The National Company Law Tribunal (NCLT) New Delhi bench has dismissed a petition for the initiation of a Corporate Insolvency Resolution Process (CIRP) against Commercial Law Publishers (India) Pvt. Ltd. While the tribunal acknowledged that royalty payments arising from a publishing contract can indeed qualify as "operational debt" under the Insolvency and Bankruptcy Code (IBC) of 2016, the petition failed due to significant and unexplained discrepancies in the financial claims put forth by the creditor.

The matter arose from an agreement dated October 8, 2020, between Dr. Ravi Gupta and the publishing firm. Under this contract, Dr. Gupta granted the publisher exclusive rights for a five-year term. Clause 6 of the agreement stipulated an assured monthly royalty, irrespective of sales figures or commercial profitability. However, the tribunal found that the applicant’s case suffered from a lack of documentary evidence and inconsistencies that precluded the court from admitting the debt as a ground for insolvency proceedings.

The bench, presided over by Judicial Member Ashok Kumar Bhardwaj and Technical Member Atul Chaturvedi, scrutinized the evidence regarding the total amount claimed. The applicant asserted that a substantial debt had accrued, yet the invoices submitted alongside the application failed to align with the ledger accounts or the explicit terms set out in the original publishing agreement. Specifically, the tribunal noted an anomaly where the monthly royalty rate mentioned in the invoice for the 2024-2025 period contradicted the rates established in the primary contract.

"With the aforementioned anomaly in the documents placed on record by the Applicant, no confidence can be inspired regarding the plea of amount of debt defaulted to be paid, taken by the Applicant," the bench observed. Furthermore, the tribunal pointed out that the total amount sought in the application, exceeding one crore rupees, was not supported by the provided invoices, leaving a gap that the applicant attempted to bridge without appropriate documentary backup.

The court’s deliberation on the nature of "operational debt" provides significant clarity for practitioners in the publishing and intellectual property sectors. The NCLT referenced the ruling of the National Company Law Appellate Tribunal (NCLAT) in Jaipur Trade Expocentre Pvt. Ltd. vs. M/s Metro Jet Airways Training Pvt. Ltd. , which established that claims for services or the licensing of intellectual property rights, where a clear right to payment is established, fall within the ambit of operational debt as defined under Section 5(21) of the IBC. By affirming this position, the NCLT recognized that the licensing of publishing rights and the associated royalty payments satisfy the threshold for services provided to the corporate debtor.

However, despite this legal classification, the tribunal adopted a cautious stance toward the use of insolvency proceedings for simple debt recovery. The judgment underscored that the IBC is fundamentally a mechanism for the revival of a corporate entity rather than a tool for individual creditors to enforce the recovery of debts.

The tribunal cited the Supreme Court’s recent observations in Glas Trust Company LLC vs. BYJU Raveendran & Ors. , reiterating that the code must not be used as a weapon for coercion. "IBC must not be used as a tool for coercion and debt recovery by individual creditors. Improper use of the IBC mechanism by a creditor includes using insolvency as a substitute for debt enforcement or attempting to obtain preferential payments by coercing the debtor using insolvency proceedings ," the order noted.

Expanding on this principle, the bench reflected on the landmark decision in Swiss Ribbons Pvt. Ltd. vs. Union of India & Ors. , which emphasized that the primary purpose of the legislation is to protect and resuscitate the corporate debtor, rather than to facilitate its liquidation. The tribunal found that the application lacked the necessary focus on the revival of the corporate entity, viewing it instead as an adversarial process primarily aimed at debt collection.

The court highlighted that in accordance with the regulatory requirements under the Insolvency and Bankruptcy Board of India (IBBI) norms, an operational creditor is obligated to submit clear, consistent, and verifiable records, including invoices and relevant tax filings, to substantiate the existence of a default. Because the applicant failed to reconcile the discrepancies in the claimed debt—specifically regarding the variance between contractual rates and invoiced rates—the petition was deemed unfit for admission.

By rejecting the petition, the NCLT has reinforced the high evidentiary threshold required for initiating insolvency proceedings. While the ruling validates the inclusion of royalty-based claims under the definition of operational debt, it serves as a strict reminder that the NCLT will not serve as a forum for debt recovery if the underlying claims are not supported by precise and coherent financial evidence.

For the stakeholders involved, the immediate consequence is the dismissal of the plea, effectively requiring the creditor to seek resolution through alternative legal avenues, such as civil litigation for money recovery, where the nuances of the underlying contract and the discrepancies in account books can be addressed in greater detail. The case stands as a firm precedent for publishers and authors alike, emphasizing that while their royalty agreements are protected under the framework of operational debts, the path to insolvency resolution remains strictly gated by the requirement for accurate and transparent documentation of default. The tribunal concluded the matter by rejecting the petition, thereby leaving the corporate entity to continue its operations without the immediate threat of a court-mandated insolvency resolution process.