Assignment of debt objection must be decided first before admission of a Section 7 insolvency petition.

When a maintainability objection based on assignment of debt is brought on record in a Section 7 insolvency proceeding and notice has already been issued, the adjudicating authority must decide that interlocutory application first before admitting the petition. The text relies on Section 5(4) of SARFAESI Act and Order 22 Rule 10 read with Rule 11 CPC to state that acquisition of the financial asset does not abate pending proceedings and may continue by or against the assignee. On those facts, the admission order passed without first disposing of the assignment-based application was held unsustainable, and the matter was remitted for fresh consideration after impleading the assignee.

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Issues: Whether, after an interlocutory application was filed bringing assignment of the debt on record and notice was issued thereon, the Adjudicating Authority ought to have decided that application before admitting the Section 7 application; and whether the pendency of assignment prevented continuation of the insolvency proceeding by or against the assignee.

Analysis: Section 5(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 provides that acquisition of the financial asset does not abate or discontinue pending proceedings and that they may continue by or against the assignee. Order 22 Rule 10 of the Code of Civil Procedure, 1908, applied through Order 22 Rule 11, similarly contemplates continuation of proceedings upon assignment. On the facts, the interlocutory application challenging the maintainability of the Section 7 proceeding on the basis of assignment had already been entertained, notice had been issued, and time had been granted for reply. In that situation, the Adjudicating Authority ought to have first considered and decided the interlocutory application before passing the admission order.

Conclusion: The admission order was unsustainable at that stage and had to be set aside. The assignee was to be impleaded in the interlocutory application, replies were to be taken, and both the interlocutory application and the Section 7 application were to be decided afresh in accordance with law.

Final Conclusion: The appeal succeeded and the matter was remitted for reconsideration of the interlocutory application and the insolvency petition without any expression of opinion on merits.

Ratio Decidendi: Where a maintainability objection based on assignment of debt is brought on record and notice is issued before final admission of a Section 7 petition, the adjudicating authority must decide that application first and cannot proceed to admit the petition without doing so.

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