{"id":358773,"date":"2025-09-03T09:30:11","date_gmt":"2025-09-03T04:00:11","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=358773"},"modified":"2025-09-04T18:07:46","modified_gmt":"2025-09-04T12:37:46","slug":"no-financial-creditor-status-with-invalid-debt-assignment-nclat-new-delhi","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2025\/09\/03\/no-financial-creditor-status-with-invalid-debt-assignment-nclat-new-delhi\/","title":{"rendered":"No Financial Creditor status with invalid Debt Assignment: NCLAT sets aside initiation of CIRP under Section 7 IBC"},"content":{"rendered":"
\n

National Company Law Appellate Tribunal, New Delhi:<\/span> In the present case, Company appeals were filed by the suspended director of Shaila Clubs and Resorts (P) Ltd.-Corporate Debtor and Vasantdada Shetkari Sahakari Bank-the Cooperative Bank challenging the order passed by National Company Law Tribunal, Mumbai Bench (‘Adjudicating authority’) which admitted Section 7<\/a> of Insolvency and Bankruptcy Code, 2016<\/a> (‘IBC’) application filed by Savannah Lifestyle (P) Ltd. (Respondent 1). The Bench of Ashok Bhushan, J. (Chairperson)<\/span> and Barun Mitra (Technical Member)<\/span>, set aside the impugned order stating that the admission of application under Section 7 IBC was based on the debt assignment as recorded in minutes of settlement. The claim of debt assignment having been held to be unlawful, there was no right in Respondent 1 claim to be Financial Creditor of the Corporate Debtor.<\/p>\n

Background<\/h3>\n

The Corporate Debtor had obtained a financial facility from Consortium of Bank including the Cooperative Bank and after the Corporate Debtor defaulted, a Recovery Certificate was issued. Respondent 1 entered into a Conducting Agreement with the Corporate Debtor and was permitted to run his business from the Corporate Debtor’s Club premises for a period of 15 years and six months. In 2018, the Cooperative Bank initiated proceedings before Additional Chief Metropolitan Magistrate to take possession of the Club premises based on the Recovery Certificate.<\/p>\n

On 6-6-2022, the cooperative bank’s liquidator offered a one-time settlement (‘OTS’) to the Corporate Debtor. Respondent 1 then requested the Cooperative Bank to assign the loan, along with all securities of the Corporate Debtor, to it, replacing the Corporate Debtor<\/span>. A settlement between Cooperative Bank’s liquidator and Respondent 1 was recorded in the minutes of settlement before the Bombay High Court in Savannah Lifestyle (P) Ltd. v. Vasantdada Shetkari Sahakari Bank Ltd.<\/span>, 2022 SCC OnLine Bom 12031<\/a> (‘Savannah Lifestyle (P) Ltd. Case<\/span>’).<\/p>\n

On 17-11-2022, the suspended Director of the Corporate Debtor objected to the OTS between Cooperative Bank and Respondent 1. It was also communicated to the Cooperative bank’s liquidator that Respondent 1 had no authority to enter into any OTS and had acted with malafide and ulterior motives. The Cooperative Bank returned the amount by Bank draft to Respondent 1. Later, the suspended director of the CD filed review petition against the Bombay High Court order in Savannah Lifestyle (P) Ltd. Case (supra)<\/span>, which was later recalled.<\/p>\n

Respondent 1 had filed an application under Section 7 IBC to initiate Corporate Insolvency Resolution Process (‘CIRP’) against the Corporate Debtor<\/span>. The Adjudicating Authority, by the impugned order, admitted the Section 7 application. It relied on the Bombay High Court order in Savannah Lifestyle (P) Ltd. Case (supra)<\/span>, where the minutes of settlement showed that the Cooperative Bank had assigned the Corporate Debtor’s loan Account to Respondent 1. Therefore, appeals were filed by the suspended director of the Corporate Debtor and the Cooperative Bank against the impugned order admitting Section 7 IBC application filed by Respondent 1.<\/p>\n

The appellant submitted that Respondent 1 had no right to enter into any OTS with the Cooperative Bank to obtain the assignment of the Corporate Debtor’s debt. It was stated that Respondent 1 was given possession of the Club premises under a Conducting Agreement to run its business, which ended in November 2022.<\/p>\n

Respondent 1 contended that it had made payment to the Cooperative Bank on behalf of the Corporate Debtor, which qualified as ‘financial debt’, and made Respondent 1 eligible to file a Section 7 IBC application. Further, it was submitted that even if the assignment in its favour was disputed, the debt owed to the Cooperative Bank still qualified as financial debt under Section 7.<\/p>\n

Analysis, Law, and Decision<\/h3>\n

The Tribunal noted that the Cooperative Bank had made an assignment in favour of Respondent 1 as recorded in the Minutes of settlement but later withdrew the assignment and returned the amount received. The Corporate Debtor<\/span> challenged the eligibility of action of the Cooperative Bank entering into OTS with Respondent 1. Despite the disputes, the Adjudicating Authority did not advert to the said issues and by the impugned order had admitted Section 7 application, relying solely on claim of assignment of Respondent 1 on the basis of Minutes.<\/p>\n

However, the Bombay High Court recalled its order in Savannah Lifestyle (P) Ltd. case (supra)<\/span> which was based on minutes of settlement, by which the very basis of Section 7 application filed by Respondent 1 had been knocked out. Thus, there was no right left in Respondent 1 to claim itself as Financial Creditor of the Corporate Debtor as the claim of assignment from Cooperative Bank was held to be unlawful.<\/p>\n

Further the Tribunal held that the Section 7 IBC application was not based on the fact that Respondent 1 claimed to be a Financial Creditor independently, or separately, on the basis of any disbursement made to the Corporate Debtor. Since the application was only based on the assignment, and that assignment was later withdrawn, Respondent 1 could not be allowed to raise any other submission in support of Section 7 application, which was neither pleaded nor advanced before the Adjudicating Authority.<\/p>\n

The Tribunal stated that for maintaining an application for default of another Financial Creditor, the essential ingredients to be fulfilled by the applicant was that the applicant must be a Financial Creditor on its own facts. Also, Respondent 1 could not be held to be a Financial Creditor of the Corporate Debtor as there was no disbursement by Respondent 1 to the Corporate Debtor for time value of money in any commercial transaction.<\/p>\n

Therefore, both the Appeals were allowed, and the impugned order initiating CIRP against the Corporate Debtor was set aside. Also, Section 7 IBC application filed by Respondent 1 was dismissed.<\/p>\n

[Rajesh Vilasrao Patil v. Savannah Lifestyle (P) Ltd., 2025 SCC OnLine NCLAT 1297<\/a>, decided on 21-8-2025<\/span>]<\/p>\n\n

Advocates who appeared in this case :<\/p>\n

For Appellants:<\/span> Arun Kathpalia and Abhijeet Sinha, Senior Advocates, Ruby Singh Ahuja, Devang Kumar, Jappanpreet Hora, Diksha Gupta, Varsha, Rahul Gaikwad, Shivaji Masal, Govind, Advocates<\/p>\n

For Respondents:<\/span> Sandeep Bajaj, Vipul Gai, Saumya, Mayank Biyani, Advocates.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

“For maintaining an application for default of another Financial Creditor, the essential ingredients to be fulfilled by the Applicant is that the Applicant has to be a Financial Creditor on its own facts.”<\/p>\n","protected":false},"author":67523,"featured_media":358774,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[3,11],"tags":[58464,79989,30596,22814,25934,31422,88465,88464,88463,31601,29588,33589],"class_list":["post-358773","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-casebriefs","category-tribunals_commissions_regulatorybodies","tag-barun-mitra","tag-cooperative-bank","tag-corporate-debtor","tag-corporate-insolvency-resolution-process","tag-financial-creditor","tag-financial-debt","tag-invalid-debt-assignment","tag-justice-ashok-bhusan","tag-nclat-new-delhi","tag-nclt-order","tag-one-time-settlement","tag-section-7-ibc"],"yoast_head":"\nNo Financial Creditor status with invalid debt assignment | SCC Times<\/title>\n<meta name=\"description\" content=\"NCLAT, New Delhi set aside an 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(Judicial Member) and V.P. Singh (Technical Member) dismissed an appeal filed against the order of the National Company Law Tribunal, Hyderabad (\"NCLT\"), whereby the NCLT had admitted an application filed by the Financial Creditor\u2212Punjab National Bank under\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2017\/08\/NCLAT.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":270606,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/07\/25\/nclat-can-the-ots-proposal-be-an-acknowledgment-of-debt-under-s-18-of-the-limitation-act-1963\/","url_meta":{"origin":358773,"position":2},"title":"NCLAT | Can the OTS proposal be an ‘acknowledgment of debt’ under S. 18 of the Limitation Act, 1963?","author":"Editor","date":"July 25, 2022","format":false,"excerpt":"\u00a0 \u00a0 National Company Law Appellate Tribunal, Delhi: The Bench of Anant Bijay Singh, J., Judicial Member, and Shreesha Merla, Technical Member, dismissed a company appeal and held that a One-Time Settlement Proposal (OTS proposal) falls within the definition of \u2018acknowledgment of debt' as defined the provisions of the Limitation\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"NCLAT","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":270628,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/07\/25\/nclat-mumbai-interest-on-delayed-payments-is-a-part-of-operational-debt-under-s-311-of-ibc\/","url_meta":{"origin":358773,"position":3},"title":"NCLAT Mumbai |Interest on Delayed Payments is a part of Operational Debt under S. 3(11) of IBC","author":"Editor","date":"July 25, 2022","format":false,"excerpt":"National Company Appellate Tribunal, Mumbai: The Bench of Ashok Bhushan, J., Chairperson, M. Satyanarayana Murthy, Judicial Member, and Naresh Salecha, Technical member has dismissed a company appeal and has held that interest on delayed payment is also a form of debt and therefore, would form a part of the operational\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"NCLAT","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2022\/02\/NCLAT_New.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]},{"id":270876,"url":"https:\/\/www.scconline.com\/blog\/post\/2022\/07\/29\/nclat-right-to-payment-cannot-be-accrued-when-a-corporate-guarantee-is-not-invoked-before-cirp-initiation\/","url_meta":{"origin":358773,"position":4},"title":"NCLAT| Right to payment cannot be accrued when a corporate guarantee is not invoked before CIRP initiation","author":"Editor","date":"July 29, 2022","format":false,"excerpt":"\u00a0 \u00a0 National Company Law Appellant Tribunal, New Delhi: The Bench of Ashok Bhushan, J., Chairperson, and Shreesha Merla, Technical Member, while dismissing a company appeal held that when a Corporate Debtor as a Guarantor has not invoked the Corporate Guarantee before the initiation of Corporate Insolvency Resolution Process (hereinafter\u2026","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case 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Section 7 of the IBC, existence of Debt and Default needs to be examined not \u2018Quantum of Debt\u2019: NCLAT","author":"Ritu","date":"July 1, 2023","format":false,"excerpt":"\u201cIn the instant case, the record establishes that there is a \u2018debt\u2019 and a \u2018default\u2019 and the Application is complete and the Adjudicating Authority has rightly admitted the Application under Section 7 of the Code.\u201d","rel":"","context":"In "Case Briefs"","block_context":{"text":"Case Briefs","link":"https:\/\/www.scconline.com\/blog\/post\/category\/casebriefs\/"},"img":{"alt_text":"national company law appellate tribunal","src":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/05\/national-company-law-appellate-tribunal-1.webp?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.scconline.com\/blog\/wp-content\/uploads\/2023\/05\/national-company-law-appellate-tribunal-1.webp?resize=350%2C200&ssl=1 1x, 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