Assignee Of A Financial Creditor Also A Financial Creditor U/S 5 (7) Of IBC: NCLT Kolkata

Background Facts

Ankit Metal & Power Ltd (“Corporate Debtor”) was engaged in the business of iron and steel including manufacturing of sponge iron, pig iron, MS ingots and billets, pellets and a variety of superior quality rolled products. The Corporate Debtor had obtained financial assistance from the Lender banks. The said facilities were availed and utilized by it, however, it failed to adhere to the terms and conditions. It defaulted in payments, and also failed to regularize various accounts of credits. Due to this, its account was classified as Non-Performing Asset as per Banking Rules and Regulations and RBI guidelines. The Lender Banks, thereafter, assigned the secured debts along with the rights, title, interest and security interest on underlying assets, guarantees(s) thereof in their entirety to the Assets Care & Reconstruction Enterprise Limited (“Applicant”/ “Financial Creditor”) through the Assignment Agreements. The Financial Creditor issued multiple letters to the Corporate Debtor, for which no reply was received. Thus, it was constrained to issue a Loan Recall Notice dated January 8, 2021 and also issued a Recall Notice through its advocates on February 17, 2023.

It was contended by the Corporate Debtor that the Petitioner is not a Financial Creditor within the meaning of Section 5(7) of IBC since the assignment of the alleged debt to the Applicant is in violation of SARFAESI Act 2002. It was also argued that the Assignment Agreements are not sufficiently stamped.

NCLT Verdict

It was observed by the tribunal that in light of a conjoint reading of section 5 and & 7 of the SARFAESI Act, the transfer of the debt of the Corporate Debtor to the Applicant by way of execution of the assignment deeds is in consonance with the provisions of the SARFAESI Act, 2002. It was also observed that Section 5(2) of the SARFAESI Act provides that if a bank or a financial institution is a lender in relation to any financial assets acquired under Section 5(1) by an asset reconstruction company, then such asset reconstruction company shall, on such acquisition, be deemed to be the lender and all the rights of such bank or financial institution shall vest in such company in relation to such financial assets.

Reliance was placed on Kanti Commercial Pvt Ltd vs Edelweiss Asset Reconstruction Co. Ltd where the court rejected the argument that 'Edelweiss Asset Reconstruction Company Ltd.' cannot be considered a Financial Creditor. It was held that since the debt existed and the Corporate Debtor failed to repay it, the court ruled that the application under Section 7 of IBC was valid.

It was held that “there remains no ambiguity that the ARC being the assignee of a Financial Creditor is also a Financial Creditor within the scope of Section 5 (7) of IBC and is thus competent to file the present case under Section 7 of IBC”.

Further, on the issue of insufficient stamping, reliance was placed on Mr. Praful Nandi Stara vs. Vistra ITCL (India) Limited & Ors wherein it was held that the issue of debt being due and payable is not interdicted by any law but only a technical deficiency of insufficient stamping which can be cured. Thus, it was held that “any document executed by any bank under Section 5(1) of SARFAESI Act in favor of an asset reconstruction company acquiring financial assets for the purposes of asset reconstruction or securitization shall be exempted from stamp duty”.

With the aforesaid observations, the Tribunal admitted the petition.

Case:Assets Care & Reconstruction Enterprise Limited vs Ankit Metal & Power Limited

Case No. C.P (IB) No.91/KB/2023

Counsels for the Applicant

1. Mr. Ratnanko Banerji, Sr. Adv.
2. Mr. Soorjya Ganguli, Adv.
3. Ms. Kiran Sharma, Adv.
4. Ms. Akshita Bohra, Adv

Counsels for the Respondent

1. Mr. Mainak Bose, Adv.
2. Mr. DebarghaBasu, Adv.
3. Mr. VishwarupAcharyya, Adv

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