Insolvency and Bankruptcy Code, 2016 imposes a duty on the resolution professional selected by the Committee of Creditors to prepare an information memorandum and submit it to the committee. Under Section 29 of the Code, the Resolution Professional provides all information to the resolution applicant. This resolution applicant has a duty to work according to the law and should not disclose relevant information. The resolution applicant has a duty to protect the IP of the corporate debtor. This protection of intellectual property has to extend up to the time the corporate insolvency resolution process continues.
Intellectual property to be reviewed by the resolution professional
The insolvency resolution professional or the interim resolution professional has to first understand and make a list of the intellectual property used by the corporate debtor. He also has to segregate the registered and unregistered IP. Due to the profit motive of the promoters, they register the IP in their own name. The resolution professional has to make sure that all the intellectual property of the company is to be controlled and managed by him.
GE Power India Ltd. V. NHPC Ltd
- This is a very recent landmark case conducted through video conferencing in the High Court of Delhi. In this case, Alstom India Ltd. whose name has been changed to GE Power India pursuant to acquisition had entered into a contract with Lanco Infratech Ltd. The contract was regarding testing, manufacturing, and designing machinery for Hydro-Electric Power for Tesla VI Project. Alstom India Ltd. submitted certain drawings which were copyrighted by them to Lanco Infratech Ltd. However, later Lanco Infratech Ltd was liquidated. Thereafter, a resolution plan was finalised wherein it was decided by the resolution professional and approved by the NCLT that the Tesla VI Project will be acquired by the defendant company NHPC. After the acquisition, the defendant company issued a tender. The tender was issued with an intention to give all the confidential drawings to the successful bidder. It was alleged by the plaintiff that the highly confidential drawings were disclosed to bidders. The defendant also published confidential drawings on the world wide web.
- The plaintiff, therefore, contended his copyright has been violated by the defendant. The plaintiff said that the contract of copyright was with LIL which was limited and conditional. Therefore, the defendant cannot make use of the contract without taking consent from the plaintiff or a license is imperative. The plaintiff contended that LIL was not the owner of the copyright and therefore, after the acquisition, the defendant should have taken the permission. The plaintiff relied on the decision of Astrazeneca UK Limited v. Orchid Chemicals.
- The defendant contended that the Delhi High Court is not a proper court according to Section 60(5) of the Insolvency and Bankruptcy Code, 2016. The defendant also contended on the ground of fair dealing under Section 52(1)(a) of the Copyright Act, 1957. The defendant also argued that its website was not targeted towards the customers of Delhi.
- The Hon’ble High Court of Delhi held that the contention of the defendant regarding fair dealing is incorrect. Under Section 52 of the Copyright Act, fair dealing is only for personal use and not for commercial usage. The court also clarified that Section 52 (x) of the Act only allows the reconstruction of an existing building with the help of drawings only after the consent of the holder of the copyright of the drawings. However, the court dismissed the case based on lack of jurisdiction of the high court. The court said that because the case falls within the ambit of Section 60 of the Insolvency and Bankruptcy Code, therefore the National Company Law Tribunal has the power to adjudicate on the matter.
Hence, in the present time of black swan events, it is evident that many companies have not been able to cope up with the constant shutdowns and lockdown. The lockdown and shut down has forced many companies to go for insolvency. Intellectual property is an important part of business, be it a trademark, patent or copyright are important towards the company’s success. Intellectual property has been a matter of issue during the corporate insolvency resolution process.
Where companies are completely dependent on intellectual property rights, there is a professional who is an expert in the field of intellectual property and should be employed, who can help in the whole process of corporate insolvency resolution. Laws should be specified exclusively for intellectual property for clarity in the particular aspect.
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