Salman Khan and Jerai Fitness Settle ₹7.24 Crore Dispute, Withdrawing High-Profile NCLAT Insolvency Appeal

New Delhi – A high-stakes commercial dispute between actor Salman Khan and gym equipment manufacturer Jerai Fitness Limited has reached a conclusion, with the parties executing consent terms and withdrawing an appeal before the National Company Law Appellate Tribunal (NCLAT). The settlement brings an end to insolvency proceedings initiated by Khan over alleged unpaid dues of ₹7.24 crore stemming from a trademark licensing agreement for his "Being Strong" fitness brand.

The resolution, finalized on October 8, saw Khan withdraw his challenge to a May 30 order by the National Company Law Tribunal (NCLT), Mumbai Bench. The NCLT had initially dismissed his petition to initiate a Corporate Insolvency Resolution Process (CIRP) against Jerai Fitness, citing the presence of a genuine, pre-existing dispute between the parties. The case, Salman Khan v. Jerai Fitness , serves as a significant reminder of the judiciary's firm stance on distinguishing between undisputed operational debt and contested contractual claims under the Insolvency and Bankruptcy Code, 2016 (IBC).

The Genesis of the Dispute: A Trademark Licensing Agreement

The conflict originated from a series of agreements between Khan's brand, Being Strong, and Jerai Fitness. Beginning with an initial contract in 2018, the arrangement allowed Jerai to manufacture, market, and sell gym equipment under Khan’s popular trademark. A fresh agreement executed in August 2023 stipulated that Jerai was liable to pay Khan either a minimum guarantee of ₹3 crore annually or 3% of net sales, whichever was higher.

Khan’s petition before the NCLT alleged that Jerai Fitness had defaulted on payments totaling ₹7.24 crore. This amount comprised a one-time settlement of ₹1.63 crore for liabilities accrued before March 2023, along with subsequent royalty payments. Contending that this constituted an undisputed operational debt, Khan filed a Section 9 petition under the IBC, seeking to push the equipment manufacturer into insolvency.

Jerai's Defense: The "Pre-Existing Dispute" Doctrine

In its defense, Jerai Fitness vehemently disputed the claim, arguing that the petition was not a legitimate insolvency action but a veiled attempt at debt recovery. The company’s core argument rested on the principle of a "pre-existing dispute," asserting that Khan had failed to fulfill his own reciprocal obligations under the trademark agreement.

Jerai contended that Khan did not provide timely approvals for product designs and promotional materials, which were critical for the successful marketing and sale of the co-branded equipment. To substantiate this, the company placed on record WhatsApp messages and emails allegedly showing repeated requests for branding support and approvals. A significant point of contention was Khan's alleged failure to attend the launch of Jerai's "Proton" series at the Bombay Exhibition Centre in November 2023, an event Jerai claimed was crucial for promotional activities.

Furthermore, Jerai argued that the invoices central to Khan's claim were raised only after the company had issued a termination notice in September 2024 (effective April 2025). This timing, Jerai's counsel suggested, indicated that the claim was a retaliatory measure rather than a reflection of a clear and admitted debt.

NCLT's Ruling: Distinguishing Recovery from Resolution

On May 30, the NCLT Mumbai Bench sided with Jerai Fitness, dismissing Khan’s petition. The Tribunal's order provided a nuanced analysis of the debt, dissecting the ₹7.24 crore claim into two components. It acknowledged that the ₹1.63 crore settlement amount for the pre-March 2023 period appeared to be an undisputed liability. However, it found that the larger, subsequent royalty claim was intrinsically linked to Khan's performance of his contractual duties.

The Tribunal's reasoning hinged on the reciprocal nature of the agreement. It held, "The right to receive payment under the said agreement in relation to minimum guarantee accrues only when the user is enabled to use such trademark in the form and manner contemplated.” This observation was pivotal, as it established that Jerai's obligation to pay royalties was not absolute but contingent upon Khan fulfilling his promotional and approval responsibilities.

Given the evidence of disputes over these obligations, the NCLT concluded that the matter fell within the "domain of recovery proceedings" and was not suitable for the summary jurisdiction of the IBC. The ruling reinforced the well-established legal principle that the IBC is a tool for the resolution of corporate insolvency, not a mechanism for debt recovery, especially when the debt itself is subject to a bona fide dispute.

Appeal and Final Settlement

Unsatisfied with the NCLT's decision, Khan, represented by a team from DSK Legal including Advocates Varun Kalra, Parag Khandhar, Tapan Radkar, and Shaham Ulla, filed an appeal before the NCLAT. The matter was heard by a coram comprising Chairperson Justice Ashok Bhushan and Technical Member Arun Baroka.

However, before the appellate proceedings could advance significantly, the parties engaged in settlement discussions. On October 6, Khan's counsel informed the NCLAT that consent terms had been executed. Following the submission of these terms on record on October 8, the appeal was formally withdrawn, bringing the legal battle to a quiet close. Jerai Fitness was represented by a team including Advocates Himanshu Satija, Prerna Wagh, and Pranav Saigal.

Legal Implications and Takeaways

While the settlement's terms remain confidential, the trajectory of this case offers several important lessons for legal practitioners and businesses engaged in licensing and commercial contracts:

• The High Bar for Section 9 Petitions: The case underscores the stringent requirements for admitting a Section 9 petition. An operational creditor must demonstrate a clear, undisputed debt. Any evidence of a genuine pre-existing dispute regarding the quality of goods, services, or fulfillment of reciprocal obligations can be fatal to an insolvency application.

• IBC is Not a Recovery Tool: The NCLT's decision serves as another judicial precedent cautioning against the misuse of the IBC as a pressure tactic for debt recovery. The tribunals will meticulously examine the context of a claim to weed out petitions that are essentially disguised recovery suits.

• Importance of Contractual Performance: The ruling highlights that in agreements with reciprocal obligations, such as trademark licensing, a party's right to claim payment is often contingent on its own performance. A licensor's failure to provide promised promotional support can create a legitimate dispute, shielding the licensee from summary insolvency proceedings.

• The Value of Amicable Settlement: The ultimate resolution through a settlement demonstrates the practical benefits of negotiation, even after adversarial proceedings have commenced. It allowed both parties to avoid the protracted uncertainty and costs of appellate litigation, preserving their commercial interests.

The withdrawal of the appeal concludes a noteworthy chapter in commercial litigation, reinforcing the foundational principles of the Insolvency and Bankruptcy Code and illustrating the complex interplay between contractual obligations and statutory insolvency law.