Email service, assigned debt, and co-extensive guarantor liability support maintainability of section 7 insolvency action.

Service of the section 7 petition by email to the corporate debtor's registered address was treated as sufficient compliance, so no denial of natural justice was established. An asset reconstruction company that acquired financial assets under section 5 of the SARFAESI Act was deemed to step into the lender's shoes and could maintain a section 7 insolvency application without a registered assignment deed. The document also states that insolvency proceedings may proceed against both the principal borrower and the corporate guarantor for the same debt, because the guarantor's liability is co-extensive with that of the borrower. The admission order was therefore upheld.

---

---

Issues: (i) whether notice of the section 7 proceedings was duly served and the ex parte admission of the insolvency application violated natural justice; (ii) whether an asset reconstruction company, after assignment of financial debt under the SARFAESI framework, could maintain a section 7 application without a registered assignment deed; and (iii) whether section 7 proceedings could be initiated against both the principal borrower and the corporate guarantor for the same debt and default.

Issue (i): whether notice of the section 7 proceedings was duly served and the ex parte admission of the insolvency application violated natural justice.

Analysis: The record showed service of the company petition on the corporate debtor through its registered email address on more than one occasion, with an affidavit of service placed before the Adjudicating Authority. The interim directions only required service by any one of the specified modes, and service by email was sufficient compliance. In these circumstances, the non-appearance of the corporate debtor could not be attributed to defective service, and no denial of reasonable opportunity of hearing was established.

Conclusion: The plea of breach of natural justice failed and the service objection was rejected.

Issue (ii): whether an asset reconstruction company, after assignment of financial debt under the SARFAESI framework, could maintain a section 7 application without a registered assignment deed.

Analysis: The assignment was effected under section 5 of the SARFAESI Act. Under that provision, acquisition of financial assets by an asset reconstruction company carries a statutory deeming consequence: the assignee is treated as the lender and all rights of the assignor vest in it. On that basis, the assignee stepped into the shoes of the original lender and was entitled to enforce the assigned debt and the security interests. The objection founded on absence of registration was therefore not accepted.

Conclusion: The section 7 application was maintainable at the instance of the asset reconstruction company.

Issue (iii): whether section 7 proceedings could be initiated against both the principal borrower and the corporate guarantor for the same debt and default.

Analysis: The liability of the guarantor is co-extensive with that of the principal borrower. The controlling principle applied was that a financial creditor may proceed against the principal borrower as well as the corporate guarantor, and initiation of CIRP against one does not bar action against the other for the same debt. The earlier contrary view was not followed in light of the later binding exposition of the Supreme Court on the scope of section 7 and the nature of guarantor liability.

Conclusion: Simultaneous recourse under section 7 against the principal borrower and the corporate guarantor was permissible.

Final Conclusion: The admission order was upheld, and the challenge to the initiation of CIRP failed on all material grounds.

Ratio Decidendi: An asset reconstruction company acquiring financial assets under section 5 of the SARFAESI Act is statutorily deemed to be the lender and may enforce the debt under section 7 of the Insolvency and Bankruptcy Code, while the co-extensive liability of the corporate guarantor permits insolvency proceedings against both the principal borrower and the guarantor for the same default.

---