India: Trademark And Goodwill Valuation: MP High Court Examining The Option To Auction

Last Updated: 5 August 2009

Valuation of Intellectual Property assets plays an important role in licensing, assignment, mergers, acquisitions and all related transactions. Examining the thin line between a Trademark and its Goodwill and whether the viability of its auction in light of the previous orders rendered, is the decision in the matter of Kale Khan Mohd. Hanif v. Mohd. Iqbal [2009(40) PTC 210(M.P.)(DB)]. The issue deliberated upon had already undergone a series of litigation proceedings at various rungs of the judicial line up and the interpretation of the previous decrees and judgments was also examined here.

The Preceding Pronouncements:

Invoking the extra-ordinary jurisdiction of the Madhya Pradesh High Courts a Writ Petition had been filed under Art 227 of the Constitution of India whereby the propriety of an order passed by the Ld. Additional District Judge was questioned. The order in question had rejected the report of the Commissioner for valuation of a Trademark in response to which a writ of certiorari for quashing the same had been prayed. Pursuant to these proceedings, a writ appeal was invoked before the Division Bench of the MP High Court to examine the defensibility and legal tenability of the Single Judge's order.

The documents brought on record in the course of litigation, revealed that the parties to the petition Mohd. Iqbal (the respondent) and Kale Khan Mohd. Hanif were in a partnership for the manufacture of Bidis. It was averred that the partnership firm underwent dissolution in January 1986, in pursuance of a civil action in regard to which a preliminary decree of dissolution had been passed by the ADJ in 1996, which retrospectively granted a preliminary decree of deed of dissolution. A Chartered Accountant had also been appointed by the Court to settle accounts of the dissolved firm. In his report, the CA expressed that valuation of the trademark was a technical matter and that a trade mark valuer must be referred for the matter. Subsequently, upon application, the trial Court appointed a firm to value the trademark. The goodwill of the partnership firm had been evaluated by the Commissioner at Rs. 1,80,56,859/- while the trademark had been valued by the appointed agency to be worth Rs. 20,77,589/-. In this pursuance, objections were raised as to the trademark valuation to be excluded from the report. The Trial Court on this objection held that the valuation of the goodwill included trademark valuation and accordingly rejected the report valuing the trademark. It is this order that was challenged via a writ petition before the Ld. Single Judge of the MP High Court. The legal proprietary of the Judge's order was also questioned.

However, the single Judge at the High Court held that the goodwill and trademark were not evincible as deciphered from Sections 38 and 39 of the Trade Marks Act 1999.The Court ruled that the trial Judge was exact in appointing another expert Commissioner to undertake the valuation of the trademark and that the rejection of the same by the trial Judge was incorrect. He also opined that the valuation made was on paper and that the same could be ascertained by putting them on auction. Taking in view a holistic consideration of various factors, the Single Judge directed that the trial Judge direct the Commissioner to proceed in accordance with the preliminary decree as interpreted in the order to the writ petition.

Deliberation Before The Division Bench:

Before the Division Bench, the Counsel for Mohd. Hanif asserted that the previous litigations and the judgments pronounced therein should be considered, in as much as they throw light on the situation, as also confirm the preliminary decree, which according to them, had been gravely misinterpreted by the Single Judge. It was asserted that the decree of the Single Judge could not be upheld in as much as it amended and enlarged the scope of the decree. It was also propounded that the trial court would have been aware that the trademark had no independent existence from the goodwill and therefore no mention of the trademark valuation as a separate property/asset had been made. It was asserted that goodwill was dependent on multifarious factors and that the Single Judge had committed illegality by travelling beyond the scope of the writ petition by issuing a direction for the auction of the trademark and goodwill. It was stressed that the writ merely looked if the trademark and goodwill were concurrent and one or not.

The counsel for Mohd. Iqbal responded stating that the counsels for Md. Hanif were not entitled to contend that the trademark and goodwill were one and the same, inasmuch as the commissioner's report had been rejected on the ground that valuation of the trademark had not been made separately and that the order had been acceded to by Mohd. Hanif. The contention made by Hanif regarding trademark and goodwill being one and the same was also rebutted stating that the two were different concepts, as elucidated under the Trade Marks Act. Further they stated that the assignment of the trademark could take place with or without goodwill, in view of which no fault with the order of the Single Judge could be found.

The Division Bench, taking account of these submissions, found that the preliminary decree revealed that although no mention of the trade mark was there, although it did refer to the assets of the firm. The provisions of the Trade Marks Act were also looked at alongside the plethora of cited judgments to examine if any distinction between "goodwill" and "trademark" was existent. The Court stated that there was no doubt regarding the existence of a marked distinction in view of the enunciated law and precedents, as also in view of the assignability of a trademark. The assertion that the Trial Judge had moved beyond the scope of the writ jurisdiction, was also noted, as also the averments regarding inconsistency between the judgment and decree. Noting the contents of the decree and judgment, the Division bench however opined that no inconsistency existed, in as much as the direction to auction the goodwill was consistent with the intent in the decree. Stating so, the writ appeal was pronounced dismissed without any order as to costs.

© Lex Orbis 2009

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