2018 (12) TMI 1648 - AT - Insolvency and Bankruptcy

Initiation of Corporate Insolvency Resolution Process - Section 7 of the Insolvency and Bankruptcy Code, 2016 - alleged illegal assignment of a loan purported to have been granted by HSBC by way of an Assignment Deed dated 21st March 2012 - HELD THAT - The Corporate Debtor had executed balance-cum-security confirmation letter dated 15th March, 2012 admitting the debt due to the Financial Creditor - The loan agreement contains a covenant that the loan can be assigned in part or in whole without permission of the borrower. The appellant has challenged the Deed of Assignment executed between the HSBC Phoenix , but while filing reply to the notice issued during the admission of application u/s 7 of the I B Code, such issue cannot be raised as it cannot be decided by the Adjudicating Authority on objection. In the present case, the appellant has sought declaration that the assignment made by HSBC to Phoenix as illegal, which can be raised only in a civil suit. The appellant is trying to convert the proceedings under the I B Code as civil proceedings akin to a trial which is not the legislative intent. The objective of the I B Code is to ensure re-organization and insolvency resolution of the corporate persons, partnership firms and individuals, in a time bound manner for maximisation of value of assets of such persons to promote entrepreneurship, availability of credit and balance of interest of all stakeholders. The assignment cannot be challenged in the petition under Section 7 and that too by a party who had the knowledge of Assignment Deed as back as in the year 2012, as noted above, the DRT, Chandigarh, when it requested and never challenged the same before a court of competent jurisdiction. Appeal dismissed.

Issues Involved:
1. Legality of the Assignment Deed
2. Compliance with RBI Guidelines
3. Alleged Default and NPA Classification
4. Contravention of Agreements and Court Orders
5. Allegation of Fraud
6. Jurisdiction and Nature of Proceedings under I&B Code

Detailed Analysis:

1. Legality of the Assignment Deed:
The appellant contended that the assignment of the loan by HSBC to Phoenix was illegal and that Phoenix was not a 'Financial Creditor' under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code). The appellant argued that the assignment was not legally valid as it did not include the Standby Letter of Credit (SBLC) and was against the RBI Guidelines. The Tribunal noted that the Corporate Debtor had full knowledge of the assignment without SBLC and had agreed to it, as evidenced by a letter dated 19th March 2018 and proceedings before the BIFR on 20th April 2012.

2. Compliance with RBI Guidelines:
The appellant argued that the assignment was against the RBI Guidelines dated 23rd April 2003, which require NPA declaration as a pre-requisite for legal assignment of a loan to an asset reconstruction company. The Tribunal observed that the Corporate Debtor was categorized as NPA on 1st March 2012 by HSBC, and the assignment was executed on 21st March 2012. The Tribunal found no merit in the argument that the assignment was against RBI Guidelines.

3. Alleged Default and NPA Classification:
The appellant claimed that there was no default as of 1st March 2012 and that the NPA classification was manufactured to facilitate the assignment. The Tribunal noted that Phoenix issued a notice under Section 13(2) of the SARFAESI Act, 2002, demanding ?131 Crores as on 20th March 2012, and another notice under Section 13(4) to take possession of secured assets. The Tribunal found that the existence of default was established as per the requirements of Section 7(5)(a) of the I&B Code.

4. Contravention of Agreements and Court Orders:
The appellant argued that the assignment contravened agreements between the parties and court orders, specifically the order dated 26th February 2010 of Alipore Court and the order dated 24th June 2011 of the High Court of Kolkata. The Tribunal noted that the loan agreement allowed for the assignment of the loan without the borrower's permission and that the Corporate Debtor had agreed to the assignment during BIFR proceedings.

5. Allegation of Fraud:
The appellant alleged that a monumental fraud was practiced by HSBC and Phoenix to take over and extract amounts from GPI. The Tribunal found that such allegations could not be decided by the Adjudicating Authority under the I&B Code and would require a civil suit. The Tribunal emphasized that proceedings under the I&B Code are not akin to a trial and are meant for reorganization and insolvency resolution.

6. Jurisdiction and Nature of Proceedings under I&B Code:
The Tribunal referred to the Supreme Court's judgment in 'M/s. Innoventive Industries Ltd. Vs. ICICI Bank Ltd.' and observed that the Adjudicating Authority under the I&B Code has to merely see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default had occurred. The Tribunal reiterated that the I&B Code is for reorganization and insolvency resolution, not for resolving disputes about the legality of assignments or allegations of fraud.

Conclusion:
The Tribunal dismissed the appeal, stating that the appellant's challenges to the assignment and allegations of fraud could not be addressed in proceedings under the I&B Code. The Tribunal found that the requirements for admitting the application under Section 7 were met, and no relief could be granted to the appellant.

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