Introduction
The Insolvency and Bankruptcy Code (IBC) is a comprehensive legal framework in India that consolidates the country’s insolvency and bankruptcy laws. It aims to simplify the process of insolvency and bankruptcy proceedings in the country. One of the key provisions of the IBC is Section 7, which deals with the initiation of the corporate insolvency resolution process (CIRP) by a financial creditor.
The Case: Ms. Bidisha Banerjee and Shri Arvind Devanathan vs Manikaran Vincom Pvt. Ltd.
In a recent case before the National Company Law Tribunal (NCLT) Kolkata Bench, an important question was raised regarding the necessity of assignment registration under Section 7 of the IBC.
The dispute in this Section 7 application was solely about the legality of the assignment in the absence of its registration. The NCLT Kolkata Bench held that:
- Registration of assignment is not mandatory. Even otherwise, the Corporate Debtor never disputed the assignment till date. The Corporate Debtor was in correspondence with the applicant seeking time to repay the loan with interest and therefore, at this stage, the Respondent cannot question the validity of assignment.
- The application filed under Section 7 of the Code was allowed and CIRP was initiated against Manikaran Vincom Pvt. Ltd…
Facts of the Case
The loan was sanctioned as an unsecured loan of Rs. 1,40,00,000/- (Rupees One Crore and Forty Lakh Only) by assignor i.e., SSA Hire Purchase Private Limited Loan Agreement were duly accepted and agreed to by the Corporate Debtor. The Assignor had disbursed the Sum of Rs.1,40,00,000/- (Rupees One Crore and Forty Lakhs only) on 01.04.2016 said disbursement was confirmed by the Corporate Debtor and also issued the receipt and promissory notes.
The Assignor had intimated the Corporate Debtor that the debt has been assigned in favour of M/s Manavta Tradelink Pvt. Ltd., the Applicant herein and requested the Corporate Debtor to make payment of the Debt along with the interest directly in favour of the Assignee vide letter dated May 02, 2022.
Court’s Observations under IBC Section 7
The Adjudicating Authority held that:
- The total amount of debt along with interest is not disputed by the respondent. The dispute is only with the legality of assignment in absence of registration.
- Registration of assignment is not mandatory. Even otherwise, the Corporate Debtor never disputed assignment till date. The Corporate Debtor was in correspondence with applicant seeking time to repay loan with interest. Therefore, at this stage, respondent cannot question validity of assignment.
- It is explicit and evidently discernible that there is a default of financial debt. The debt is in excess of threshold limit, debt is not time barred in view of acknowledgment of debt vide a letter dated 15.07.2022 and application under Section 7 of IBC is complete in all respects.
- In light of facts stated in petition and evidence placed on record, we allow this application filed under Section 7 of Code, and accordingly, we order initiation of CIRP in respect to Corporate Debtor.
Conclusion on Registration under IBC Section 7
This decision is significant as it clarifies that non-registration of an assignment does not invalidate it for purposes of initiating CIRP under Section 7 of IBC. It also underscores that what matters is whether a default has occurred and not whether every procedural aspect has been strictly complied with.
Please note that this is a specific ruling by NCLT Kolkata Bench and may not be applicable universally. Different benches or courts may interpret law differently based on facts and circumstances of each case.
