2018 (9) TMI 1223 - AT - Insolvency and Bankruptcy

Corporate insolvency resolution process - whether the 1st appellant is a related party or not? - Held that - The debt assignment is a transfer of debt with all the rights and obligations associated with it from a creditor to a third party, who is assignee . The debt is in the form of loan from a financial institution , the debtor is referred as a borrower and if the debt is in the form of securities, such as bonds, the debtor is referred to as an issuer . Undisputedly, the assignment is the transfer of one s right to recover the debt of another person as a contractual right. Rights of an assignee are no better than those of the assignor . It can be, therefore, held that assignor assigns its debt in favour of the assignee and assignee steps in the shoes of the assignor . The assignee thereby takes over the right as it actually did and also takes over all the disadvantages by virtue of such assignment. What cannot be achieved directly by Mr. Sudhakar Mulay, he did it indirectly assigning his debt in favour of the 1st appellant. Mr. Sudhakar Mulay being the related party , with the assignment of debt , the disadvantage also goes to the 1st appellant. For the reasons aforesaid, we hold that the issue has been rightly decided by the Adjudicating Authority and no ground has been made out to interfere with the impugned order. In absence of any merit, the appeal is dismissed

Summary

Issues:
1. Determination of whether the appellant is a 'related party' as challenged by the State Bank of India.

Analysis:
The case involved a dispute where the appellant, acting as an 'assignee' of a Promoter, was appointed as a member of the Committee of Creditors, a decision contested by the State Bank of India on the grounds of being a 'related party'. The National Company Law Tribunal had earlier upheld the appellant's classification as a 'related party', leading to the current appeal.

The central issue in this appeal revolved around determining whether the appellant qualified as a 'related party'. The facts of the case revealed that the Promoter had assigned his debt to the appellant after facing enforcement actions by the State Bank of India under the SARFAESI Act. The appellant argued that the assignment did not make them a 'related party' under the Insolvency and Bankruptcy Code, citing relevant legal provisions.

The Adjudicating Authority analyzed the situation and concluded that the assignment of debt was a strategic move by the Promoter to reduce the State Bank of India's influence, rather than a natural business decision. It was noted that the assignor, being a Director/Promoter of the Corporate Debtor, fell under the definition of a 'related party'. The transfer of debt from the assignor to the appellant granted the appellant the rights and responsibilities associated with the debt, making them liable as the assignor.

The judgment emphasized that the assignee steps into the shoes of the assignor and assumes both advantages and disadvantages of the debt assignment. Despite the indirect nature of the assignment, it was established that the assignor's status as a 'related party' extended to the appellant through the debt transfer. Consequently, the Adjudicating Authority's decision was upheld, dismissing the appeal due to the lack of merit in challenging the classification of the appellant as a 'related party'. No costs were awarded in this matter.