Assignment of Debt by Related Party After CIRP Commencement to Circumvent CoC Disqualification Is Invalid: NCLAT Dismisses Appeal
- REEDLAW
- 2 days ago
- 3 min read
NCLAT held that the assignment of debt by a related party after the commencement of CIRP with the intention to circumvent disqualification from the CoC is invalid and accordingly dismissed the appeal.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, reviewed an appeal and observed that an assignee of a financial debt originally held by a related party is disqualified from participating in the CoC under Section 21(2) of the IBC if the assignment was made after the commencement of the CIRP with the intent to circumvent statutory disqualification and influence the insolvency process. The Tribunal emphasised that such an assignee cannot acquire better rights than the assignor, particularly where the assignment is not made in good faith.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, dismissed an appeal challenging the order dated 13.01.2025 passed by the Adjudicating Authority, which had rejected an application (IA No. 331/2024) filed by the Appellant seeking representation in the Committee of Creditors (CoC). The appeal arose from the Corporate Insolvency Resolution Process (CIRP) initiated against Rolta Bi & Big Data Analytics Pvt. Ltd. on 13.10.2023. The Appellant had acquired a debt from Rolta Pvt. Ltd., a related party of the Corporate Debtor, through an Assignment Agreement dated 06.11.2023—after the commencement of CIRP—and subsequently filed a claim with the Resolution Professional, which was admitted for ₹3,48,742.
The Appellant argued that merely acquiring the debt from a related party does not render the assignee a related party per se, and relied on the Supreme Court’s judgment in Phoenix Arc Private Limited v. Spade Financial Services Limited and Others, REEDLAW 2021 SC 02501. The Resolution Professional, appearing in person and opposing the appeal, submitted that the Assignment Agreement was executed post-CIRP commencement with the intent to secure entry into the CoC, and was therefore not entitled to voting rights under Section 21 of the Insolvency and Bankruptcy Code, 2016.
The NCLAT reviewed the facts and the cited precedent, including the relevant observations of the Supreme Court and the Insolvency Law Committee Report, and noted that while a third-party assignee who is not a related party may ordinarily be allowed participation in the CoC, such participation is disallowed if the assignment is found to be with the intent of circumventing the bar imposed under the first proviso to Section 21(2) of the IBC. The Tribunal found that in the present case, the assignment was executed after the CIRP began, and with the motive to enter the CoC and influence decision-making, thus undermining the process.
Further, the NCLAT relied on the Resolution Professional’s email and reply, which confirmed that the debt was originally held by a related party and transferred post-CIRP, and hence, the Appellant had no right to CoC participation or voting. The Tribunal emphasised that an assignee cannot gain a higher status than the assignor, and a disqualification existing at the time of CIRP initiation cannot be removed merely through assignment.
Concluding that the assignment was not made in good faith and was intended to affect the interests of other creditors, the NCLAT upheld the Adjudicating Authority’s order rejecting the Appellant’s claim for CoC representation. Accordingly, the appeal was dismissed as meritless.
Mr. Rahul Chitnis and Ms. Priyambada Mishra, Advocates, represented the Appellant.
Ms. Sonu Gupta, Resolution Professional, appeared in person.
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