Calcutta High Court
Unilever Industries Private Limited & ... vs Kwality Limited on 30 January, 2019
Author: Soumen Sen
Bench: Soumen Sen
IN THE HIGH COURT AT CALCUTTA
COMMERCIAL DIVISION
ORIGINAL SIDE
BEFORE:
THE HON'BLE JUSTICE SOUMEN SEN
G.A. No.942 of 2018
C.S. No.73 of 2018
UNILEVER INDUSTRIES PRIVATE LIMITED & ANR.
VS.
KWALITY LIMITED
For the Petitioners : Mr. S.N. Mookherjee, Sr. Adv.,
Mr. Ratnanko Banerji, Sr. Adv.,
Mr. Arunabha Deb, Adv.,
Mr. Soumabho Ghosh, Adv.,
Mr. Deepan Sarkar, Adv.,
Mr. Subhradip Roy, Adv,
Ms. Arti Bhattacharyya, Adv.
For the Respondent : Mr. Jayanta Kr. Mitra, Sr. Adv.,
Mr. Ranjan Bachawat, Sr. Adv., Mr. Debnath Ghosh, Adv., Mr. Sayan Roy Chowdhury, Adv., Mr. Victor Dutta, Adv., Mr. Monosij Mukherjee, Adv., Mr. Mitul Dasgupta, Adv.
Hearing Concluded On : 22/01/2019 Judgment On : 30/01/2019
Soumen Sen, J.:- The preliminary objection raised by the defendant as to the continuance of the suit and interlocutory proceeding during the moratorium period is considered before deciding the matter on merits.
Sworn of details, the plaintiffs filed a suit against the defendant praying, inter alia, for passing off the trademark 'Kwality' or 'KDIL's Kwality' trade mark or any other trademark containing the word 'Kwality' or any other trade mark deceptively similar to the plaintiffs' well-known trademark 'Kwality' so as to pass off or enable others to pass off the respondent's goods as and for the plaintiffs' goods. The plaintiffs claimed that the plaintiff No.1 is the assignee of 'Kwality' trade from the original proprietor.
The petitioner contended that under a Strategic Alliance Agreement between Kwality Ice Creams (India) Limited and Brooke Bond Lipton India Limited, it was agreed that the use of the 'Kwality/sub-Zero' name in the corporate name shall be subject to the condition that Kwality Dairy India Limited, which was a subsidiary of Kwality Ice Creams (India) Limited and described in the Strategic Alliance Agreement as K (East), shall at all times hold 1/3rd of the voting capital in Kwality Ice Creams (India) Limited and Kwality Processed Foods Service & Equipment (Private) Limited and 1/6th of such capital in Kwality Dairy India Limited and Sub-Zero Ice Creams (Private) Limited which includes Kwality Dairy India Limited and since K (East) is no more holding 1/6th of share capital in Kwality Dairy India Limited since 2002-2003, the use of "Kwality/sub-Zero"
name in the corporate name by the defendant is unauthorized.
The petitioner No.2 claimed that due to continuous and extensive use of the KWALITY WALL'S since 1995 in respect of Ice-cream/frozen desert large sales of the said goods bearing the said trade mark, wide publicity given to the said goods bearing the said trade mark and 5 superior quality and taste of the said goods, the trade mark KWALITY-WALLS and the said goods bearing the said trade mark have acquired wide, immense enviable reputation and goodwill. The petitioners claimed that the said goods bearing the said trademark are so widely and immensely popular that any use of the trade mark "Kwality", which is the leading and essential feature of the petitioners' trademark in respect of same or similar goods is bound to mislead the consumers to believe that the other goods bearing the trade mark "Kwality" are originating from petitioners or are in some way associated with the petitioners. The grievance of the petitioner is that the respondent was using until recently the trade name 'Dairy Best' and has recently switched over to 'Kwality' with a view to create confusion in the mind of the public. The defendant has no right, proprietary or otherwise over the said trademark or any use of the trademark without the permission of the plaintiffs is unauthorized. The respondent, on the other hand, has contended that the respondent was incorporated in the 1980s and they have been using the said trademark 'Kwality' in relation to dairy products since long without any interruption. The respondent alleged that they have been using the word 'Kwality' as its corporate name openly since 1980s. The plaintiffs were aware of the fact that the defendant was using the word 'Kwality' at least since 2002. The defendant has registration of the label mark 'KDIL KWALITY DAIRY (INDIA) LIMITED' dated 5th July, 2010, 'KDIL'S Kwality' dated 26th June, 2012, 'KDIL's KWALITY' dated 27th September, 2016 and 'KDIL QUALITY' dated 1st April, 2017 respectively and is entitled to use such mark in relation to its business.
The respondent has also applied for registration of trademark 'Kwality' in class 29. The said registration is pending.
On the basis of the aforesaid registrations, the respondent in the interlocutory proceeding has contended that the respondent has a right to use the word 'Kwality'.
On the narration of the aforesaid facts, it is to be seen whether a suit for passing off would embrace a suit under Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as "IBC").
Mr. S.N. Mookherjee, learned Senior Counsel appearing on behalf of the plaintiffs has submitted that the primary objective conceptualised under the IBC are time bound resolution of defaults and seamless implementation of liquidation/bankruptcy and maximizing asset value. The code encourages resolution as means of first resort for recovery. Mr. Mookherjee submits that the IBC addresses the method of recovery of claims by the creditors with a view to prevent scramble over the assets of the company. The moment a default occurs, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner prescribed under Chapter II of the IBC.
Mr. Mookherjee submits that Section 14(1)(a) contemplates suits or proceedings which are in the nature of recovery of debt. Mr. Mookherjee, in this regard, has referred to the definition of 'claim' and 'debt' in Sections 3(6) and 3(11) of the IBC. Mr. Mookherjee submits that the said definitions would clearly show that it is the right to receive payment over which a moratorium is declared and not on any other kinds of suit like a suit for passing off and infringement or where public injury is caused and a remedy is sought against the corporate debtor. Apart from financial obligation, the Code also insulates recovery proceeding against the corporate debtor and save and except these two kinds of action, a corporate debtor is not insulated from any other action, like the present proceeding. Mr. Mookherjee has referred to the UNCITRAL Legislative Guide on Insolvency Law of the United Nations Commission on International Trade Law, 2005 and submits that the said guideline would show that it is the estate of corporate debtor which needs to be protected.
Mr. Mookherjee has referred to Paragraphs 26, 27, 28, 29, 30, 31, 33 and 35 of the guidelines to show that the object of the legislation is that the interest of all creditors need to be protected against individual action by one of them and a mechanism should be in place to protect the value of the insolvency estate that not only prevents creditors from commencing actions to enforce their rights through legal remedies during some or all of the period of liquidation or re- organization proceeding but also suspends actions already underway against the debtor. Mr. Mookherjee submits that the nexus is between the claim and the assets of the company out of which the claims could be realized. Apart from such monetary claim and eviction of a corporate debtor, no other suit or proceeding is prohibited under Section 14 of the said Act. The instant suit is not for recovery of money, save and except, a claim has been made on account of damages only upon disclosure of true and faithful accounts of all the transactions done by the respondent in relation to the infringing goods. It is also not a suit for enforcement of any security interest which might cause distress to the corporate debtor. Mr. Mookherjee has relied upon a fairly recent decision of the Hon'ble Supreme Court in Innoventive Industries Ltd. Vs. ICICI Bank & Anr. reported at (2018) 1 SCC 407 and submits that in analyzing the scheme of the Act, the Hon'ble Supreme Court has noticed this aspect of the matter in Paragraphs 15, 16, 32 and 59 of the said report. Mr. Mookherjee submits that in the said paragraphs, the Hon'ble Supreme Court has recognized that it is debt realization which is barred and also recovery of possession. Apart from these two kinds of claims, suits or proceedings for other claims are not barred.
Per contra, Mr. Jayanta Kumar Mitra, the learned Senior Counsel appearing on behalf of the respondent submits that under Section 14(1)(a), the present suit cannot proceed as a moratorium has already been declared in respect of corporate debtor company. Mr. Mitra submits that Section 14(1)(a) is not restricted to any particular kind of suit and the expression used is 'of suits or continuation of pending suits or proceedings against the corporate debtor' covers all kinds of suits.
Mr. Mitra submits that the respondent has been using the word 'Kwality' on the basis of the registration certificates issued by the Registrar of Trademark and this right is likely to be defeated, in the event, now the plaintiff is allowed to proceed with the hearing of this application notwithstanding the moratorium. Mr. Mitra submits that the Act is not merely addresses the issue of debt but other issues as well as would be evident from Section 14(1)(d) of IBC read with the other provisions of the Code. Mr. Mitra has referred to Section 18 of the IBC and submits that the interim resolution professional under Section 18(1)(f) is required to take control and custody of all the assets over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, including intellectual property and all other assets subject to the determination of ownership by a court or authority. Once an interim resolution profession is authorized under the Act to take control and custody of all such assets of all the intellectual property with the defendant, there is no scope for the Court to proceed with the hearing of the suit during the "calm period". The interim resolution professional, during the "calm period", is to take various steps under the Act. Mr. Mitra has referred to an unreported decision of this Court in G.A. No.2791 of 2017 with C.S. No.247 of 2010 dated 11th September, 2017 (Kanak Projects Ltd. Vs. Stewarts & Lloyds of India Ltd.) by Justice Sahidullah Munshi for the proposition that Section 14 completely bars all suits irrespective of its nature.
In order to appreciate the rival contentions, it is necessary to refer to sub- section 1 of section 14 of the Code, which reads -
14. Moratorium. -
(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely: -
(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority;
(b) transferring, encumbering, alienating or disposing off by the corporate debtor any of its assets or any legal right or beneficial interest therein;
(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002);
(d)the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.
The Insolvency & Bankruptcy Code, 2016 is a consolidating and amending statute relating to re-organisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximisation of value of assets of such persons. Corporate Insolvency is triggered when a financial creditor, an operational creditor or a corporate applicant approaches the adjudicating authority with an application for initiation of Insolvency Resolution Process. The code contemplates a statutory moratorium of 180 days subject to a single extension of 90 days whereby no suits or proceedings, recovery or enforcement action may take place against the corporate debtors. However, the interim resolution professional appointed in terms of the procedure outlined in the Code is to take over the management and powers of Board of Directors of the corporate debtors and take custody of all assets of the company.
Section 14 of IBC refers to moratorium. The Notes on Clauses in the IBC, 2015 explained the reason for this Section. In short, it is stated that the purpose of moratorium is to keep the corporate debtor's assets together during the insolvency resolution process and ensure that the company may continue as a going concern while the creditors take a view on resolution of default. It is to obviate the possibility of potentially conflicting outcome of related proceedings and also to ensure that the resolution process is a collective one. The moratorium on initiation and continuation of legal proceeding including debt enforcement action ensures a standstill period during which creditors cannot resort to individual enforcement action which may frustrate the object of the corporate insolvency resolution process. Section 14 also prescribes a period for which the moratorium will be in effect. The Viswanathan Committee (Report of the Bankruptcy Law Reforms Committee, Volume I: Rationale and Design, Chapter 5) mooted the concept of calm period to enable peaceful resolution and focussed attention for resolving the insolvency. The idea behind introduction of moratorium is to preserve the value of the corporate debtor by ensuring that it continues to work as a going concern. The aforesaid report in Clause 5.3.1 has, inter alia, stated that the motivation behind the moratorium is that it is value maximising for the entity to continue operations even as viability is being assessed during the IRP. The Insolvency Law Committee in its report of 2018 took note of the repealed Sick Industrial Companies (Special Provisions) Act, 1986 (SICA) and considered the Notes on Clauses for Section 14 of the Code in order to understand the real intention of this provision. The scope of moratorium was discussed in Clause 5.1 of the said report in which it is stated that the scope of the moratorium is broader than the moratorium in the repealed SICA in two ways - First, under SICA, the actions barred could be instituted or continued with the consent of the BIFR, and second, the language used in Section 22 of SICA clarified that proceedings which affected the assets of the company or for recovery of money etc. were barred.
On a plain reading, Section 14 is wider in its ambit as, firstly, any suit or proceeding cannot be instituted or continued with the consent of the NCLT and secondly, the bar on institution of suits or continuation of pending suits or proceedings against the corporate debtor is on the first blush not linked to the assets of the corporate debtor. The report in Clause 5.2 has stated -
"The notes on clauses for section 14, read as follows (emphasis supplied):
"the purposes of the moratorium include keeping the corporate debtor's assets together during the insolvency resolution process and facilitating orderly completion of the processes envisaged during the insolvency resolution process and ensuring that the company may continue as a going concern while the creditors take a view on resolution of default" and "the moratorium on initiation and continuation of legal proceedings, including debt enforcement action ensures a stand-still period during which creditors cannot resort to individual enforcement action which may frustrate the object of the corporate insolvency resolution process." Thus, the intent does not appear to be to debar only those suits or proceedings which affect the assets of the corporate debtor, as these appear to be only one of the components that is barred."
The report in Clause 5.4 on a purposive interpretation of Section 14 has stated that a moratorium on the mere determination of the amount (and not its enforcement) may not have been the intent of the Code.
The Committee further noted that a literal interpretation of Section 14 is prudent and a broader interpretation may not be necessary to include the guarantors of the company as the assets of the sureties are separate from those of the corporate debtor and proceedings against the corporate debtor may not be seriously impacted by the actions against assets of third parties like sureties.
This takes us to some of the definitions of IBC namely, Sections 3(6), 3(11) and 3(12). Section 3(6) defines claim -
(6) "claim" means-
a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured."
Section 3(11) defines 'debt' to mean a liability or obligation in respect of a claim which is due from any persons and includes a financial debt and an operational debt. Section 3(12) defines default which means non-payment of debt when whole or any part or instalment of the amount or debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be. The section contemplates three kinds of persons who can initiate corporate insolvency resolution process when a corporate debtor commits a default. The word 'default' has a crucial meaning in the entire Code as the initiation can take place only on a default as defined in Section 3(12) of the IBC. The three persons who can initiate corporate insolvency resolution process are a financial creditor, an operational creditor or the corporate debtor itself. The purpose of moratorium is to prevent immediate collapse of the corporate debtor and with a view not to render the resolution process nugatory, Section 14 has been introduced in the Code which prohibits institution of suits or continuation of pending suits or proceedings against the corporate debtor. Section 14(1)(d) restrains a third party to initiate any proceeding for recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. Thus, Section 14 has clearly defined the classes of persons who are restrained from proceeding against the company. The classes of creditors include both secured and unsecured creditors. The statute insulates the corporate debtor against any debt recovery actions which are likely to endanger, diminish, dissipate or seriously affect the assets of the corporate debtor and such protection is to continue during the calm period. The emphasis is on to keep the corporate debtors' assets together during the insolvency resolution process and facilitate orderly completion of the process envisaged during the insolvency resolution process. Section 25 of the Code casts a duty upon the resolution professional to preserve and protect the assets of the corporate debtor and to take immediate custody and control of the assets of the corporate debtor. In the instant case, although the relationship between the plaintiffs and the defendant is not a creditor-debtor relationship and the principle claim is not for realization of any debt, however, the continuation of the said proceeding might lead to affectation of the intellectual property rights of the defendant at least in relation to the four marks, namely Numbers 1988894, 2353792, 3373391 and 3518558, in respect whereof the defendant is the registered holder of the trademarks. These are the property and assets of the said defendant. The plaintiffs have admitted registration of the trade mark in favour of the defendant in paragraph 40 of the plaint. The plaintiffs however contends that application for cancellation of registration of the said marks before the Intellectual Property Appellate Board are pending. Since any decision in favour of the plaintiffs in this proceeding may likely to affect the assets of the corporate debtor and in maximizing its asset value during the pendency of the said proceeding, in my view, the suit and the interlocutory proceedings cannot proceed against the corporate debtor during the insolvency resolution process. Accordingly, the preliminary objection against continuation of the suit and the interlocutory proceedings therein against the corporate debtor is accepted. The proceedings in the suit and the interlocutory proceedings therein are stayed till 30th June, 2019, with liberty to mention in the event the insolvency resolution process comes to an end prior to the adjourned date. The application is adjourned till 1st July, 2019.
Urgent Photostat certified copy of this judgment, if applied for, be given to the parties on an usual undertaking.
(Soumen Sen, J.)