A company in financial rehabilitation argued that an injunction would derail its recovery scheme, and that the trademark suit against it should wait for the regulator’s permission. The court’s answer was that a rehabilitation process protects a business from its creditors, not from the consequences of infringement.
The facts
The plaintiffs, who manufacture and sell TIC TAC, sued the defendant, who makes TIT BITS, for a permanent injunction. The plaintiffs had used their mark for fresh breath mints since 1969, launching in India in 1999. The defendant had used its mark since 1984 for mouth fresheners.
The application before the court was to stay the infringement proceedings until the defendant obtained permission from the Board for Industrial and Financial Reconstruction (BIFR).
The arguments
For the defendant: it had used the mark in India since 1984, prior to the plaintiffs. In 1993 its net worth turned negative and it approached the BIFR for a rehabilitation scheme, which failed once in effect, as its wide range of products was “trampled upon by competition”. A new scheme, in the final stages of implementation, was funded by promoters’ contributions derived from the sale of mouth fresheners. A temporary injunction would therefore adversely affect implementation of the scheme — and only if the BIFR concluded otherwise should the court deal with the suit.
For the plaintiffs: the application’s sole intent was to evade liability for illegal activities behind the veil of being a “sick industrial company”; it was calculated to cause inordinate delay; and in any event the BIFR scheme did not extend to the design, shape, get-up and layout of the defendant’s packaging.
The decision
The court held that Section 22(1) of the Sick Industrial Companies Act cannot be invoked in cases of theft, piracy or imitation, and that BIFR schemes cannot be used to carry out illegal activities.
It made a further point that disposes of the practical objection. The injunction would not affect the rehabilitation scheme, because the defendant remained free to sell and promote mouth fresheners — in a manner that does not affect the plaintiff’s goodwill and reputation. The scheme depended on selling the product, not on selling it under someone else’s trade dress.
What has changed, and what hasn’t
SICA was repealed and the BIFR dissolved in December 2016, replaced by the Insolvency and Bankruptcy Code, 2016, with proceedings before the NCLT. So the specific provision relied on here — Section 22(1) of SICA — no longer exists, and the equivalent question today concerns the moratorium under Section 14 of the IBC, which bars the institution or continuation of suits against a corporate debtor during the resolution process.
The moratorium is drawn differently from Section 22(1), and its application to intellectual property claims raises its own questions — particularly the distinction between a money claim against the debtor and an injunction restraining infringing conduct. Anyone facing this today should analyse it under the IBC rather than by analogy to this case.
What survives is the principle, and it is a durable one: an insolvency or rehabilitation process is a mechanism for dealing with a company’s debts, not a shelter from liability for infringing someone else’s rights. A business in financial distress may continue trading; it does not thereby acquire permission to trade under another’s mark.
The case is also a good illustration of the wider theme — laws must be read in consonance with each other, and one statute cannot be used to escape obligations under another. IP rights now intersect with insolvency, competition and consumer law in ways that were not anticipated even a few years before this was decided.
The takeaways
- Financial distress is not a defence to trademark infringement.
- A rehabilitation scheme cannot shelter piracy or imitation.
- The injunction didn’t threaten the scheme — the defendant could still sell, under its own get-up.
- SICA is repealed — analyse the question under the IBC moratorium today.
Frequently asked questions
Can a company in insolvency avoid a trademark infringement suit? Not on the basis that infringement funds its recovery. The court held a rehabilitation scheme cannot be used to carry out illegal activities.
What replaced SICA and the BIFR? The Insolvency and Bankruptcy Code, 2016, with proceedings before the NCLT. SICA was repealed and the BIFR dissolved in December 2016.
Does the IBC moratorium stop an infringement suit? It requires separate analysis under Section 14 of the IBC, which is drawn differently from the old Section 22(1) of SICA.
Why did the injunction not affect the rehabilitation scheme? Because the defendant remained free to sell and promote its products — just not in a manner affecting the plaintiff’s goodwill and reputation.
Useful official resources
- The Trade Marks Act, 1999
- The Insolvency and Bankruptcy Code, 2016