Assignee of financial debt can file section 7 insolvency petition; acknowledgments also keep the claim within limitation.

An assignee of a financial debt may maintain a section 7 insolvency application because the assignment transfers the lender's rights and the assignee steps into the lender's shoes. Challenges to the assignment deed and alleged lack of privity do not, by themselves, defeat the petition, and a guarantor's liability is not extinguished merely because the debt has been assigned or proceedings are pending against the principal borrower. Acknowledgments of liability and revival letters can extend limitation, including the benefit of pandemic-related limitation extensions. On those facts, the text states that default was established, the application was within limitation, and admission with moratorium and appointment of an interim resolution professional followed.

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Issues: (i) whether the assignee of the debt was a financial creditor entitled to maintain the section 7 application; (ii) whether the corporate debtor's objections to the assignment deed and alleged absence of privity of contract could defeat the petition; (iii) whether the claim was barred by limitation and whether default was established; and (iv) whether the petition deserved admission with consequential moratorium and appointment of interim resolution professional.

Issue (i): whether the assignee of the debt was a financial creditor entitled to maintain the section 7 application.

Analysis: Assignment of debt is a recognised mode of transfer under the insolvency framework. Once the financial asset was assigned in favour of the applicant, the applicant stepped into the shoes of the original lender and became a person to whom financial debt was owed. The objection that the applicant lacked status as a financial creditor was therefore unsustainable.

Conclusion: The issue was decided in favour of the applicant.

Issue (ii): whether the corporate debtor's objections to the assignment deed and alleged absence of privity of contract could defeat the petition.

Analysis: The objection based on non-registration of the assignment deed was rejected in view of the statutory framework governing assignment by banks to asset reconstruction companies and the exemption from stamp duty for such instruments. The adjudicating authority also treated the challenge to the assignment deed as beyond the limited scope of section 7 proceedings. The liability of the corporate debtor as guarantor was held not to be extinguished merely because the debt had been assigned or because proceedings were also pending against the principal borrower.

Conclusion: The objections were overruled and the issue was decided in favour of the applicant.

Issue (iii): whether the claim was barred by limitation and whether default was established.

Analysis: The record showed acknowledgments of liability and revival letters by the corporate debtor, which attracted the principle of acknowledgment under the Limitation Act. The period affected by the Supreme Court's extension of limitation during the pandemic also kept the application within time. The debt was found due and payable, and the default was established on the material placed before the adjudicating authority.

Conclusion: The application was held to be within limitation and default was found to exist.

Issue (iv): whether the petition deserved admission with consequential moratorium and appointment of interim resolution professional.

Analysis: Having found the applicant to be a financial creditor, the debt to be a financial debt, and default to be proved, the statutory requirements for admission under section 7 were satisfied. Consequential directions relating to moratorium, public announcement, and appointment of an interim resolution professional followed as a matter of course.

Conclusion: The petition was admitted and insolvency resolution process was directed to commence.

Final Conclusion: The corporate insolvency resolution process against the corporate debtor was set in motion, with moratorium imposed and an interim resolution professional appointed.

Ratio Decidendi: An assignee of a financial debt is entitled to maintain a section 7 application, and once default in a financial debt is established on the basis of records and acknowledgments of liability, the adjudicating authority must admit the petition if the application is otherwise complete and within limitation.

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