The Mumbai bench of the National Company Law Tribunal (NCLT) has made a significant ruling in the case of the Smaaash brand, an insolvent sports entertainment company. The tribunal has annulled the transfer of the Smaaash brand ownership, declaring it a “fraudulent” transaction. This decision was directed against promoter Shripal Morakhia, who has been accused of colluding with associates to siphon off a “critical and valuable” asset of the company.
- Annulment of Ownership Change: The NCLT has nullified the change of ownership of the Smaaash brand. This decision was made after the tribunal found the transaction to be fraudulent. Promoter Shripal Morakhia was identified as the individual responsible for this fraudulent transfer. The tribunal has directed that the ownership of the brand be returned to the insolvent Smaaash Entertainment (SEPL), which could potentially increase its value. SEPL owes creditors, led by Edelweiss ARC, a significant amount of ₹452 crore.
- Backdated Deed of Assignment: The court based its decision on a plea by resolution professional (RP) Bhrugesh Amin, who argued against the transfer of Smaaash trademarks to privately owned Fun Gateway Arena (FGAPL). It was discovered that the brand transfer was executed through a backdated deed of assignment signed in 2019. This action by Morakhia was deemed to significantly undercut the financial offers from potential bidders for the company.
- Registrar of Trademarks Involvement: In July 2022, Morakhia approached the registrar of trademarks for registering the brand name, citing the original deed of assignment dated August 31, 2019. The court observed that Morakhia or other respondents failed to explain the delay of more than three years in getting the brand name registered. This delay raised questions about the legitimacy of the documents involved, leading to the conclusion that they were fabricated to undermine the Corporate Insolvency Resolution Process (CIRP) and remove a valuable asset from the corporate debtor.
- Questionable Documentation: The court stated that the original deed of assignment, along with subsequent documents, were likely fabricated and bogus. The notarization of these documents was also considered doubtful, further indicating fraudulent activities to derail the CIRP process and illegally transfer a valuable asset.
- FGAPL’s Stance: Despite the tribunal’s ruling, Avanish Agarwal, the chief marketing officer of FGAPL, claimed that the brand still belongs to their company. This statement suggests a potential disagreement or ongoing dispute following the tribunal’s decision.
The NCLT’s decision to set aside this transfer and direct the return of the brand to SEPL could enhance the value for the debt-laden company, potentially benefiting the creditors. The ruling highlights the tribunal’s commitment to ensuring fair practices in corporate transactions and the resolution of insolvency cases.