Introduction
In India’s increasingly knowledge-driven economy, intellectual property (IP) – particularly trademarks – has emerged as a valuable asset class. Trademarks convey brand identity and goodwill, making them potentially lucrative security for loans. Under Indian law, a registered trademark is an intangible property right that the proprietor can assign or pledge to lenders under certain conditions. With the rise of startups and SMEs that often lack substantial physical assets, leveraging trademarks as collateral is gaining relevance. This article outlines the legal framework, benefits, challenges and best practices of using trademarks as collateral in India, with emphasis on recent cases and statutes.
Legal Framework: Trademark as Property
Under the Trade Marks Act, 1999, a trademark is defined as a property right in a mark used or intended to be used on goods or services. Section 37 of the Act expressly permits the proprietor of a registered (or even an unregistered) trademark to assign the mark, with or without the accompanying goodwill. This means an owner can transfer rights in the mark – for example, to use it as loan security – provided statutory formalities are met…
Banking Regulations and the Canara Bank Case
Despite the statutory framework, banks and financial institutions have been cautious about accepting trademarks as collateral. A key reason is the Banking Regulation Act, 1949, which restricts the business activities of banks…
Securing and Perfecting Trademark Collateral
When a business pledges its trademark, the parties typically execute a security deed (assignment or license by way of security, or a pledge) under which the lender acquires specified rights if the borrower defaults…
Benefits of Trademark-Backed Loans
Using trademarks as collateral offers distinct advantages, especially to asset-light businesses: Access to capital, Value Realization of Intangibles, Flexible Financing Options, Regulatory Support, Competitive Advantage…
Challenges and Risks
Despite its promise, trademark-based lending faces several hurdles: Valuation Difficulties, Lack of Secondary Market, Regulatory Uncertainty, Title and Enforcement Issues, Market and Technological Change, Operational Complexity…
Best Practices and Trends
To mitigate risks, businesses and lenders should follow best practices: Complete Due Diligence, Proper Documentation, Timely Registration, Valuation and Insurance, Government Schemes, Examples and Case Studies, Startups and SMEs Focus…
Conclusion
Using trademarks as collateral is an evolving strategy in India’s financing landscape. The legal framework permits it — the Trade Marks Act, Companies Act and SARFAESI Act all recognize trademarks as property and security — but practical hurdles remain…
Key Takeaways
– A registered trademark is an intangible asset that can be used to secure loans, but assignment/charge must be registered under the Trade Marks Act.
– The Banking Regulation Act restricts banks from directly owning or commercializing trademarks; collateral should ideally be set up before default.
– Government and policy support (IPR Policy, SARFAESI definitions) favor IP-backed lending, recognizing trademarks as ‘property’ for enforcement.
– Valuation and enforcement are the main challenges: businesses need credible appraisals of their brand, and lenders need exit strategies if a trademark must be sold or licensed.
– Startups and SMEs can particularly benefit by using trademark collateral to access capital, provided they follow legal formalities and best practices.
