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Why Intellectual Property Rights as security for loans are legal?

A rule has been recently made for the loans by the Supreme court that a borrower who has defaulted the loan cannot be assigned a trademark to the bank, while assignment of trademark was held by the Supreme Court for agarbattis in the matter of Canara Bank vs NG Subbaraya Setty, as a security for a loan outstanding against the Trademarks Act and the Banking Regulation Act. Regarding this Supreme Court said that the trademark cannot be assigned to the property which has come into possession of the bank in compensation of any of the claims by the bank. If a trademark has been considered as a security for a loan then it is cleared that trademarks are not the part of any securities for loan and advances.

it has also been made clear by the supreme court that section 6 and 8 of the Banking Regulation was in anticipation of the assignment. The supreme court further stated that a trademark can not be used by the bank for selling agarbattis and goods can be sold only to realize the security held by it and the banking business cannot be stepped outside. In this case, the 3rd party is not only allowed to use the trademark but is also not allowed to get a royalty for the same. Supreme Court also said that there is a very high penalty for the bank manager who will accept the assignment of the trademark and if the manager will do such kind of a thing he/she would be dismissed from his/her position.

It is respectfully accepted that the entire matter in the subject of provisions contained in the Securitisation and rebuild of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) should have been viewed by parties to the litigation. Section 2(1)(t) of the SARFAESI Act explains the expression property while section 2(1)(if) defines “security interest” as a right title or interest of any kind upon property created in favor of secured creditor and involved such right title or interest in incorporeal assets.

 

It is further accepted that all security interests generated over property rights in favor of banks and financial institutions are relocated of interest or rights in the property and in the event of default in repayment of the loans secured by the security interest and the lenders have a right to sell the property and realize their defaulted loans. The same principle

s are applicable in respect of intangible property rights such as trademarks or copyrights or patents and license to use the intangible property for a specified royalty has to be treated as equivalent to the sale secured assets to recover the loan.