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AI Drafter ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: (i) whether the assignee asset reconstruction company, on the strength of the registered assignment deed and Section 5 of the SARFAESI Act, could maintain the Section 7 application as a financial creditor; (ii) whether the challenge to stamping of the assignment deed and the mortgage and guarantee documents could defeat the admission of the Section 7 application.
Issue (i): whether the assignee asset reconstruction company, on the strength of the registered assignment deed and Section 5 of the SARFAESI Act, could maintain the Section 7 application as a financial creditor.
Analysis: The assignment deed was a registered document and stamp duty had been paid on it. The statutory scheme of Section 5 of the SARFAESI Act provides that an asset reconstruction company acquiring financial assets steps into the shoes of the original lender, and the deeming provision under Section 5(2) makes it the lender for all purposes. The challenge that the deed was insufficiently stamped was, on the record, not supported by any determination of the competent stamp authority. The Court also distinguished the relied-upon stamp-law precedent and held that the assignee's right to proceed under Section 7 was not affected.
Conclusion: Yes. The assignee asset reconstruction company was entitled to maintain the Section 7 application as a financial creditor.
Issue (ii): whether the challenge to stamping of the assignment deed and the mortgage and guarantee documents could defeat the admission of the Section 7 application.
Analysis: The mortgage deeds and corporate guarantees executed by the corporate debtor were duly stamped and registered. The Court held that the mortgages secured the loan facilities and the guarantees created enforceable obligations. The precedent concerning mortgages over another company's assets was found inapplicable on the facts, because here the corporate debtor had itself executed guarantees. Complaints pending before the stamp authority and the separate company proceedings did not invalidate the already admitted insolvency action or displace the finding of debt and default.
Conclusion: No. The stamping challenge did not prevent admission of the Section 7 application, and the finding of debt and default was sustained.
Final Conclusion: The admission of the insolvency application was upheld, the interim protection stood vacated, and the appeal failed in entirety.
Ratio Decidendi: A registered and duly stamped assignment, coupled with the statutory deeming effect under Section 5(2) of SARFAESI, enables the assignee to act as lender for Section 7 purposes, and collateral stamp objections do not dislodge an insolvency admission absent a competent finding of invalidity.
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