NCLAT | Assignment of debt cannot be challenged in petition under Section 7 of I&B Code

National Company Law Appellate Tribunal (NCLAT): A Bench comprising of Justice S.J. Mukhopadhaya, Chairperson and Justice Bansi Lal Bhat, Member (Judicial) dismissed an appeal filed by the Executive Director and shareholder of GPI Textiles Ltd. (Corporate Debtor) against the order of National Company Law Tribunal, Chandigarh whereby it had admitted an application under Section 7 of the Insolvency Resolution Process against GPI filed by Phoenix ARC (P) Ltd. (Financial Creditor).

The loan was originally granted to GPI by HSBC Bank. Subsequently, GPI became an NPA (non-performing asset). HSBC assigned the debt to Phoenix for recovery thereof. Thereafter, Phoenix filed the application under Section 7 as mentioned above. Pooja Mahajan, Mahima Singh and Gaurav Arora, Advocates appeared for the appellant who disputed the proper assignment of debt to Phoenix by HSBC and according to them Phoenix was not the Financial Creditor under the Code.

On perusal of the record, the Appellate Tribunal found that the GPI had full knowledge of the assignment which was done an Assignment Deed on record. It relied on Innoventive Industries Ltd. v. Union of India, (2018) 1 SCC 407 wherein it was held that the Adjudicating Authority (NCLT in this case) has merely to see the records the information or the evidence produced by the Financial creditor to satisfy itself that default has occurred. In the present case, the appellant sought a declaration that assignment made by HSBC to Phoenix was illegal. This, according to the Court, could be raised only in a civil suit. Reiterating objectives of the Code, the Court observed that “the assignment cannot be challenged in the petition under Section 7 and that too by a party who had the knowledge of Assignment Deed”. In such a view of the matter, it was held that the appellant was not entitled to either raise allegation of malafide against HSBC or allege that assignment was illegal. [Lalan Kumar Singh v. Phoenix ARC (P) Ltd., 2018 SCC OnLine NCLAT 835, dated 20-12-2018]