No Challenge on Debt Assignment Deed In CIRP u/s 7 Of IBC: NCLT [Read Order]

The Delhi bench of the National Company Law Tribunal ( 'NCLT' ) held that the Debt Assignment Deed cannot be challenged in a Corporate Insolvency Resolution Process ( 'CIRP' ) under Section 7 of the Insolvency and Bankruptcy Code, 2016 ( 'IBC' ).

CFM Asset Reconstruction Private Limited ( “applicant” ), a company incorporated under the Companies Act, 2013 and registered with Reserve Bank of India as a Securitization and Asset Reconstruction Company pursuant to Section 3 of SARFAESI Act, 2002 ( ‘Financial Creditor’ ), represented by Shri Kartik Dhir, seeking to initiate Corporate Insolvency Resolution Process ( “CIRP” ) against M/s M.G. Finvest Private Limited ( “Corporate Debtor” ).

The Corporate Debtor was incorporated under the Companies Act, 1956. Since, the registered office of the Corporate Debtor is situated at Delhi, this Tribunal having territorial jurisdiction over the NCT of Delhi is the Adjudicating Authority in relation to the prayer for initiation of Corporate Insolvency Resolution Process in respect of respondent Corporate Debtor under sub-section (1) of Section 60 of the Code. The Authorised Share Capital of the Corporate Debtor is Rs. 2,00,00,000 ( Two Crores ). The Paid-Up Capital of the Corporate Debtor is Rs. 2,00,00,000 ( Two Crores ).

The present petition was filed before the Adjudicating Authority on the ground that the Corporate Debtor has defaulted to make a payment of Rs. 1025,53,60,198.71/- ( Rupees One Thousand Twenty-Five Crore Fifty-Three Lakh Sixty Thousand One Hundred Ninety-Eight and Seventy-One Paisa only ).

It was observed that the Corporate Debtor has raised an objection on the status of the Applicant as “Financial Creditor” under Section 5(7) of the Code, 2016 on the ground that the Assignment Agreement dated 18.01.2021 executed between the SBI ( original borrower ) and Applicant is not legally enforceable and there exist no privity of contract between the Applicant and the Corporate Debtor.

The Corporate Debtor failed to bring on record any document to prove that there exists any such provision in the Guarantee Agreement which provides for discharge of the surety before the entire dues guaranteed under the Guarantee Agreement are repaid.

A two-member bench comprising Shri Mahendra Khandelwal, Member (J) And Dr Sanjeev Ranjan, Member (T) viewed that the liability of the Corporate Debtor cannot be extinguished simply because CIRP has been initiated against the Principal Borrower. Therefore, this contention of the Corporate Debtor is overruled.

Further held that the ‘financial debt’ is not barred by limitation and the submissions of the Corporate Debtor as to the present application being barred by limitation is not sustainable. Hence, in all respects the ‘debt' as claimed by the Financial Creditor is well within the period of limitation. It is not denied that the Corporate Debtor has committed 'default' in repayment of the said 'financial debt'.

It was further made clear that all the personnel connected with the Corporate Debtor, its promoters or any other person associated with the Management of the Corporate Debtor are under legal obligation under Section 19 of the Code to extend every assistance and cooperation to the Interim Resolution Professional as may be required by him in managing the day-to-day affairs of the ‘Corporate Debtor’

“The Interim Resolution Professional shall be under duty to protect and preserve the value of the property of the ‘Corporate Debtor’ as a part of his obligation imposed by Section 20 of the Code and perform all his functions strictly in accordance with law.”, the Tribunal held.

To Read the full text of the Order CLICK HERE

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