Initiation of Assignment Agreement by Corporate Debtor is Malafide Act to Prolong CIRP: NCLAT upholds Decision of NCLT
The NCLAT viewed that allowing assignments could potentially distort the balance of creditor rights and influence the outcome of the resolution process unfairly
While Upholding the decision of the National Company Law Tribunal ( NCLT ), the National Company Law Appellate Tribunal ( NCLAT ) held that Assignment Agreement initiated by the Corporate Debtor was a deliberate strategy intended to introduce obstacles and prolong the Corporate Insolvency Resolution Process ( CIRP ).
Rolta Private Limited, Corporate Debtor, submitted a substantial claim of Rs. 634,55,43,228. Despite the admission of its claim by the Resolution Professional (RP), Rolta Private Limited was denied representation, participation, and voting rights in the CoC. This denial stemmed from its status as a related party, a measure designed to prevent conflicts of interest and ensure impartial decision-making in the insolvency proceedings.
Rolta Private Limited entered into a Memorandum of Understanding (MoU) with Peanence Commercial Private Limited. The MoU proposed the assignment of Rolta Private Limited's admitted claim to Peanence Commercial Private Limited for a consideration of Rs. 50 crores. This assignment was contingent upon the RP's approval and recognised Peanence Commercial Private Limited as a non-related secured financial creditor with full voting rights in the CoC.
The dispute arose when the RP declined to approve the assignment and argued that he lacked the jurisdiction to alter the nature of the debt or confer voting rights as sought by Rolta Private Limited and Peanence Commercial Private Limited. Subsequently, they applied to the National Company Law Tribunal (NCLT) for validation of the assignment and challenging the RP's decision.
Rolta Private Limited and Peanence Commercial Private Limited argued that the assignment was a bona fide transaction conducted at arm's length. They contended that Peanence Commercial Private Limited, being an unrelated party, should be entitled to participate as a financial creditor in the CoC, as per the Supreme Court's interpretation in "Phoenix ARC Private Limited vs. Spade Financial Services Limited & Ors.". They argued that the RP misinterpreted the provisions of Section 21(2) of the IBC, which governs the eligibility and disqualification of related parties in the CoC.
The Resolution Professional (RP) argued that he was bound by the statutory provisions and lacked the authority to approve the assignment under the current legal framework.
The NCLT upheld the RP's stance and dismissed the application filed by Rolta Private Limited and Peanence Commercial Private Limited. It was held that the assignment, as proposed in the MoU, was contingent upon approvals that the RP could not grant under the existing legal framework.
On appeal before the Appellate Tribunal , the NCLAT upheld the RP's decision to deny approval for the assignment. The NCLAT viewed that allowing assignments could potentially distort the balance of creditor rights and influence the outcome of the resolution process unfairly.
The Principal Bench of Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member) and Arun Baroka (Technical Member) held that “the whole exercise is a malafide exercise by Rolta Private Limited whose claim has been admitted and who being related party has not been given berth in the CoC and by means of alleged assignment is trying to bring Peanence Commercial Private Limited into the CoC. The real intent of the assignment is clear from the email send to the Resolution Professional where the Resolution Professional has been requested to confirm that Assignee would be declared as nonrelated party to the Corporate Debtor, meaning thereafter the Assignee shall get a berth in the CoC.”
While dismissing the appeal, the NCLAT upheld the decision of the NCLT,.
Rolta Private Limited entered into a Memorandum of Understanding (MoU) with Peanence Commercial Private Limited. The MoU proposed the assignment of Rolta Private Limited's admitted claim to Peanence Commercial Private Limited for a consideration of Rs. 50 crores. This assignment was contingent upon the RP's approval and recognised Peanence Commercial Private Limited as a non-related secured financial creditor with full voting rights in the CoC.
The dispute arose when the RP declined to approve the assignment and argued that he lacked the jurisdiction to alter the nature of the debt or confer voting rights as sought by Rolta Private Limited and Peanence Commercial Private Limited. Subsequently, they applied to the National Company Law Tribunal (NCLT) for validation of the assignment and challenging the RP's decision.
Rolta Private Limited and Peanence Commercial Private Limited argued that the assignment was a bona fide transaction conducted at arm's length. They contended that Peanence Commercial Private Limited, being an unrelated party, should be entitled to participate as a financial creditor in the CoC, as per the Supreme Court's interpretation in "Phoenix ARC Private Limited vs. Spade Financial Services Limited & Ors.". They argued that the RP misinterpreted the provisions of Section 21(2) of the IBC, which governs the eligibility and disqualification of related parties in the CoC.
The Resolution Professional (RP) argued that he was bound by the statutory provisions and lacked the authority to approve the assignment under the current legal framework.
The NCLT upheld the RP's stance and dismissed the application filed by Rolta Private Limited and Peanence Commercial Private Limited. It was held that the assignment, as proposed in the MoU, was contingent upon approvals that the RP could not grant under the existing legal framework.
On appeal before the Appellate Tribunal , the NCLAT upheld the RP's decision to deny approval for the assignment. The NCLAT viewed that allowing assignments could potentially distort the balance of creditor rights and influence the outcome of the resolution process unfairly.
The Principal Bench of Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member) and Arun Baroka (Technical Member) held that “the whole exercise is a malafide exercise by Rolta Private Limited whose claim has been admitted and who being related party has not been given berth in the CoC and by means of alleged assignment is trying to bring Peanence Commercial Private Limited into the CoC. The real intent of the assignment is clear from the email send to the Resolution Professional where the Resolution Professional has been requested to confirm that Assignee would be declared as nonrelated party to the Corporate Debtor, meaning thereafter the Assignee shall get a berth in the CoC.”
While dismissing the appeal, the NCLAT upheld the decision of the NCLT,.
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