The National Company Law Tribunal (NCLT) has declined a request from Mohan Clothing Company, the manufacturer of the ‘Blackberrys’ and ‘Blackberrys Casual’ apparel brands, to compel Future Lifestyle Fashions Group, currently undergoing insolvency proceedings, to return over 11,696 items of its unsold merchandise. The merchandise, including shirts, trousers, jackets, suits, blazers, khaki shirts, shoes, and accessories, was supplied on a Sale or Return (SOR) basis to the Corporate Debtor’s stores—Central and Brand Factory—nationwide.
Mohan Clothing Company, the applicant, argued that Future Lifestyle Fashions Group, the Corporate Debtor, had stopped making regular payments and failed to return the unsold merchandise as per the SOR agreement. According to the agreement, unsold goods were to be returned if not sold within a specific period. Despite commitments made by the Corporate Debtor in an email dated August 16, 2022, to provide a payment plan and inventory pick-up dates, no such action was taken. Out of the 11,696 items supplied, only 2,125 products have been returned, leaving 9,571 items still in the possession of the Corporate Debtor.
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The NCLT, in its findings, noted that although the Corporate Debtor did not deny receiving the goods from the applicant, it argued that due to the ongoing Corporate Insolvency Resolution Process (CIRP) and the moratorium under Section 14(1)(d) of the Insolvency and Bankruptcy Code (IBC), the goods could not be returned to the applicant. The tribunal agreed with this contention, highlighting that Section 14 imposes a statutory status quo to prevent any actions that could impede the resolution process.
“The moratorium is designed to alleviate corporate distress by maintaining a statutory status quo from the date of admission of an insolvency petition until a resolution plan is approved or the corporate debtor enters liquidation,” the NCLT stated. “This ensures that the insolvency resolution process can proceed without obstacles.”
The tribunal directed the Resolution Professional to verify the applicant’s claim filed on May 18, 2023, for INR 8,10,03,206 without further delay. Furthermore, it stipulated that any goods supplied by the applicant that have been sold or will be sold by the Corporate Debtor during the CIRP period must be accounted for, and the proceeds should be paid to the applicant based on the agreed terms between the parties.
