Trademark Hypothecated for Higher Amount and Subsequently Assigned for Lower is not Undervalued Transaction: NCLAT

The New Delhi Bench of the National Company Law Appellate Tribunal ( NCLAT ) held that trademark hypothecated for higher amount and subsequently assigned for lower not undervalued transaction.

All three objections have been maintained by the Adjudicating Authority holding that all deeds executed between Respondent No. 1 and the Appellant were void and illegal, the transaction relied upon by the Appellant is undervalued transaction and is hit by Section 45(2)(b) of the Code and that the registration having been done after the imposition of moratorium is hit by Section 14 of the Code. Aggrieved by the impugned order dated 27.09.2019, the present Appeal has been filed under Section 61 of the Code by the Appellant.

While narrating the facts of the case, Counsel for the Appellant has submitted that a technical collaboration agreement was entered into between the Appellant and the Corporate Debtor on 02.05.1995 by which the Appellant was granted the right to use the trade mark for marketing its products for a period of 8 years and the Appellant agreed to pay a royalty of 2% of ex-works prices of the products sold or leased.

The counsel for the Appellant has challenged the impugned order, inter alia, on the ground that the Adjudicating Authority had no jurisdiction to adjudicate upon the title of the property/asset ( trademark ) in view of Section 134(1)(b) of the Trademark Act, 1999 as a suit would only lie before the District Court.

The next submission of the Appellant is that the Adjudicating Authority has committed an error in holding that the transaction relied upon by the Appellant is undervalued transaction and is hit by Section 45(2)(b) and that it is also against the provisions of Section 43(2)(a) being a preferential transaction as it has been done within a period of two years preceding of commencement of CIRP and has referred to Section 43, 45 and 46 of the Code.

A Two-Member Bench comprising observed that “In the present case, the CoC was apprised in its 5th meeting that the forensic audit report found no preferential, undervalued, fraudulent or wrongful trading transactions nor it has found any related party preferential or fraudulent transaction whatsoever, therefore, only on the basis that the trademark was hypothecated for a bigger amount and has been assigned for lesser amount would not be a criteria for the purpose of declaring it to be undervalued transaction without there being sufficient material before the Adjudicating Authority to pass such an order, therefore, in our considered opinion, the finding recorded in this regard is not in accordance with law and thus reversed.”

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