One of the most popular types of transactions in financial markets is debt assignment. It encompasses transferring a debt from a creditor (assignor) to a third party (assignee). The dialogue of having a registered and an unregistered assignment agreement is currently one of the most important issues faced in debt assignment transactions in
Assignment is primarily a contractual notion that refers to an arrangement, in which, one party's rights and duties are transferred to another. By virtue of assignment, the assignee undertakes the role of its assignor and agrees to be bound by it as well as gets the right to enforce it. The rights/interest under an assignment agreement are detailed under Section 5 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act"). While such acquisition, the said agreement must also meet the standards of the Indian Contract Act of 1872 ("Act") in order to be legitimate.
This article primarily focuses on the judgement pronounced by the Hon'ble
Before understanding the ratio of the said judgment, it is pertinent to look into the brief facts of the case:
Analysis:
The opposing viewpoints and methods on this vital subject opened up a bag of worms. The main contention put forth by the Appellant was that the Assignment Agreement being an unregistered one, there was no valid assignment in favour of ARC so as to entitle it to initiate proceedings under Section 7 of the Code. Appellant further contented that the Adjudicating Authority having already commenced CIRP against the Principal Borrower by admitting Section 7 application filed by the
The Respondent reciprocated by submitting that Assignment of the financial debt by Bank or
Judgement:
Section 5 of the SARFAESI Act, is an enabling provision to empower the ARCs to acquire financial assets in the manner provided in Section (5)(1). While considering the facts and circumstances of the case, the Hon'ble Appellate Authority, clarified that a deeming provision is contained in Section 5(2), which gives the ARC the authority to acquire financial assets in the manner specified therein. According to Section 5(2), ARC shall, upon such acquisition, be deemed to be the lender and shall be entitled to all rights of such bank or financial institution. The legislator always has a purpose and an objective in mind when it employs the deeming fiction. However, it cannot be the intent of the Code to hinder ARCs from filing an application solely by means of an unregistered assignment. Therefore, the Hon'ble
"...We, thus, are of the view that argument of the Appellant that application under Section 7 by Respondent No. 1 - Assignee of the
"...Section 7 is an enabling provision which permits the Financial Creditor to initiate CIRP against a Corporate Debtor. The Corporate Debtor can be the Principal Borrower as well as the Corporate Guarantor."
"...no error has been committed by the Adjudicating Authority in admitting Section 7 application. We, thus, do not find any error in the impugned order admitting Section 7 application..."
Conclusion:
All in all, it stands settled by the Appellate Authority that when an ARC acquires an asset in a particular manner and procedure, as prescribed under the provisions of Section 5 of SARFAESI Act, the deeming section will come into play rather than the importance being given towards the document being registered or not. However, it has been made evident by the
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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