The New Delhi Bench of the National Company Law Tribunal (NCLT), comprised of Justice Mahendra Khandelwal (Judicial Member) and Dr. Sanjeev Ranjan (Technical Member), has ruled that challenging the Debt Assignment Deed is not permissible in a Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC).
Background:
CFM Asset Reconstruction Private Limited, a Securitization and Asset Reconstruction Company registered with the Reserve Bank of India, initiated a CIRP application against M.G. Finvest Private Limited (Corporate Debtor) under Section 7 of the IBC, citing a default of Rs. 1025.53 crores.
The Corporate Debtor acted as one of the guarantors for financial facilities obtained by Action Ispat & Power Pvt. Ltd. (Principal Borrower) from a consortium of banks, including State Bank of India (SBI). CFM Asset Reconstruction is the assignee of SBI. Following defaults, an Assignment Agreement was executed between SBI and CFM, transferring rights, title, and interest in financing documents, collateral, and security interest to CFM.
NCLT Verdict:
The NCLT New Delhi admitted the CIRP and clarified that challenging the Debt Assignment Deed is not permissible in CIRP under Section 7 of the IBC.
The Tribunal emphasized that debt assignment is a transaction between the Creditor and the Assignee, recognized as a valid mode of transfer under Section 5(7) of the IBC. It referenced NCLAT’s observation in Lalan Kumar Singh vs. Phoenix ARC (P) Ltd., stating that the declaration of the Assignment Agreement is essentially a civil proceeding.
Additionally, the NCLT rejected the argument that the unregistered status of the assignment deed renders it legally unenforceable. It cited the SARFAESI Act, 2002, which exempts documents executed by banks or financial institutions in favor of asset reconstruction companies from stamp duty. The NCLT stressed that IBC proceedings are summary in nature, and it is not within the tribunal’s purview to delve into the details of registration requirements for the Assignment Agreement.
Concluding its judgment, the NCLT affirmed that CFM Asset Reconstruction qualifies as a Financial Creditor, the defaulted debt is a Financial Debt, and the CIRP against the Corporate Debtor is admissible as it is not barred by limitation.
