A trademark remains a significant business asset even when its owner faces insolvency. In fact, its value may become one of the few remaining assets of worth. The valuation, licensing, and transfer of trademarks during the Corporate Insolvency Resolution Process (CIRP) and liquidation are influenced by statutory mechanisms often misunderstood by resolution professionals, secured creditors, and trademark owners.
Under the Insolvency and Bankruptcy Code, 2016 (IBC), trademarks held by a corporate debtor are considered assets. These can be valued, sold, or licensed, but must follow the statutory procedures. Section 14 of the IBC enforces a moratorium that temporarily halts legal actions and asset transfers, affecting trademark rights by preventing the debtor from transferring or encumbering any assets.
Trademarks within the Corporate Debtor’s Estate
The assets of a corporate debtor, as per IBC, extend beyond physical properties to include registered trademarks, pending applications, and associated goodwill. These must be documented by the Resolution Professional (RP) in the information memorandum. In the Jet Airways case, the resolution applicant recognized the brand name and logo as assets, incorporating them into the information memorandum.
The role of the RP is more than an administrator of physical assets. For businesses in sectors like FMCG, hospitality, and pharmaceuticals, trademarks significantly contribute to enterprise value. Accurate identification, valuation, and disclosure of these trademarks can greatly influence the outcome of resolution plans.
Valuation and Resolution Process
During CIRP, the Committee of Creditors (CoC), guided by the RP and valuers, determines how trademarks are handled—whether as part of a going-concern sale, separately, or otherwise in the resolution plan. A resolution applicant aiming to continue the business usually requires trademarks to be transferred or licensed as part of the plan. Once approved by the Adjudicating Authority, the plan binds all stakeholders to the transfer.
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Impact of Moratorium on Trademark Licenses
The moratorium under Section 14 impacts proceedings against the corporate debtor and its assets, including trademark licenses. Licensors aiming to terminate licenses or licensees seeking to abandon royalty obligations cannot assume that termination rights remain unaffected by the moratorium. The RP evaluates whether a license adds value or represents a liability, influencing its treatment in the resolution plan.
Trademarks During Liquidation
If liquidation occurs, Section 33 authorizes the Liquidator to sell the debtor’s assets, including trademarks, as per Section 53’s distribution order. Depending on what maximizes recovery, trademarks can be sold individually, as portfolios, or with the business as a going concern. Under the Trade Marks Act, 1999, ownership transfers require recordal with the Registrar of Trade Marks to ensure third-party recognition.
Jurisdictional Considerations: Section 60(5)
A critical yet often overlooked aspect of trademark management during insolvency is jurisdiction. Section 60(5) grants the National Company Law Tribunal (NCLT) authority over proceedings involving the corporate debtor. This includes disputes over trademark ownership or validity that arise during CIRP. The NCLT’s broad interpretation of this jurisdiction means that disputes previously handled by IP courts may now fall within its purview.
Practical Implications for Stakeholders
Maintaining trademark validity is crucial, as non-use can lead to rectification or removal under the Trade Marks Act. Both RPs and Liquidators must ensure continued use to avoid lapses. Secured creditors should perfect and record their interests properly to protect their rights in liquidation.
For trademarks held internationally, Indian proceedings do not extend the RP’s or Liquidator’s authority over foreign registrations. Coordinated efforts across jurisdictions are necessary for realization.
Renewal deadlines pose a risk during liquidation, as trademarks may lapse due to inaction. Interested parties should proactively engage with the NCLT for directions to the Registrar to mitigate this risk.
In summary, trademarks remain integral to the debtor’s estate under IBC, with various factors influencing their treatment during insolvency proceedings. Proper management and strategic planning are essential to preserve and maximize their value.
About the Authors: Vikrant Rana is the Managing Partner of S. S. Rana & Co. Nihit Nagpal is an Associate Partner at the firm.
Disclaimer: The views expressed are those of the authors and do not necessarily reflect the opinions of Bar & Bench.
