Case Note & Summary
The case involves an appeal by Rajesh Ravji Patel, suspended director of Vilsons Roofing Product Pvt. Ltd. (Corporate Debtor), against an order of the National Company Law Tribunal, Mumbai Bench, dated 27.10.2023, which initiated Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The application was filed by Pegasus Assets Reconstruction Pvt. Ltd. (Respondent No.1), claiming to be the assignee of a debt owed by the Corporate Debtor to Shamrao Vithal Co-operative Bank Ltd. The Corporate Debtor had defaulted on a secured term loan and cash credit facility. Respondent No.1 asserted that it was assigned the debt via an assignment deed executed on 30.09.2022. The Appellant challenged the maintainability of the application on the ground that no notice of assignment was given to the Corporate Debtor before filing the Section 7 application, and that the assignment was not valid. The NCLAT examined the definition of 'financial creditor' under Section 5(7) of IBC, which includes an assignee of a debt. It held that the assignment deed was valid and that notice of assignment to the corporate debtor is not a prerequisite for the assignee to file a Section 7 application. The NCLAT found that the debt and default were established, and the application was complete. Consequently, the appeal was dismissed, and the NCLT order initiating CIRP was upheld.
Headnote
A) Insolvency and Bankruptcy Code - Section 7 Application - Assignment of Debt - Maintainability - The issue was whether a Section 7 application filed by an assignee of a debt is maintainable when the assignment deed was executed before the application but notice of assignment was not given to the corporate debtor prior to filing. The NCLAT held that the assignment deed is valid and the assignee becomes a financial creditor under Section 5(7) of IBC, 2016. Notice of assignment to the corporate debtor is not a prerequisite for maintainability of the application. The appeal was dismissed, upholding the NCLT order initiating CIRP. (Paras 1-13)
Issue of Consideration
Whether the initiation of CIRP under Section 7 of IBC, 2016 by an assignee of a debt is maintainable when the assignment deed was executed prior to the application but notice of assignment was not given to the corporate debtor before filing the application.
Final Decision
The appeal is dismissed. The Impugned Order dated 27.10.2023 passed by NCLT Mumbai Bench in CP (IB) No. 9/MB/2023 is upheld.
Law Points
- Assignment of debt is valid under Section 5(7) of IBC
- 2016 even without prior notice to corporate debtor
- Notice of assignment to corporate debtor is not a prerequisite for maintainability of Section 7 application
- Financial creditor includes assignee of debt
- Default based on assignment deed is sufficient for initiation of CIRP
