NCLT Delhi: Debt Assignment Deed Cannot Be Challenged In CIRP U/s 7 Of IBC

The National Company Law Tribunal ('NCLT') New Delhi Bench, comprising Justice Mahendra Khandelwal (Judicial Member) and Dr. Sanjeev Ranjan (Technical Member) held that the Debt Assignment Deed cannot be challenged in a Corporate Insolvency Resolution Process ('CIRP') under Section 7 of Insolvency and Bankruptcy Code, 2016 ('IBC'). Background Facts: CFM Asset Reconstruction Private Limited (Applicant), registered with the Reserve Bank of India as a Securitization and Asset Reconstruction Company has filed a CIRP application against M.G. Finvest Private Limited (Corporate Debtor) under Section 7 of the IBC. for a default of Rs. 1025.53 crores. The Corporate Debtor is one of the guarantors of the financial facilities availed by Action Ispat & Power Pvt. Ltd. (Principal Borrower) from a consortium of banks including State Bank of India ('SBI'). The Applicant is the assignee of SBI. In 2013, on default of repayment a Master Restructuring Agreement was entered and a Deed of Guarantee was executed by Corporate Debtor in favour of the Borrower and the same was executed in favour of SBICAP Trustee Company Limited, the Corporate Debtor being the security trustee for the benefit of all the lenders. On continuous defaults, SBI classified the Borrower's debt as Non-Performing Assets. SBI entered into an Assignment Agreement with Applicant assigning its rights, title and interest in the financing documents, all agreements, deeds and documents and all collateral and underlying Security interest and/or pledges created to secure, and/or guarantees issued in respect of the repayment of the Loans extended to the Borrower, to the Applicant and the charge was modified and registered in favour of the Applicant. CIRP against the Principal Borrower as well as different guarantors have been admitted by the Adjudicating Authority. NCLT Verdict: The NCLT New Delhi admitted the CIRP and held that the Debt Assignment Deed cannot be challenged in CIRP under Section 7 of IBC. The Tribunal observed that the assignment of debt essentially being a transaction between the Creditor and the Assignee and assignment is recognized by IBC as a valid mode of transfer of rights u/s 5(7) of IBC. Thus, the entity receiving the said assignment of debt constitutes a “Financial Creditor”. It also noted that NCLAT in Lalan Kumar Singh vs. Phoenix ARC (P) Ltd. observed that the declaration of Assignment Agreement is essentially a civil proceeding. Moreover, NCLT didn't accept the contention that the assignment deed being unregistered is not legally enforceable as Section 5 (1) of the SARFAESI Act, 2002 empowers a Bank to assign loan to an Asset Reconstruction Company and clause 1A of Section 5 of the SARFAESI Act, 2002 particularly elucidates that documents executed by any bank or financial institution under sub-section (1) in favour of the asset reconstruction company acquiring financial assets for asset reconstruction or securitization shall be exempted from stamp duty. It held that the proceedings under IBC are summary proceedings and it is beyond the ambit of NCLT to delve into the details regarding the requirement or exemption of registration of the Assignment Agreement dated 18.01.2021. Presently, the assignment does not affect the liability and obligations of the Corporate Debtor to discharge the debt and thus, the Applicant would step into the shoes of SBI under the Assignment Deed. In conclusion, NCLT noted that the Applicant is a Financial Creditor, the debt in default is a Financial Debt and the same is not barred by limitation, thus, the CIRP against the Corporate Debtor shall be admitted. Case Title: CFM Asset Reconstruction Pvt. Ltd. Vs. M.G. Finvest Pvt. Ltd. Case No.: Company Petition IB (IBC) NO. 115/PB/2022 Counsel for Applicant: Mr. P. Nagesh, Sr. Adv. with Mr. Arijit Mazumdar, Ms. Akanksha Kaushik, Mr. Akshay Sharma, Advs. Counsel for Respondent: Ms. Udita Singh, Adv. Click Here to Read/Download Order

NCLT Delhi: Debt Assignment Deed Cannot Be Challenged In CIRP U/s 7 Of IBC

Sachika Vij

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