Factoring agreement and assignment deed must be examined before rejecting a Section 7 insolvency petition.

The appellate tribunal held that dismissal of the Section 7 application could not be sustained because the adjudicating authority had not examined the factoring agreement, deed of assignment, demand notice, payment schedule and alleged acknowledgment of liability, all of which were central to maintainability and liability. It found that reliance only on the recourse basis of the factoring arrangement and RBI exposure norms was insufficient without considering the operative contractual clauses and supporting records. The dismissal order was set aside, and the Section 7 petition was restored for fresh decision on the materials on record.

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Issues: Whether the order dismissing the Section 7 application could be sustained when the relevant factoring agreement, assignment deed, acknowledgment of liability and corresponding records were not examined.

Analysis: The dismissal rested on the view that, because the factoring arrangement was on recourse basis and reference was made to RBI exposure norms, the application could lie only against the assignor. The appellate tribunal noted that the operative clause of the agreement dealing with recourse and credit protection, the deed of assignment, the demand notice, the payment schedule and the alleged acknowledgment by the respondent were not considered. Since these materials were central to the question of maintainability and liability, the matter required a fresh factual and legal examination by the adjudicating authority.

Conclusion: The dismissal order could not stand and was set aside. The Section 7 petition was restored to the original number for fresh decision on the materials on record.

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