Undervalued trademark transfer to a related party was treated as avoidable and restored to the corporate debtor.

A transfer of a corporate debtor's trademark usage right to a related party for nominal consideration within the look-back period was treated as an undervalued transaction because it was not shown to be in the ordinary course of business and the surrounding facts indicated a shift in control and benefit to the transferee. On that basis, the avoidance provisions were applied to reverse the transaction and restore the trademark right to the corporate debtor in support of the resolution process.

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Issues: Whether the transfer of the right to use the trade mark to a related party for a nominal consideration within the look-back period constituted an undervalued transaction liable to be avoided and reversed, with the trade mark to be vested back in the corporate debtor.

Analysis: The transfer followed a partnership arrangement and was effected shortly thereafter for Rs. 10 lakhs for 15 years, notwithstanding the asserted value of the trade mark and the surrounding circumstances showing a change in control and benefit to the transferee. The transaction was entered into within the relevant period, involved a related party, and was not shown to have been in the ordinary course of business. In such circumstances, the ingredients for an undervalued transaction were treated as satisfied, and the relief under the avoidance provisions was considered appropriate to secure implementation of the resolution process.

Conclusion: The transaction was held to be avoidable as an undervalued transaction, and the right to use the trade mark was withdrawn and vested back in the corporate debtor.

Ratio Decidendi: A transfer of a corporate debtor's asset or commercial right to a related party for significantly less consideration within the relevant period, without proof that it occurred in the ordinary course of business, may be avoided and reversed under the insolvency avoidance provisions.

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