2022 (12) TMI 663 - AT - Insolvency and Bankruptcy

Assignee permitted to replace original applicant in insolvency proceedings under IBC Section 7

The Tribunal upheld the decision allowing the assignee, 'Assets Care and Reconstruction Enterprise Limited,' to be substituted as a Financial Creditor in ... Initiation of CIRP - Assignment of debt during pendency of the proceeding u/s 7 - continuation of proceedings after acquisition of financial assets by assignee - Appellant submits that the assignee could not have been permitted to continue Section 7 proceedings although it is open for the assignee to file a fresh Application under Section 7 which was permissible on the strength of assignment. HELD THAT:- Learned Counsel for the Respondent has rightly referred to the provisions of Order XXII Rule 10 of CPC which contemplates continuance of proceeding on the basis of devolution of rights with the leave of the Court which is applied generally in civil proceeding and suit. As has been observed rightly by the Adjudicating Authority, there is no prohibition in the IBC or any of the Regulations from continuing the proceeding by an assignee. Section 5(7) of the IBC which defines ‘Financial Creditor’ also includes a person to whom such debt has been legally assigned or transferred to. By virtue of assignment, Respondent No.1 become the Financial Creditor and having stepped in the shoes of ‘Housing Development Finance Corporation Limited’, it has every right to continue the proceeding which was initiated by Respondent No.2. Issues Involved:Appeal against order allowing substitution of assignee as Financial Creditor in ongoing insolvency proceedings under Section 7 of the IBC.Detailed Analysis:Issue 1: Assignment of Debt and Substitution of AssigneeThe appeal was filed against the order allowing the substitution of the assignee, 'Assets Care and Reconstruction Enterprise Limited,' as a Financial Creditor in place of the original applicant, 'Housing Development Finance Corporation Limited.' The assignee filed an application seeking substitution based on the assignment of debt during the ongoing insolvency proceedings under Section 7 of the IBC.Analysis: The Adjudicating Authority allowed the application for substitution, emphasizing that there was no binding precedent or express prohibition preventing the assignee from continuing the proceedings. The Respondent No.1, as the assignee, acquired the debt legally and became a Financial Creditor under Section 5(7) of the IBC. The authority correctly noted that the assignee had the right to continue the proceedings initiated by the original applicant.Issue 2: Legal Interpretation of ProvisionsThe Appellant argued that the assignee should not have been allowed to continue the Section 7 proceedings and should file a fresh application instead. Reference was made to a judgment by the NCLT, Bengaluru Bench, which suggested that the assignee could not substitute itself as the applicant in ongoing proceedings.Analysis: The Respondent countered this argument by citing Section 5(4) of the SARFAESI Act, 2002, which allows the assignee to continue and prosecute any pending proceedings after acquiring financial assets. Additionally, the Respondent referred to Order XXII Rule 10 of CPC, which permits the continuation of proceedings based on the devolution of rights with the court's leave.Conclusion:The Tribunal upheld the decision of the Adjudicating Authority, stating that the assignee had the legal right to be substituted and continue the ongoing insolvency proceedings. The judgment emphasized that there was no error in allowing the assignee to step into the shoes of the original applicant and continue the proceedings. Therefore, the appeal was dismissed, affirming the order permitting the substitution of the assignee as a Financial Creditor in the ongoing insolvency resolution process under Section 7 of the IBC.