NCLAT upholds NCLT order dismissing insolvency plea against Patanjali Paridhan

The National Company Law Appellate Tribunal (NCLAT) on Wednesday upheld an order of the National Company Law Tribunal (NCLT) dismissing the insolvency plea filed by prominent ad agency Law & Kenneth Saatchi & Saatchi against Patanjali’s clothing store Paridhan. 

NCLAT found merit in the NCLT’s conclusion that there was a pre-existing dispute between the parties over a no-objection certificate (NOC) that prevented Patanjali from using a television commercial created by the advertising agency.

A coram of Justice (retd) Yogesh Khanna (judicial member) and Ajay Das Mehrotra (technical member) said,

“In the facts and circumstances of the case it is undisputed that the Corporate Debtor (Patanjali) was demanding NOC from the Operational Creditor (Law & Kenneth Saatchi), through various emails and legal notice to enable him to register the copyright of TVC, which the Operational Creditor has failed to provide.”

Law & Kenneth Saatchi & Saatchi had entered into an agreement to make a commercial for Patanjali Paridhan in 2018. It claimed that after completing the work, it issued a final invoice in 2019 for ₹2,06,50,000, out of which ₹87,50,000 was received as an advance, leaving a balance of ₹1,19,00,000.

The ad agency claimed that Patanjali did not pay the amount despite multiple reminders, which prompted it to send a notice under Section 8 of the Insolvency and Bankruptcy Code (IBC), 2016 and subsequently file an insolvency plea against the company. 

Patanjali contended that the contract to produce the ad would come to fruition only if the advertising agency issued an NOC to allow Patanjali Paridhan to register the copyright for the ad. It contended that despite multiple requests, the NOC was not provided, prompting Patanjali Paridhan to withhold further payment and refrain from using the ad.

The NCLT at Allahabad found merit in Patanjali’s contention and dismissed the insolvency plea in May 2023. The ad agency filed an appeal against this order. 

The Appellate Tribunal found that there was a pre-existing dispute over the NOC and the IBC is clear that an insolvency plea cannot be entertained if there was such a dispute between the parties. 

“The correspondence and dispute regarding issuance of NOC is prior to the issuance of notice under Section 8 of the IBC, and thus, qualifies to be treated as “pre-existing dispute”, which is a valid ground for rejection of application under Section 9 of the IBC,” the NCLAT said. 

It thus rejected the appeal filed by the ad agency. 

Law & Kenneth Saatchi & Saatchi was represented by Advocates Anirudh Krishan Gandhi and Anushree Poddar.

Patanjali Paridhan was represented by Advocates Rohit Gandhi and Smita Jain.

[Read order]