Assignment of financial debt during SARFAESI proceedings doesn't affect Section 7 IBC application continuation by assignee

The NCLAT ruled that assignment of financial debt during pendency of proceedings under Section 5(4) of SARFAESI Act does not prejudicially affect the continuation of Section 7 application under IBC. The assignee can continue, prosecute and enforce the proceeding. However, the Adjudicating Authority erred by not considering the Corporate Debtor's application for dismissal of Section 7 petition after granting time for Financial Creditor's reply. The NCLAT directed the Adjudicating Authority to consider both the dismissal application and Section 7 application afresh in accordance with law, without expressing opinion on merits to avoid prejudicing parties.

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Issues Involved:
1. Admission of Section 7 Application by NCLT Mumbai.
2. Consequences of debt assignment to JC Flowers ARC.
3. Consideration of Interlocutory Application No. 210/2023 by the Corporate Debtor.
4. Applicability of SARFAESI Act, 2002 and the Civil Procedure Code.

Detailed Analysis:

1. Admission of Section 7 Application by NCLT Mumbai:
The appeal challenges the order dated 10.02.2023, where the Adjudicating Authority admitted a Section 7 Application filed by Yes Bank. The Appellant had defaulted on financial facilities extended by the Financial Creditor, leading to the initiation of the Application alleging a default amount of Rs. 4,689,990,947.45. The Adjudicating Authority had reserved the order after hearing the parties on 14.12.2022.

2. Consequences of Debt Assignment to JC Flowers ARC:
The Corporate Debtor filed an Interlocutory Application (IA No. 210/2023) stating that Yes Bank had assigned the debt to JC Flowers Asset Reconstruction Company. The application highlighted that the assignment agreement was executed on 16.12.2022, and the Corporate Debtor was informed on 30.12.2022. JC Flowers ARC also communicated the assignment on 02.01.2023, indicating that they had become the lender with all rights, title, and interest vested in them.

3. Consideration of Interlocutory Application No. 210/2023 by the Corporate Debtor:
The Adjudicating Authority, on 19.01.2023, acknowledged the Interlocutory Application filed by the Corporate Debtor and granted time to the Financial Creditor to file a reply. The Authority scheduled the next hearing for 21.02.2023. Despite this, the Adjudicating Authority admitted the Section 7 Application on 10.02.2023 without considering the pending Interlocutory Application.

4. Applicability of SARFAESI Act, 2002 and the Civil Procedure Code:
The Respondent argued that under Section 5(4) of the SARFAESI Act, 2002, the proceedings could continue despite the assignment of debt, and the assignee could choose to be brought on record or not. The Tribunal referenced the Supreme Court judgment in "Sharadamma Vs. Mohammed Pyrejan," which clarified that failure of the assignee to file an application does not lead to dismissal of the suit or appeal. The original applicant could continue the proceedings for the benefit of the assignee.

Conclusion:
The Tribunal concluded that the Adjudicating Authority should have considered the Interlocutory Application before admitting the Section 7 Application. The Tribunal set aside the order dated 10.02.2023 and directed the Adjudicating Authority to consider and dispose of IA No. 210/2023 in accordance with the law. The Tribunal allowed the assignee to file a response and be impleaded in the Interlocutory Application. All contentions of both parties were left open for consideration by the Adjudicating Authority.

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