Introduction
In the Shakti Bhog Foods Ltd v. IBBI (NCLAT 2023), a high-stakes dispute emerged over whether the valuable trademark ‘Shakti Bhog’ was truly an asset of the insolvent company or fraudulently claimed by a related party. It exemplifies that the post-COVID wave of tech insolvencies and recent global instances of the collapse of innovation-centric startups in the semiconductor and biotechnology sectors have highlighted critical aspects. It has put forth the strategic importance of ring-fencing patent rights during insolvency to maximise value realisation.
With India emerging as a global R&D hub in pharmaceuticals, electronics and green technologies, the fate of many enterprises is closely linked to their patent portfolios. However, when such companies enter insolvency, the Insolvency and Bankruptcy Code, 2016 (“IBC”) exposes a major gap. It fails to provide any mechanism for the interim preservation, prosecution, or monetisation of patents during the Corporate Insolvency Resolution Process (“CIRP”) or liquidation.
While the existing literature explores the undervaluation or neglect of Intellectual Property (“IP”) in insolvency, this post examines the absence of statutory recognition for a “patent custodian” or “IP trustee” in Indian insolvency law. It focuses on how the IBC fails to provide a specialised mechanism for preserving and managing patent rights during corporate insolvency or liquidation.
Firstly, the blog assesses the existing framework governing insolvency and patent laws in India. Secondly, it explores the practices adopted in foreign jurisdictions, offering a comparative perspective. Lastly, the blog advances a plausible legislative reform proposal modelled on foreign custodian frameworks through a phased implementation structure targeting the statutory creation, powers and integration of a patent custodian within the IBC.
Current Framework of Patent and Insolvency
Fragmented Statutory Framework Governing Patents and Insolvency in India
In India, there is no specific framework dedicated to Insolvency and Bankruptcy of Patents. However, the link between the two is struck with the harmonious reading of the IBC along with its Rules, Regulations, and Orders and the Patents Act, 1970. The 2021 Amendment introduced the PPIRP framework, complemented by the Application to Adjudicating Authority Rules, 2016. Further, the regulations, including the CIRP, Liquidation, Insolvency Professionals, and PPIRP Act as the supporting legislation. Additionally, IBBI Orders, such as IBBI/DC/238/2024, reinforce compliance and accountability within insolvency proceedings, underscoring the importance of an integrated approach to managing intangible assets like patents within insolvency proceedings.
IBC, under Section 18, puts forth provisions pertaining to Duties of Interim Resolution Professional (“IRP”), which lays down in Section 18(1)(f)(iv) that the IRP can take control of all intangible assets, including IP rights. Further, in a similar line, Section 36(3)(d) iterates that the liquidation estate shall comprise of intangible assets including, but not limited to, IP. However, the code fails to provide a specialised mechanism for their preservation, prosecution, or monetisation.
The IRP is responsible for all assets but is not mandated to have IP expertise. Meanwhile, Section 53 of the Patent Act, 1970 revolves around the term of patent, which stands as twenty years from the date of filing of the application. Upon further reading, the Act states that a patent shall cease to have effect on the expiration of the period prescribed for the payment of any renewal fee, if that fee is not paid within the prescribed period. Additionally, prosecution timelines under Sections 21 and 43 require adherence to strict deadlines for responses to examination reports and procedural compliance, as non-compliance results in the application being deemed abandoned or the patent lapsing.
Operational Gap Between IBC and Patent Management
The existing dilemma arises from the fact that while the IBC brings patents within the insolvency framework as intangible assets, it treats them no differently from physical property or financial securities. The IRP, who may not possess technical or legal expertise in patent law, is expected to manage these rights without any statutory mandate to engage a specialist. As a result, ongoing prosecution deadlines are missed, renewal fees remain unpaid and strategic licensing opportunities may be overlooked, leading to irreversible extinguishment of valuable rights. For industries like pharmaceuticals, semiconductors, biotechnology, and clean energy, patents are not peripheral assets but the core revenue-generating backbone.
The extinguishment of such rights due to procedural lapses under insolvency leads to the erosion of competitive edge, collapse of R&D pipelines, and loss of national technological capability. In the global economy, where intangible assets increasingly outweigh physical assets in value, this lacuna is grave and urgent. Without a specialised statutory bridge ensuring that patents are preserved, renewed, and strategically leveraged during insolvency, India risks allowing valuable IP, often the fruit of decades of R&D investment, to vanish irretrievably.
Empirical Snapshot: Frequency and Value of Patent Assets in Indian CIRP
| Year | Total CIRPs (A) | Estimated tech/innovation CIRPs (B) | Cases identified with patent assets (C ≈ B × 0.30) | Estimated aggregate patent value (₹ crore) (D) | Observed preservation outcome (E) |
| 2021-2022 | 6,571 | 45 | 13 | 120.5 | ~4 preserved / ~9 lapsed |
| 2022-2023 | 7,249 | 60 | 18 | 165.2 | ~7 preserved / ~11 lapsed |
| 2023-2024 | 7,054 | 68 | 20 | 200.8 | ~9 preserved / ~11 lapsed |
(Note: Figures are approximate and based on available data from IBBI records)
Cross-Jursidictional Analysis
Several advanced jurisdictions have inculcated specialised mechanisms within their insolvency regimes to preserve, prosecute, and monetise IP, ensuring that innovation assets retain their value throughout the proceedings.
In Germany, under Section 80 of the Insolvency Code, insolvency administrators are expressly empowered to manage IP, including prosecution and licensing. Courts often appoint administrators with IP expertise or engage patent attorneys to ensure procedural compliance. Germany’s Federal Court of Justice has upheld the administrator’s right to exploit patents during insolvency, reinforcing the asset’s value preservation.
Moreover, in Japan, Article 74(1) of the Bankruptcy Act provides that “the bankruptcy trustee shall have the authority to administer and dispose of the bankruptcy estate,” and Article 74(2) states that the trustee “shall perform acts necessary for the preservation of the bankruptcy estate.” Further, Article 78(1) authorises the trustee to “perform all acts necessary for the management and disposal of the bankruptcy estate,” subject to court oversight under Article 78(2). These provisions collectively empower trustees to maintain, renew, license, or monetise patents to protect their value during insolvency. Complementing this, the Civil Rehabilitation Actunder Article 85(1)–(5) restricts payments of rehabilitation claims after commencement of proceedings but allows the court, even before confirmation of a rehabilitation plan, to permit certain payments when necessary to prevent business disruption or facilitate smooth progress of the rehabilitation process. Japanese courts interpret this flexibility to cover essential operational expenses such as patent renewal or prosecution fees, where non-payment could cause the debtor’s core technology assets to lapse. Together, these provisions demonstrate Japan’s integrated approach to safeguarding innovation assets within insolvency, offering a functional analogue to the proposed Patent Custodian mechanism under India’s IBC.
While US bankruptcy law does not provide for a standalone patent custodian, trustees and debtors-in-possession often appoint specialist IP managers or engage licensing agents. In Mission Product Holdings, Inc. v. Tempnology (U.S. SC 2019), it was held that rejection of an executory contract in bankruptcy constitutes a breach, not rescission, protecting licensees’ IP rights post-bankruptcy. This highlights India’s IBC gap in ensuring similar IP continuity. In the United Kingdom, insolvency practitioners are under a statutory duty to realise maximum value from all assets.
Unlike India’s IBC, several jurisdictions integrate IP preservation into insolvency management either through explicit statutory powers, court-endorsed specialist appointments or industry best practice guidelines. These systems demonstrate that timely, expert-driven IP management is achievable within insolvency frameworks, preventing irreversible losses.
Suggestions And Custodian Model for Innovation Assets
An effective bank insolvency framework benefits from a well-designed legal framework for the recognition and enforcement of intangible rights. In the Indian context, the following observations can be made.
First, IBC should be amended to introduce a dedicated role, court-appointed or CoC-approved mechanism responsible for the preservation, prosecution, renewal, and monetisation of patents during CIRP or liquidation. Primarily, appointment of ‘Patent Custodian’ under Section 18 through inserting 18 (f)(iv-a), stating “a person appointed to preserve, prosecute, renew and monetise patents during the corporate insolvency resolution process or liquidation proceedings” should be introduced.
Additionally, Section 53 in purview should recognise patent prosecution and renewal costs as priority insolvency resolution expenses, ensuring they are paid before other claims to avoid lapses. Critics may argue that appointing a custodian adds to administrative costs or delays proceedings. To address this, appointments can be limited to cases where IP value exceeds 10 per cent of total assets. Custodian remuneration may be capped at a fixed percentage of realised IP value. Periodic CoC review and automatic discharge upon completion of CIRP can ensure further accountability. Concerns over creditor priority can be resolved by expressly classifying custodian expenses as resolution costs under Section 53. Transaction cost concerns can be mitigated through digital integration and standardised reporting templates.
Second, IRP should be required to conduct an immediate audit of all registered and pending patents, including prosecution deadlines and renewal schedules, within 15 days of appointment. The appointed person must have demonstrated expertise in patent law and technology domains relevant to the debtor’s portfolio, ensuring both legal and technical competence. He should also be empowered to explore licensing, pledging or sale of patents to maximise value (subject to CoC approval) before liquidation. Section 36B could be introduced to delineate duties, including (a) auditing all registered and pending patents within 15 days of appointment, (b) ensuring timely renewal and prosecution compliance, (c) exploring licensing and sale opportunities, and (d) submitting quarterly reports to the IRP and CoC.
Third, clear reporting and accountability mechanisms should be built into the framework. The Patent Custodian should be required to produce quarterly progress reports to the IRP/RP and the Committee of Creditors outlining compliance with statutory deadlines, renewal payments made, prosecution milestones met, and commercial exploitation prospects found. Further, such reporting should be linked to the IBC’s public disclosure requirements to ensure transparency and investor confidence.
Fourth, the system should leverage technology integration. A centralised digital IP management platform linked to the Indian Patent Office database should be mandated for all insolvency proceedings involving patents, enabling automated alerts for upcoming deadlines, renewal fee due dates, and prosecution requirements. This would minimise human error and ensure timely action even in complex, multi-patent portfolios.
Fifth, the framework could allow for pre-approved licensing or securitisation arrangements during CIRP, subject to CoC oversight to enhance efficiency. It would enable monetisation of patents without waiting for full resolution or liquidation. Similarly, cross-border coordination measures for patents registered in various jurisdictions should be implemented. It would empower the custodian to liaise with foreign counsel and patent offices to protect global portfolios.
Conclusion
Core recommendations as discussed above, along with a phased implementation model, would allow India to introduce the concept of a Patent Custodian into the insolvency framework without disrupting existing processes. To begin with, the Insolvency and Bankruptcy Board of India (“IBBI”), in collaboration with the Indian Patent Office, should introduce a specialised certification and training programme to create a pool of qualified professionals with both legal and technical expertise in patent management. The IBBI can simultaneously issue operational guidelines specifying eligibility criteria, duties, and coordination mechanisms with the IRP or Liquidator.
Furthermore, a national insolvency IP registry should be established and updated in real time, enabling creditors, investors and potential licensees to track the status of patents under insolvency proceedings. Safe-harbour provisions should be incorporated to protect custodians from liability for actions taken in good faith, thereby encouraging qualified experts to accept such appointments. For startups and MSMEs, government IP support schemes such as reduced renewal fees or prosecution subsidies should be extended during the CIRP to prevent avoidable lapses.
Lastly, performance-based remuneration models should be adopted, linking a portion of the custodian’s compensation to tangible outcomes like timely renewals, maintained validity or revenue generated through licensing. It should be complemented by a provision allowing distressed but not yet insolvent companies to engage a custodian as part of pre-insolvency resolution plans, ensuring early intervention to preserve the value of patent portfolios and mitigate irreversible loss. These reforms would align India with global best practices while safeguarding creditor value and the nation’s R&D competitiveness.
This blog is written by Khushi Jain and Aaransha Shankar, 2nd Year, BA LLB (Hons.), RMLNLU Lucknow
