IBC Does Not Prohibit an Assignee from Continuing Pending Section 7 Proceedings: Judgement by NCLAT Delhi


Status as on- 16/12/2022

The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprised of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), found no prohibition in the IBC or any of the Regulations against an assignee continuing the proceeding in Siti Networks Ltd. v. Assets Care and Reconstruction Enterprises Ltd. & Anr. A person to whom a debt has been properly assigned or transferred is also included in the definition of “Financial Creditor” under Section 5(7) of the IBC. The assignee has the status of a financial creditor as a result of the assignment and is allowed to continue the legal action begun by the original assignor.

Background Facts Mentioned

Housing Development Finance Corporation Limited (“HDFCL”) has sanctioned a loan to the Siti Networks Ltd. (“Corporate Debtor”). The Corporate Debtor was classified as Non-Performing Asset. Thereafter, HDFCL filed a petition under Section 7 of the IBC seeking initiation of Corporate Insolvency Resolution Process against the Corporate Debtor and notices were issued.

After that HDFCL vide Registered Assignment Deed assigned the debt of the Corporate Debtor to the Assets Care and Reconstruction Enterprise Limited (“Assignee”). The Corporate Debtor was also informed about the assignment vide letter. The Assignee filed an application before Adjudicating Authority seeking to be substituted as Financial Creditor in place of original Applicant (HDFCL) and to be permitted to pursue the Section 7 petition filed by HDFCL. The Adjudicating Authority held that there was no binding precedent from higher forum and The Corporate Debtor challenged the order before NCLAT.

Contentions of Parties

The Corporate Debtor (“Appellant”) argued that the assignee could not have been permitted to continue Section 7 proceedings. Although it is open for the assignee to file a fresh petition under Section 7 of IBC, on the strength of assignment. On the other hand, the Assignee (“ACREL/Respondent”) argued that by virtue of assignment, which happened after filing of the Section 7 petition by HDFCL, the assignee has every right to be substituted to continue the proceeding. The Assignee placed reliance on Section 5(4) of the SARFAESI Act, 2002 which provides for continuation and prosecution of any proceeding by an assignee who acquires financial assets.

Decision of the NCLAT

The Bench opined that Section 5(4) of the SARFAESI Act, 2002 does contemplate continuation of all proceedings after acquisition of financial assets by an assignee. Further, Order XXII Rule 10 of Civil Procedure Code, 1908 contemplates continuance of proceeding on the basis of devolution of rights with the leave of the Court which is applied generally in civil proceeding and suit.

The Adjudicating Authority, neither the IBC nor any of the Regulations forbid an assignee from carrying on the action. The definition of “Financial Creditor” under Section 5(7) of the IBC also includes a person to whom a debt has been legitimately assigned or transferred.

The Bench determined that an assignee is not prohibited from continuing the process under the IBC or its Regulations. The appeal was denied by the Bench, which upheld the Adjudicating Authority’s decision.


Disclaimer: The above article is based on the personal interpretation of the related orders and laws. The readers are expected to take expert opinions before relying upon the article. For more information, please contact us at rera@centrik.in

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