--- title: "Intellectual Property Licences under the Insolvency and Bankruptcy Code: Bridging India’s Innovation Gap" date: 2026-07-16 author: "Sindhuja Kashyap" url: https://ksandk.com/insolvency/intellectual-property-licences-under-the-insolvency-and-bankruptcy-code-bridging-indias-innovation-gap/ --- # Intellectual Property Licences under the Insolvency and Bankruptcy Code: Bridging India’s Innovation Gap Posted On - 16 July, 2026 • By - Sindhuja Kashyap ![](https://ksandk.com/wp-content/uploads/Intellectual-Property-Licences-under-the-Insolvency-and-Bankruptcy-Cod.webp) ## I**ntroduction** Intellectual property (“IP”) has become one of the most valuable commercial assets in the modern economy. Whether in the form of patented technologies, proprietary software, trademarks, copyrighted content, industrial designs or confidential know-how, businesses increasingly derive their competitive advantage from intangible assets rather than physical infrastructure. Consequently, IP licensing has evolved from being merely a contractual arrangement into a strategic mechanism that facilitates innovation, technology transfer, market expansion and collaborative research across industries.  India’s emergence as a global innovation hub has accelerated this trend. The country’s thriving technology ecosystem, expanding pharmaceutical sector, semiconductor ambitions, media and entertainment industry, renewable energy initiatives and rapidly growing artificial intelligence (“AI”) landscape have significantly increased reliance on licensing arrangements. Software-as-a-Service (SaaS) providers license proprietary platforms to enterprises worldwide, pharmaceutical companies cross-license patented molecules and manufacturing processes, automobile manufacturers exchange technologies for electric vehicles, and AI developers increasingly commercialise foundation models through licensing frameworks.  The economic significance of intellectual property is equally evident in India’s innovation statistics. According to the World Intellectual Property Organization (WIPO), India continues to record one of the fastest growth rates in global patent filings, reflecting the country’s transition from a technology consumer to a technology creator. As intellectual property assumes greater commercial importance, the stability and enforceability of licensing arrangements become critical not only for individual businesses but also for investor confidence and economic growth.  Yet, an important legal question remains largely unanswered under Indian insolvency law: **What happens to an intellectual property licence when the licensor enters insolvency proceedings?**  If the owner of a patented technology, software platform or trademark undergoes the Corporate Insolvency Resolution Process (“CIRP”) under the Insolvency and Bankruptcy Code, 2016 (“IBC”), can the licensee continue using the licensed IP? Can the Resolution Professional terminate the licence? Does insolvency itself automatically bring the licensing arrangement to an end? More fundamentally, how should insolvency law balance the interests of creditors seeking to maximise asset value against businesses whose operations depend upon continued access to licensed intellectual property?  Unlike several mature insolvency jurisdictions, the IBC does not expressly address the treatment of IP licence agreements during insolvency. The absence of statutory guidance creates uncertainty for licensors, licensees, insolvency professionals, investors and resolution applicants alike. As India’s innovation economy continues to expand, this legislative silence has become increasingly difficult to ignore.  This article examines the legal position governing intellectual property licences under the IBC, analyses relevant judicial principles, compares India’s framework with international best practices, and considers whether legislative reform is necessary to provide greater commercial certainty.  ## **The Growing Importance of IP Licensing in India’s Innovation Economy** Historically, intellectual property was viewed primarily as a defensive legal right designed to prevent unauthorised use by competitors. Today, however, IP has become a revenue-generating commercial asset capable of being licensed, assigned, securitised and leveraged across multiple markets.  Technology companies rarely commercialise every innovation independently. Instead, licensing enables businesses to monetise intellectual property while allowing licensees to access cutting-edge technologies without incurring the costs associated with independent research and development. The importance of licensing is particularly evident in sectors such as:  - Software and SaaS platforms   - Artificial Intelligence and machine learning models   - Pharmaceutical manufacturing and biotechnology   - Telecommunications   - Semiconductor manufacturing   - Renewable energy technologies   - Entertainment and digital media   - Automotive technologies   - Consumer brands and franchising   For many businesses, the licensed intellectual property is not merely supplementary, it constitutes the very foundation upon which the business operates. A pharmaceutical manufacturer may rely on a patented formulation. A software company may depend upon licensed source code. A franchisee may operate entirely under a licensed trademark. A manufacturer may use patented production technologies under long-term technology transfer agreements.  The sudden loss of these rights due to the insolvency of the licensor could effectively cripple the licensee’s business, irrespective of the licensee’s own financial health. This commercial reality explains why several jurisdictions have developed specialised insolvency protections for intellectual property licence holders. India, however, has yet to do so.  ## **Understanding the Treatment of Intellectual Property under the Insolvency and Bankruptcy Code** The Insolvency and Bankruptcy Code, 2016 fundamentally transformed India’s insolvency regime by replacing a fragmented framework with a unified, creditor-driven process designed to maximise value and facilitate corporate rescue. Unlike earlier legislation, the IBC does not merely provide for liquidation; its primary objective is the revival and continuation of viable businesses through a time-bound resolution process.  The Supreme Court has repeatedly affirmed that the central philosophy of the IBC is **resolution before liquidation**, recognising that preserving a going concern generally generates greater value for stakeholders than dismantling the business.  This philosophy was emphatically recognised in Swiss Ribbons Pvt. Ltd. v. Union of India, where the Supreme Court observed that the IBC is intended to ensure the continuation of the corporate debtor as a going concern while balancing the interests of all stakeholders.  Intellectual property frequently represents one of the most valuable assets of modern businesses undergoing insolvency. Technology companies may possess proprietary software, pharmaceutical companies own patents, media companies control copyrights, while consumer-facing enterprises derive significant value from trademarks and brand recognition.  The IBC recognises intangible assets as property capable of forming part of the insolvency estate. During liquidation, Section 36 includes intellectual property within the liquidation estate available for realisation. However, the existence of IP as an asset is fundamentally different from determining the fate of contractual licence rights granted to third parties. The Code remains silent on the latter question. It neither expressly protects existing licensees nor provides a statutory mechanism governing continuation, termination or assignment of IP licences during CIRP. This legislative silence creates significant commercial uncertainty.  ## **Does Insolvency Automatically Terminate an IP Licence?** One of the most common misconceptions is that insolvency automatically terminates licensing arrangements. The legal position is considerably more nuanced. The commencement of CIRP does **not**, by itself, terminate contracts entered into by the corporate debtor. Existing agreements continue unless they are lawfully terminated in accordance with their contractual terms or applicable law. This principle has been reinforced through multiple decisions of the Supreme Court, particularly in cases examining executory contracts during insolvency.  In **Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta**, the Supreme Court considered whether a power purchase agreement could be terminated solely because insolvency proceedings had commenced against the corporate debtor. The Court held that allowing termination merely due to insolvency could undermine the very objective of CIRP if the contract was essential to keeping the corporate debtor operational. Where termination threatens the survival of the corporate debtor as a going concern, the National Company Law Tribunal (“NCLT”) possesses jurisdiction to examine such disputes.  Although Gujarat Urja did not concern intellectual property, its reasoning has important implications for IP licensing agreements. Where licensed technology forms the operational backbone of the corporate debtor, automatic termination may significantly diminish enterprise value and frustrate the resolution process. The judgment therefore reflects a broader insolvency principle:  **Contracts critical to preserving the corporate debtor as a going concern should not ordinarily be terminated solely because insolvency proceedings have commenced.** This principle, however, primarily protects the corporate debtor. It does not answer the converse question that arises where the corporate debtor is itself the licensor and the licensee seeks continued access to the intellectual property. This remains an unresolved issue under Indian law.  ## **The Nature of IP Licence Agreements During CIRP** Intellectual property licences are typically characterised as executory contracts, agreements under which substantial obligations remain to be performed by both parties. For example:  - the licensor must continue permitting use of the intellectual property;   - maintain confidentiality obligations where applicable;   - provide technical updates or support in certain arrangements;   - while the licensee continues paying royalties and complying with quality-control obligations.   Unlike jurisdictions such as the United States, the IBC contains no statutory framework specifically governing executory contracts. Nor does it grant Resolution Professionals a general power to reject or disclaim burdensome contracts in the manner contemplated under Section 365 of the US Bankruptcy Code or the disclaimer provisions contained in the UK Insolvency Act.  Instead, the treatment of ongoing contracts during CIRP depends upon a combination of:  - contractual rights and obligations;   - the powers vested in the Resolution Professional under the IBC;   - commercial decisions taken by the Committee of Creditors; and   - judicial oversight exercised by the NCLT where continuation or termination materially affects the insolvency process.   Accordingly, it would be legally inaccurate to suggest that a Resolution Professional may simply “disclaim” an IP licence because it has become commercially inconvenient. The IBC confers no such blanket statutory power.  Rather, disputes concerning continuation or termination must be analysed within the framework of contractual law, the objectives of CIRP, and the evolving jurisprudence of the Supreme Court concerning value maximisation and preservation of the corporate debtor as a going concern.  ### **Indian Judicial Approach: Protecting Value Rather than Preserving Contracts** Although Indian courts have not yet directly considered the treatment of intellectual property licences during insolvency, several landmark decisions under the IBC provide valuable guidance on how such disputes may be approached. A recurring theme across the Supreme Court’s insolvency jurisprudence is that the IBC is not a debt recovery mechanism but a framework designed to maximise enterprise value while preserving viable businesses. Consequently, contractual rights cannot always be viewed in isolation; they must be balanced against the broader objectives of the insolvency process.  One of the most significant decisions in this regard is Tata Consultancy Services Ltd. v. Vishal Ghisulal Jain, Resolution Professional, SK Wheels Pvt. Ltd. (2021). The dispute arose after Tata Consultancy Services (TCS) terminated a facilities agreement following payment defaults by the corporate debtor. The Resolution Professional challenged the termination, arguing that the agreement was necessary for the debtor’s continued operations.  The Supreme Court held that the NCLT cannot ordinarily rewrite contracts or compel parties to continue commercial relationships merely because insolvency proceedings have commenced. At the same time, the Court recognised that the NCLT may examine contractual terminations where they are intrinsically linked to the insolvency process or threaten the objectives of the CIRP.  The judgment highlights an important principle: the IBC does not extinguish contractual autonomy, but contractual rights must sometimes yield where their exercise would undermine value maximisation or frustrate the resolution process.  This reasoning assumes particular significance in the context of intellectual property licences. If a software licence, patent licence or technology transfer agreement forms the backbone of a corporate debtor’s business, its termination could substantially erode enterprise value, discourage potential resolution applicants and diminish recoveries for creditors.  Similarly, in Embassy Property Developments Pvt. Ltd. v. State of Karnataka (2020), the Supreme Court emphasised that the NCLT’s jurisdiction is confined to matters arising from or relating to insolvency proceedings and does not extend to every contractual or regulatory dispute involving the corporate debtor. This decision highlights that not every dispute concerning an IP licence will necessarily fall within the jurisdiction of the insolvency forum. Purely contractual questions may still require adjudication before civil courts or arbitral tribunals unless they directly impact the CIRP.  Collectively, these decisions suggest that Indian courts are likely to adopt a functional, fact-specific approach rather than a rigid rule. The emphasis will remain on preserving the value of the corporate debtor while respecting legitimate contractual rights.  However, none of these judgments answers the fundamental question: what happens when the insolvent entity is the owner of the intellectual property and the licensee seeks to continue using the licensed IP? That legislative gap remains unresolved.  ## **The International Position: Learning from Mature Insolvency Regimes** India is not the first jurisdiction to confront the tension between insolvency law and intellectual property licensing. Several mature insolvency regimes have grappled with the same issue and, over time, have evolved statutory mechanisms to protect innovation without compromising creditor interests.  ### **The United States: From Lubrizol to Section 365(n)** The United States offers perhaps the most influential example of legislative reform in this area. Under Section 365(a) of the US Bankruptcy Code, a debtor may assume or reject executory contracts, including intellectual property licence agreements, subject to the approval of the bankruptcy court.  The controversy emerged in Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc. (1985). Richmond Metal Finishers, the licensor of a patented metal coating process, entered bankruptcy proceedings and sought to reject its patent licence with Lubrizol. The Fourth Circuit held that rejection effectively deprived the licensee of its continuing right to use the patented technology.  The decision generated significant concern across the technology and pharmaceutical industries. Businesses feared that years of investment in licensed technology could be rendered worthless merely because the licensor became insolvent. The uncertainty threatened innovation, technology transfer and investment in research-intensive sectors. Congress responded swiftly through the Intellectual Property Bankruptcy Protection Act, 1988, which introduced Section 365(n) into the Bankruptcy Code.  Section 365(n) fundamentally altered the legal position by granting licensees a statutory election. If the debtor rejects an intellectual property licence, the licensee may either:  - treat the agreement as terminated and claim damages; or   - retain its contractual rights to continue using the licensed intellectual property for the remainder of the licence term, including any agreed extensions, provided it continues to pay royalties.   Importantly, while the debtor is relieved from certain affirmative obligations such as ongoing technical support or maintenance, the licensee’s right to use the intellectual property survives. This strikes a careful balance between reducing the debtor’s continuing obligations and preserving the commercial expectations of the licensee. The US approach has since become the global benchmark for balancing insolvency objectives with the realities of innovation-driven commerce.  ### **Cross-Border Insolvency and the Qimonda Decision** The complexities become even more pronounced where intellectual property is licensed across jurisdictions. A notable illustration is In re Qimonda AG, which arose from the insolvency of the German semiconductor manufacturer Qimonda AG. The company owned thousands of patents licensed to technology companies across multiple jurisdictions, including the United States.  The German insolvency administrator sought to terminate the US patent licences in accordance with German insolvency law. However, the US courts refused to recognise the administrator’s position to the extent that it would deprive US licensees of the protections available under Section 365(n). The Fourth Circuit held that denying such protection would be manifestly contrary to US public policy. The decision illustrates how different insolvency regimes can produce conflicting outcomes for the same intellectual property portfolio. For multinational businesses, the governing law of the licence and the jurisdiction of insolvency proceedings can therefore become commercially decisive.  ## **India’s Cross-Border Insolvency Challenge** India presently lacks a comprehensive statutory framework governing cross-border insolvency. Although the Insolvency Law Committee has repeatedly recommended adopting the UNCITRAL Model Law on Cross-Border Insolvency, legislative implementation remains pending.  The difficulties arising from this omission became evident in Jet Airways (India) Ltd., where insolvency proceedings were initiated simultaneously in India and the Netherlands. The absence of a statutory recognition framework compelled the Indian Resolution Professional and the Dutch bankruptcy trustee to negotiate a bespoke Cross-Border Insolvency Protocol to facilitate cooperation between the two jurisdictions.  While Jet Airways did not involve intellectual property licensing, it demonstrates the practical difficulties that arise when multinational insolvencies require coordination across legal systems. Similar challenges are likely to arise where technology companies license software, patents or proprietary platforms across multiple jurisdictions. Without statutory recognition of foreign proceedings or clear rules governing cross-border IP licences, businesses remain exposed to uncertainty regarding the continuation, enforcement and assignment of licensed rights.  ## **The Problem with Ipso Facto Clauses** Many technology licensing agreements contain ipso facto clauses, contractual provisions that permit termination or modification solely because one party has entered insolvency proceedings. Such clauses are particularly common in software licences, cloud service agreements, pharmaceutical collaborations and technology transfer arrangements, where the financial stability of the licensor is often viewed as commercially significant.  From a commercial perspective, these clauses are understandable. Parties may be reluctant to continue licensing proprietary technology to an insolvent counterparty. However, from an insolvency perspective, widespread enforcement of *ipso facto* clauses can significantly undermine the objectives of the IBC.  If every critical technology licence were automatically terminated upon the commencement of CIRP, the corporate debtor could rapidly lose access to the very assets necessary to continue operating as a going concern. Enterprise value would diminish, prospective resolution applicants would be discouraged and creditor recoveries could suffer.  Several jurisdictions have therefore legislated to restrict the operation of *ipso facto* clauses.  The United States generally limits their enforceability in bankruptcy proceedings. Similar protections exist, in varying forms, in jurisdictions such as Australia and Singapore, reflecting a growing international consensus that insolvency should not automatically trigger contractual termination where doing so would frustrate restructuring efforts.  India has not yet enacted comparable statutory restrictions under the IBC. Consequently, the enforceability of *ipso facto* clauses continues to depend largely on contractual interpretation and judicial intervention in individual cases, creating avoidable uncertainty for both licensors and licensees.  ## **Practical Implications for Technology and Innovation-Driven Businesses** The absence of statutory clarity is no longer a purely academic concern. It has direct implications for businesses operating in innovation-intensive sectors. For example:  - A SaaS provider may depend upon licensed source code or proprietary software architecture.   - A pharmaceutical manufacturer may rely on patented formulations or manufacturing know-how.   - A renewable energy company may utilise licensed technologies for battery storage or hydrogen production.  - An AI developer may commercialise machine learning models through licensing arrangements with enterprise customers.   - A franchise network may operate entirely under licensed trademarks and associated intellectual property.   If the licensor becomes insolvent, uncertainty regarding the continuity of these rights can disrupt operations, reduce investor confidence and affect long-term commercial planning. The issue is particularly relevant for venture-backed startups. Many early-stage companies derive their principal value not from physical assets but from proprietary software, algorithms, patents or data-driven technologies. Investors conducting legal due diligence increasingly scrutinise licensing arrangements to assess whether insolvency-related risks have been adequately addressed.  ## **Contractual Safeguards: Mitigating Insolvency Risk** Until legislative reform is introduced, businesses should proactively address insolvency risks during contract negotiation. Technology licensing agreements should consider incorporating provisions relating to:  - source code escrow arrangements for mission-critical software;   - perpetual or irrevocable licence rights, where commercially appropriate;   - clear assignment and novation mechanisms;   - obligations concerning maintenance and technical support during insolvency;   - royalty continuation provisions;   - step-in rights for lenders or investors;   - governing law and dispute resolution clauses suitable for cross-border transactions; and   - detailed provisions addressing the consequences of insolvency events.   While contractual drafting cannot eliminate statutory uncertainty, carefully negotiated provisions may significantly reduce the scope for future disputes.  ## **The Case for Legislative Reform** India’s innovation economy is expanding rapidly, yet the legal framework governing intellectual property licences has not kept pace with commercial realities. The Insolvency and Bankruptcy Code has undoubtedly transformed India’s insolvency landscape. Nevertheless, its silence regarding the treatment of intellectual property licences creates uncertainty that is increasingly inconsistent with India’s ambition of becoming a global technology and innovation hub.  A carefully calibrated legislative amendment drawing inspiration from Section 365(n) of the US Bankruptcy Code could substantially improve commercial certainty without undermining the objectives of the IBC. Such reform could provide that:  - licensees retain the right to continue using licensed intellectual property during CIRP and liquidation, subject to continued compliance with contractual obligations;   - Resolution Professionals or liquidators cannot terminate licences solely because of insolvency, unless continuation materially prejudices the insolvency estate or is otherwise authorised by the adjudicating authority;  - unreasonable *ipso facto* clauses triggered solely by insolvency are rendered unenforceable during CIRP; and   - cross-border insolvency provisions recognise the unique characteristics of intellectual property licensing and facilitate cooperation with foreign insolvency proceedings.   Such measures would align India’s insolvency framework with international best practices while promoting innovation, technology transfer and investor confidence.  ## **Conclusion** The convergence of insolvency law and intellectual property law represents one of the most significant unresolved issues in India’s commercial legal framework. As intellectual property increasingly becomes the principal asset of technology companies, pharmaceutical innovators, AI developers and knowledge-driven enterprises, certainty regarding the treatment of IP licences during insolvency assumes far greater economic significance.  The current framework under the Insolvency and Bankruptcy Code provides valuable flexibility but offers little certainty for licensees whose businesses depend upon continued access to licensed intellectual property. Judicial decisions have consistently emphasised value maximisation and the preservation of the corporate debtor as a going concern, yet they stop short of addressing the specific challenges posed by IP licensing arrangements.  India now has an opportunity to bridge this legislative gap. By introducing a balanced statutory framework that protects legitimate licensing interests while preserving the objectives of insolvency resolution, the law can foster greater commercial confidence, encourage technology transfer and reinforce India’s position as an increasingly important destination for innovation-driven investment.  In an economy where intellectual property is often more valuable than physical assets, insolvency law must evolve to recognise that preserving innovation is, in many cases, synonymous with preserving enterprise value itself.  *Last Updated on 16 July, 2026* Get King Stubb & Kasiva’s legal updates in your Google feed[![Add King Stubb & Kasiva as a preferred source on Google](https://ksandk.com/wp-content/uploads/google_preferred_source_badge_light_en@2x.png)](https://www.google.com/preferences/source?q=https://ksandk.com/) --- ## Office Locations - [New Delhi](https://ksandk.com/locations/top-corporate-law-firm-in-delhi/) (HQ): +91-11-41318190 | info@ksandk.com - [Mumbai](https://ksandk.com/locations/top-corporate-law-firm-in-mumbai/): 3 offices (Nariman Point, Lower Parel, Andheri) | mumbai@ksandk.com - [Bangalore](https://ksandk.com/locations/top-corporate-law-firm-in-bangalore/): bangalore@ksandk.com - [Chennai](https://ksandk.com/locations/chennai/): chennai@ksandk.com - [Hyderabad](https://ksandk.com/locations/hyderabad/): hyderabad@ksandk.com - [Pune](https://ksandk.com/locations/pune/): pune@ksandk.com - [Kochi](https://ksandk.com/locations/kochi/): kochi@ksandk.com ## Contact - [Contact Page](https://ksandk.com/contact-us/) - General: info@ksandk.com | +91-11-41318190 - WhatsApp: +91-7428567444 - [Privacy Statement](https://ksandk.com/privacy-statement/) - [Terms of Use](https://ksandk.com/terms-of-use/)