IBC Is Not a Recovery Tool for Celebrity Contracts, Says NCLAT in Akshay Kumar Case
Introduction
The National Company Law Appellate Tribunal (NCLAT) has clarified the limits of insolvency jurisdiction under the Insolvency and Bankruptcy Code, 2016 (IBC), holding that disputes arising out of unpaid celebrity endorsement fees do not automatically qualify as “operational debt.” The ruling came in an appeal filed by Akshay Kumar against ed-tech company Cue Learn Private Limited.
Factual Background
The dispute stems from a tripartite endorsement agreement dated March 8, 2021. Under the contract, Akshay Kumar agreed to provide endorsement services to Cue Learn for a total consideration of ₹8.10 crore plus applicable taxes. The agreement contemplated a term of two years, during which the actor would make himself available for up to two days of endorsement activities.
Cue Learn paid ₹4.05 crore as the first instalment. Kumar rendered services for one day. However, the balance amount of ₹4.05 crore was not paid, leading the actor to claim that the second instalment had become due by April 15, 2022.
Procedural Background
Following non-payment, Kumar issued a statutory demand notice under Section 8 of the IBC and thereafter filed a petition under Section 9 before the National Company Law Tribunal (NCLT), seeking initiation of corporate insolvency resolution proceedings (CIRP) against Cue Learn.
The NCLT dismissed the petition, holding that the claim did not qualify as an “operational debt” under Section 5(21) of the IBC and that a pre-existing dispute existed between the parties. Aggrieved by this decision, Kumar approached the NCLAT in appeal.
Issues
1. Whether unpaid endorsement fees under a celebrity endorsement agreement constitute an “operational debt” under the IBC.
2. Whether the existence of a contractual dispute regarding payment disentitles an operational creditor from triggering insolvency proceedings under Section 9 of the IBC.
Contentions of the Parties
The appellant contended that the second instalment under the endorsement agreement had fallen due irrespective of actual utilisation of services and that Cue Learn’s failure to pay amounted to default of an operational debt. He argued that once default was established, insolvency proceedings were maintainable.
The respondent opposed the appeal, asserting that payment of the second instalment was contingent upon utilisation of endorsement services for the second day. According to the company, at best, Kumar’s claim was one for damages arising from an alleged breach of contract, which could not be treated as an operational debt under the IBC.
Reasoning and Analysis
The coram of Justice N Seshasayee (Judicial Member) and Indevar Pandey (Technical Member) emphasised that insolvency proceedings can be triggered only where the existence of debt and default is “beyond doubt or debate.” It reiterated that the IBC is not a substitute for ordinary civil remedies in contractual disputes.
On examining the endorsement agreement, the Appellate Tribunal found that Cue Learn’s interpretation that ₹4.05 crore was payable per day of actual utilisation of services was a plausible reading of the contract. The Bench clarified that it was not required to conclusively interpret the contract but only to ascertain whether a genuine pre-existing dispute existed.
The Tribunal further drew a distinction between a “claim” and a “debt,” observing that while every debt may be a claim, not every claim qualifies as a debt for the purpose of initiating CIRP. Even if the dispute eventually resulted in a finding of breach of contract, the appropriate remedy would lie outside the insolvency framework.
Decision
The NCLAT dismissed Akshay Kumar’s appeal, affirming the NCLT’s order rejecting initiation of insolvency proceedings against Cue Learn. It held that disputes over endorsement fees under a celebrity contract, particularly where payment is contingent and contested, cannot be used to trigger insolvency under the IBC.
In this case the appellant was represented by Mr. Krishnendu Datta, Sr. Advocate with Mr. Anish Agarwal, Mr. Pratik Chakma, Ms. Natasha Bagga, Mr. Abinav Maurya, Ms. Alina Merin Mathew, Ms. Tanisha Chaudhary, Advocates. Meanwhile the respondent was represented by Mr. Prithu Garg, Mr. Shivam Singh and Mr. Ashutosh Arvind Kumar, Advocates.