CIRP Can Be Initiated Even Without Registered Debt Assignment: NCLT Kolkata

CIRP Can Be Initiated Even Without Registered Debt Assignment: NCLT Kolkata

The Kolkata Bench of the National Company Law Tribunal (NCLT), consisting of Bidisha Banerjee (Judicial Member) and Arvind Devanathan (Technical Member), ruled that registration of debt assignment is not required for the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). Additionally, the Corporate Debtor cannot challenge the legality of the debt assignment because it has never been disputed.

Manavta Tradelink Pvt. Ltd., a private non-government company (Financial Creditor), filed a Corporate Insolvency Resolution Process (CIRP) application against Manikaran Vincom Pvt. Ltd., a private non-government company (Corporate Debtor).

The Corporate Debtor defaulted on the payment of ₹2.72 crore as of December 25, 2022, with a 12 per cent per annum interest rate accruing until the date of repayment. The date of default was claimed to be March 31, 2021.

The Financial Creditor contended that SSA Hire Purchase Pvt. Ltd. (Assigner) had assigned an unsecured loan of ₹1.40 crore to the Financial Creditor. The Corporate Debtor had duly accepted and agreed to the Loan Agreement. The loan had been disbursed and duly confirmed by the Corporate Debtor with the issuance of a receipt and promissory notes. The Assigner had also informed the Corporate Debtor of the assignment of debt in favour of the Financial Creditor. A letter dated May 31, 2022, was sent to the Corporate Debtor suggesting that the loan, along with interest from the beginning, should be paid. The Corporate Debtor duly received the letter. The Corporate Debtor also acknowledged the debt and sought an extension of time in repayment of the loan via a letter dated July 15, 2022.

The Corporate Debtor argued that the Financial Creditor does not have the standing to file a CIRP application because the assignment of debt is not registered. It also argued that if the assignment is held invalid, the debt becomes time-barred and no CIRP application would be valid.

The NCLT Kolkata noted that the Corporate Debtor has never disputed the total amount of debt, including interest. The only issue is whether the assignment of debt is legal because it was not registered.

The Tribunal ruled that the registration of the assignment of debt is not required, as the Corporate Debtor has never disputed the assignment. Additionally, the Corporate Debtor corresponded with the Financial Creditor seeking time to repay the loan with interest, as evidenced by the letter dated July 15, 2022. Therefore, the Corporate Debtor cannot challenge the legality of the assignment of debt.

The NCLT thus allowed the CIRP application filed against the Corporate Debtor under Section 7 of the IBC because the Corporate Debtor defaulted on a financial debt that exceeded the prescribed threshold limit and was not time-barred.