Film Investment Does Not Qualify as Operational Debt Under IBC: NCLT Mumbai's Landmark Ruling
Overview of the Case
The National Company Law Tribunal (NCLT), Mumbai, recently delivered a significant ruling in the matter of B4U Broadband (India) Private Limited Vs Kyta Productions Private Limited, dismissing a petition filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC). The Tribunal held that the amount claimed by the petitioner did not meet the statutory definition of "Operational Debt" under the Code, thereby rendering the petition non-maintainable at the threshold stage itself.
This judgment carries substantial implications for entities that invest in film productions, joint ventures, and revenue-sharing arrangements — particularly where such parties attempt to invoke insolvency proceedings to recover their investments under the garb of operational dues.
Background and Facts of the Dispute
The Parties Involved
- **Operational Creditor (Petitioner)😗* B4U Broadband (India) Private Limited
- **Corporate Debtor (Respondent)😗* Kyta Productions Private Limited
- Third Party: Vishal Bhardwaj Films LLP (referred to as VBLLP)
The Underlying Agreement
Kyta Productions Private Limited had entered into a production agreement with Vishal Bhardwaj Films LLP dated 16th May 2018 for the production of the Bollywood film "Pataakha." Under this arrangement, all rights — including copyrights, underlying works, and derivative rights — were jointly held between Kyta Productions and VBLLP for a total acquisition price of Rs. 15 crores.
Subsequently, with the consent of VBLLP, Kyta Productions agreed to share its rights and obligations equally with B4U Broadband (India) Private Limited. This gave rise to a separate agreement dated 18th July 2018 (Exhibit A) between the two parties.
Key Contractual Terms
Under the agreement between the Operational Creditor and the Corporate Debtor:
- Clause 2 — Kyta Productions agreed to equally share its rights and responsibilities under the original VBLLP agreement with B4U Broadband.
- Clause 5 — B4U Broadband was required to pay Rs. 7.5 crores plus applicable taxes as its share of the acquisition price. Of this, 50% was attributed to theatrical rights and the remaining 50% to non-theatrical exploitation and distribution rights.
- Clause 6 — Both parties agreed to collectively spend Rs. 7.5 crores each towards printing and advertising (P&A) expenses for the theatrical release of "Pataakha" in India.
- Clause 11 — Kyta Productions was to assign to B4U Broadband a 30% revenue share and a 25% share in copyright, underlying works, and derivative rights in perpetuity, along with credits in the film.
- Clauses 13 and 14 — All three parties — B4U Broadband, Kyta Productions, and VBLLP — were entitled to share revenues from the film as per a defined revenue-sharing mechanism set out in Clause 14.
The Claim and Pre-IBC Correspondence
B4U Broadband claimed to have fulfilled its contractual obligations and sought recovery of dues from Kyta Productions. A representative of the Corporate Debtor, Mr. Prabhakar Jain, addressed a communication acknowledging that an amount of Rs. 1,60,11,086 plus applicable taxes was due and payable to the Operational Creditor.