Case Note & Summary
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, dismissed an appeal filed by Paras Builders and Promoters against an order dated 02.02.2024 of the Adjudicating Authority (National Company Law Tribunal) rejecting I.A. No. 380/2023, which sought recall of the admission order under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The background of the case is that Bank of India, the original financial creditor, filed a Section 7 application against the corporate debtor. Subsequently, by an Assignment Agreement dated 30.03.2022, M/s. ASREC India Ltd. was substituted as the financial creditor and prosecuted the application. The Adjudicating Authority admitted the Section 7 application vide order dated 31.03.2023 and appointed an Interim Resolution Professional. The appellant, who is a promoter of the corporate debtor, filed an I.A. for recall of the admission order, which was rejected. The appellant then filed the present appeal. The appellant's main contention was that the Assignment Agreement was challenged in a Civil Court and that the challenge was pending. It was also submitted that the financial creditor ought to have impleaded the appellant as a party to the Section 7 application. The appellant further argued that proceedings under the SARFAESI Act were taken by the bank, and there was a One-Time Settlement (OTS) which was also challenged in the Civil Court. The NCLAT considered the submissions and perused the record. The Tribunal held that the pendency of a civil suit challenging the assignment agreement does not bar the admission of a Section 7 application, as the assignment is valid until set aside by a competent court. The promoters are not necessary parties to a Section 7 application. The appeal was dismissed, and the order of the Adjudicating Authority was upheld.
Headnote
A) Insolvency and Bankruptcy Code - Section 7 - Admission of Application - Assignment Agreement - Pendency of Civil Suit - The pendency of a civil suit challenging the assignment agreement does not preclude the Adjudicating Authority from admitting a Section 7 application, as the assignment is valid until set aside by a competent court. The appeal against the order rejecting the recall application was dismissed. (Paras 1-7) B) Insolvency and Bankruptcy Code - Section 7 - Parties - Promoters - The promoters of the corporate debtor are not necessary parties to a Section 7 application filed by the financial creditor. The application was filed by the Bank of India, which was later substituted by ASREC India Ltd. pursuant to an assignment agreement. (Paras 2-6) C) Insolvency and Bankruptcy Code - Section 7 - CIRP - SARFAESI Proceedings - Proceedings under the Insolvency and Bankruptcy Code are independent of proceedings under the SARFAESI Act, and the pendency of an OTS challenge in a civil court does not bar the admission of a Section 7 application. (Paras 4-6)
Issue of Consideration
Whether the pendency of a challenge to the Assignment Agreement in a Civil Court bars the admission of a Section 7 application under the Insolvency and Bankruptcy Code, 2016?
Final Decision
The appeal is dismissed. The order of the Adjudicating Authority rejecting the recall application is upheld.
Law Points
- Pendency of civil suit challenging assignment agreement does not bar admission of Section 7 application
- Assignment agreement valid until set aside by competent court
- Promoters not necessary parties to Section 7 application
- IBC proceedings independent of SARFAESI proceedings
