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Issues: Whether the assignment of the loan in favour of the financial creditor could be assailed in proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016, and whether default was established for admission of the insolvency application.
Analysis: The application under Section 7 is a summary proceeding in which the adjudicating authority is required to satisfy itself from the records and other material that a default has occurred. Once default is shown, the application is to be admitted if it is otherwise complete and the proposed resolution professional is not disqualified. A dispute over the legality of the assignment of debt is not to be tried as a civil suit within Section 7 proceedings. The corporate debtor had knowledge of the assignment and had also expressed consent to the substitution of the assignee as secured creditor, which weakened the challenge to the assignment. The record further disclosed acknowledgment of debt and default, including the balance-cum-security confirmation and the notices issued by the assignee.
Conclusion: The challenge to the assignment could not be entertained in Section 7 proceedings, and default stood established. The admission order was upheld.
Ratio Decidendi: In a Section 7 proceeding, the adjudicating authority need only ascertain the existence of default on the basis of the record, and a borrower's challenge to the legality of assignment of the debt cannot be adjudicated as a civil dispute within that summary insolvency process.
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