Assignment of trademarks reversed by NCLT’s Kolkata bench

The Trade Marks Act, 1999 (act) protects trade marks and safeguards the rights of proprietors, who invest time and money building a reputation. The aim is to prevent the fraudulent use and registration of trade marks by third parties. Trade marks are valuable intangible assets of a business and critical to its long-term success or failure.

The act allows the assignment of trade marks, transferring ownership of the mark from one party to another with or without the goodwill of a business. The proprietors of registered or unregistered trade marks may sell, assign, license and transmit the assets and the rights in such assets. Sections 2(b) and 37 to 45, of chapter V of the act deal with assignment and transmission.

The recent case of Bell Finvest (India) Limited v Duckbill Drugs Private Limited before the National Company Law Tribunal (NCLT), shows the way fraudulent assignments of trade marks are viewed by institutions maintaining the integrity of intellectual property rights.

Those managing the corporate debtor, Duckbill Drugs Private Limited, fraudulently assigned its trade marks before they were auctioned and sold to the first appellant, the firm of Paul Brother. The appellant received the sale certificate, warranting that the corporate debtor was sold as a going concern. The debtor’s assets included 14 trade marks, its main assets.

The appellant discovered that the corporate debtor had purportedly executed a deed of assignment in 2017, transferring, conveying and assigning seven of the 14 trade marks to the third respondent. This respondent was the daughter-in-law of a former director of the corporate debtor, the first respondent. It was further revealed that the application for assignment was made to the Trade Marks Registry in 2022, five years after the supposed execution of the deed.

The deed of assignment gave no reason for the trade marks being assigned and, furthermore, to a family member. The consideration was INR7,000 (USD84), a nominal sum compared to the reserve price for the sale of the corporate debtor at auction. That figure, based mainly on the value of its trade marks, was INR50 million.

The appellant claimed that the registry, also a respondent in the case, should not have allowed the application for the assignment of the marks after it had been informed of the order of liquidation made by the NCLT in 2021. In any event, the assignment should have been registered within nine months under section 42 of the act. The appellant argued that the conduct and activities of the respondents were contrary to the provisions of the Insolvency and Bankruptcy Code, 2016 (code) and its regulations. The respondents were further alleged to have disregarded the directions of the fourth respondent, the liquidator who was discharging his duties under the code. The NCLT, relying on the earlier findings and orders of the Calcutta High Court in proceedings between the parties, held that the 2017 deed of assignment was not made in good faith. The transaction was fraudulent, preferential and an undervalue. The NCLT held it to be void. The seven trade marks in question had, at all times until their sale, vested with the liquidator as the only proprietor of the corporate debtor in the liquidation process. The Appellant was entitled to exploit commercially all 14 marks, including those included in the 2017 assignment.

This case shows the need to uphold the integrity and legality of intellectual property processes. The fraudulent assignment of trade marks highlights the potential for misuse and abuse. The NCLT had no trouble in accepting that the whole purpose of the purported assignment was to deprive the purchaser of the debtor of the value of the transaction. There was evidence that the former directors of the debtor had since set up a similar business using the seven supposedly assigned trade marks. The NCLT also indicated there should be an investigation of the registrar’s office.

This case dealt with a blatant attempt to defraud. However, trade mark owners should be vigilant in protecting their intellectual property from more subtle attacks. Officials in charge of public offices should have in place comprehensive oversight systems. The proceedings were also a reminder that trade marks are assets of a corporate debtor and should be managed in strict compliance with the act and the code.

Author – Manisha Singh & Anvita Sharma