Secured debt assignment, registration, and stamping rules bar reliance on a deed used to bypass related party insolvency restrictions.

A secured debt assignment that transfers rights in mortgage or hypothecation is not a mere actionable claim and therefore requires compulsory registration. An unregistered and insufficiently stamped assignment deed cannot be relied on to prove the assignee's claim, because an unstamped instrument is inadmissible unless duty compliance is shown. The article further states that where a related party creditor assigns its debt to bypass the insolvency code's related party bar and gain committee of creditors participation, the assignee cannot obtain a better position or avoid the statutory disability. The claim was therefore rejected.

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Issues: (i) whether the deed of assignment of secured debt required compulsory registration; (ii) whether the unregistered and insufficiently stamped assignment deed could be relied upon to support the appellant's claim; (iii) whether an assignee of debt originally owed to a related party creditor could avoid the statutory disability under the insolvency code and claim membership in the committee of creditors.

Issue (i): whether the deed of assignment of secured debt required compulsory registration

Analysis: The assignment covered not merely an actionable claim but also the rights, title and interests flowing from secured lending supported by hypothecation and mortgage. A debt secured by mortgage of immovable property or by hypothecation does not fall within the excluded category of actionable claims. Since the instrument dealt with rights in secured assets, it attracted compulsory registration under the registration law.

Conclusion: The assignment deed required registration.

Issue (ii): whether the unregistered and insufficiently stamped assignment deed could be relied upon to support the appellant's claim

Analysis: An instrument chargeable to stamp duty cannot be admitted in evidence unless duly stamped. The record showed that the assignment deed was not stamped as required, and the appellant did not establish compliance by producing proof of payment of the requisite duty. In these circumstances, the defect could not be ignored for the purpose of proving the claim.

Conclusion: The assignment deed could not be relied upon to support the claim.

Issue (iii): whether an assignee of debt originally owed to a related party creditor could avoid the statutory disability under the insolvency code and claim membership in the committee of creditors

Analysis: The exclusion of a related party creditor from the committee of creditors is intended to prevent conflicts of interest and to stop indirect control of the corporate insolvency process. Where the circumstances show that a related party creditor has assigned its debt in order to circumvent that exclusion and secure a backdoor entry into the committee of creditors, the assignee cannot claim a better position. On the facts, the timing, structure and purpose of the assignment indicated that it was not a bona fide transaction but was designed to bypass the statutory bar.

Conclusion: The appellant was not entitled to be treated as an eligible financial creditor for committee of creditors participation.

Final Conclusion: The claim was rightly rejected, and the challenge to the refusal to admit the appellant's claim failed.

Ratio Decidendi: A secured debt assignment that is executed to circumvent the related party exclusion under the insolvency code, and that is unsupported by a duly registered and duly stamped instrument, cannot be used to secure committee of creditors participation or to sustain the assignee's claim as an eligible financial creditor.

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