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Pledging the Intangible: Intellectual Property as Collateral

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Authored By: Rimika Rajput

National Law University,Delhi

I. Introduction

In 2009, Kingfisher Airlines mortgaged its trademark portfolio as collateral to acquire loans from a consortium of banks, including the State Bank of India.1 When the airline ceased operations in 2012 — with Debt Recovery Tribunal proceedings commencing in 20132 — the banks were unable to recover appreciable value from those intangible assets. The goodwill associated with the brand had dissolved along with the airline’s commercial viability.

This was not merely a failure of commercial judgment on the part of the lending banks; it was a manifestation of structural deficiencies within India’s banking law framework.

More than a decade after the Kingfisher Airlines debacle, those structural deficiencies persist. Today, India’s startup market is valued at over USD 450 billion,3 with over 120,000 registered businesses. Yet banks continue to focus predominantly on traditional forms of collateral such as land and machinery. This article argues that India’s banking law framework remains deficient in three critical areas:

  1. A fragmented approach towards security interests in intellectual property,
  2. The absence of effective perfection systems, and
  3. The absence of effective enforcement tools.

II. India’s Existing Framework: A Patchwork of Partial Provisions

A. The SARFAESI Act, 2002: Promise and Limitation

The principal enforcement tool available to banks in India is the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).4 Notably, the Act includes intangible assets such as patents, trademarks, copyrights, and licenses within its definition of “property” and “security interest.”

In theory, this means the law recognizes the concept of IP-based lending. In practice, however, courts have on occasion declined to recognize the validity of IP-based collateral. More fundamentally, the SARFAESI Act is ill-suited to the enforcement of intangible assets. The Act was designed with tangible assets in mind, and its enforcement tools — possession notices, auctions, and authorized officers — do not translate well to intangible assets, whose value is tied to ongoing commercial exploitation rather than physical possession.

B. IP-Specific Statutes: Fragmented and Incomplete Support

India’s IP statutes provide support for security transactions in a piecemeal and inconsistent manner:

  • The Patents Act, 19705 permits the assignment and mortgage of patents, subject to registration.
  • The Designs Act, 20006 permits the assignment and licensing of designs.

While these statutes allow lenders to create some form of security interest, they fail to address a critical structural gap: there is no single, easily accessible registry that consolidates information on security interests in IP. This makes it difficult for lenders to verify prior encumbrances or determine priority of claims.

The position with respect to trademarks and copyrights is even more uncertain:

  • The Trade Marks Act, 19997 permits assignment, but its treatment of mortgages and charges remains unclear. There is a legal gray area between assignment and security interest, and lenders face significant uncertainty as a result.
  • The Copyright Act, 19578 presents perhaps the greatest challenge. Copyright subsists automatically upon creation, and registration is not compulsory. Consequently, no reliable system of title verification or encumbrance tracking exists. Lenders cannot conduct adequate due diligence on IP assets such as software, film libraries, or databases.

Although the Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI)9 exists for recording security interests, lenders cannot rely on it to verify title or priority in IP transactions, as it was not designed with IP-specific transactions in mind.

C. The RBI Framework: Incremental, Yet Insufficient

In August 2025,10 the Reserve Bank of India took steps to consolidate its regulatory framework for non-fund-based credit. The revised guidelines partially align with Basel III standards,11 which recognize intangible assets as potential collateral under their advanced internal ratings-based approach.

This remains insufficient, however, as it constitutes only a regulatory measure. It does not address the fundamental structural deficiencies in the existing framework: the absence of clear legislative support for IP security interests, the lack of a unified registry, and the unavailability of dedicated enforcement tools. Encouraging IP-backed lending without the supporting institutional infrastructure risks repeating the failures of the past.

III. The Singapore Model: A Purposeful and Integrated Framework

A. The IP Financing Scheme and Its Legal Architecture

A compelling alternative model is provided by Singapore’s Intellectual Property Financing Scheme (IPFS), launched in 2014.12 The scheme enabled companies to access financing by pledging their patents as collateral, with the government sharing default risk and subsidizing valuation costs. Crucially, the IPFS was embedded within a coherent institutional and legal architecture — a feature that distinguishes it from India’s fragmented approach.

The scheme rests on three design components that directly address the problems identified above:

  • Standardized Valuation: IP valuations are conducted by accredited professionals approved by the Intellectual Property Office of Singapore (IPOS), ensuring consistency and reliability.
  • Risk-Sharing Mechanism: The government assumes a portion of the default risk, providing the incentive structure necessary for banks to engage meaningfully in IP-backed lending.
  • Policy Integration: The scheme is embedded within a comprehensive national IP policy framework, ensuring coordination between financial sector regulation and national innovation infrastructure.

B. The Masai Case: Proof of Concept

The practical viability of the IPFS framework was demonstrated in 2016,13 when Masai Group International secured a seven-figure loan from DBS Bank by pledging its IP portfolio as collateral. Despite facing financial difficulties at the time, the company deployed the funding to invest in research and development and successfully achieved business recovery.

The Masai case stands in instructive contrast to the Kingfisher case. The difference between the two outcomes was not the nature of IP as collateral — it was the presence or absence of institutional support. Singapore’s integrated framework provided the valuation certainty, risk distribution, and enforcement clarity that India’s patchwork of statutes cannot.

IV. Critical Analysis: Three Reforms India Must Pursue

Drawing from the foregoing analysis, three structural reforms are proposed to address the deficiencies in India’s IP-backed lending framework.

Reform 1: A Unified Security Interest Framework for IP

India needs a dedicated legal framework for security interests in IP. This would require:

  • Amendments to the Trade Marks Act and Copyright Act to expressly recognize mortgages and charges over IP as valid and enforceable security interests.
  • Expansion of CERSAI into a centralized, publicly accessible database for all security interests in IP, enabling lenders to conduct reliable due diligence on IP ownership and encumbrances currently scattered across multiple statutes and registries.

Reform 2: An India IP Financing Scheme

India should consider adopting a government-backed IP financing model14 analogous to Singapore’s IPFS, developed in collaboration with the Controller General of Patents, Designs and Trade Marks, the Small Industries Development Bank of India (SIDBI), and existing credit guarantee institutions.

Key features of such a scheme could include:

  • Government participation in default risk to incentivize bank participation.
  • Mandatory valuation by qualified and trained IP valuers.
  • Financial incentives to encourage lender engagement, particularly for SMEs and startups.

This reform would directly address risk aversion, which remains one of the primary barriers to banks accepting IP as collateral.

Reform 3: An IP Enforcement Framework for Default Scenarios

A perfected security interest is only as valuable as its enforceability. India must develop an IP-specific enforcement framework — either within or alongside the existing SARFAESI structure — that includes:

  • The appointment of IP managers or licensees to sustain the commercial value of IP assets during enforcement proceedings.
  • The creation of IP exchanges or specialized auction platforms for the orderly disposal of IP assets.
  • Limited insolvency exemptions permitting continued commercial exploitation of IP during insolvency proceedings, preventing IP from becoming a stranded asset.

V. Conclusion

The Kingfisher Airlines case is a lesson not about the inadequacy of IP as collateral, but about the absence of an effective legal framework. While India’s innovation ecosystem has grown substantially,15 the legal framework governing IP-based lending remains fragmented and inadequate.

Singapore’s experience demonstrates that an integrated legal regime — one that addresses valuation, risk distribution, and enforcement in a coordinated manner — can successfully transform IP into a recognized and functional asset class within the credit market.

India has the foundational building blocks in place: the SARFAESI Act, sectoral IP statutes, CERSAI, and the RBI’s evolving regulatory framework. What is missing is their effective integration into a coherent and purposeful whole.

A robust legal regime for IP security interests is not merely about expanding access to credit. It is about aligning India’s legal infrastructure with the demands of an innovation-driven economy — one in which businesses can leverage the full potential of their intangible assets, and where the failures of Kingfisher Airlines need never be repeated.

Bibliography

Primary Sources

  • The Copyright Act, No. 14 of 1957, India Code (1957).
  • The Designs Act, No. 16 of 2000, India Code (2000).
  • The Insolvency and Bankruptcy Code, No. 31 of 2016, India Code (2016).
  • The Patents Act, No. 39 of 1970, India Code (1970).
  • Reserve Bank of India, Master Direction on Non-Fund Based Credit Facilities (Aug. 6, 2025).
  • Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, No. 54 of 2002, India Code (2002).
  • The Trade Marks Act, No. 47 of 1999, India Code (1999).

Secondary Sources

Footnote(S):

1 Reserve Bank of India, Report on Trend and Progress of Banking in India (2010).

2 State Bank of India v. Kingfisher Airlines Ltd., Debt Recovery Tribunal proceedings (2013).

3 DPIIT, Startup India Report (2024).

4 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, No. 54 of 2002, § 2(zf) (India).

5 Patents Act, No. 39 of 1970, § 68 (India).

6 Designs Act, No. 16 of 2000 (India).

7 Trade Marks Act, No. 47 of 1999 (India).

8 Copyright Act, No. 14 of 1957 (India).

9 Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI), Govt. of India.

10 Reserve Bank of India, Master Direction – Non-Fund Based Credit Facilities (2025).

11 Basel Comm. on Banking Supervision, Basel III: Finalising Post-Crisis Reforms (2017).

12 Intellectual Property Office of Singapore (IPOS), IP Financing Scheme (2014).

13 DBS Bank Ltd., Masai Group Financing Case Study (2016).

14 World Intellectual Property Organization (WIPO), IP Financing and Valuation (2022).

15 Economic Survey of India 2024–25, Ministry of Finance.

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