- The appellant, an ‘assignee’ of Mr. Sudhakar Mulay (Promoter), was
inducted by ‘Resolution Professional’ as a member of the ‘Committee of
Creditors’, which was challenged by ‘State Bank of India’ (Financial Creditor) on
the ground that the appellant is a ‘related party’. The Adjudicating Authority
(National Company Law Tribunal) Mumbai Bench by the impugned order dated
13th November, 2017 having held the appellant as ‘related party’, the appellants
have preferred this appeal.
The only question requires for determination in this appeal is whether the
1st appellant is a ‘related party’ or not?
The brief facts of the case are that one Mr. Sudhakar Mulay and another
Mr. Vikram Sudhakar Mulay the Directors/Promoters of M/s. Fortune Pharma
Private Limited had executed the ‘personal guarantee’ in favour of the ‘State
Bank of India’. Against the said company and the Directors/Promoters, the
‘State Bank of India’ enforced SARFAESI Act and by order dated 23 rd March,
2016 directed the company to hand over possession of the factory premises
situated at Aurangabad to ‘State Bank of India.’
It was at this stage, the company filed an application under Section 10 of
the Insolvency & Bankruptcy Code, 2016 ((hereinafter referred to as the ‘I&B
Code’) which was admitted.
After filing of the application under Section 10 of
the I&B Code, Mr. Sudhakar Mulay, Director/Promoter assigned his ‘debt’ in
favour of the 1st appellant on 1st July, 2017.
Company Appeal (AT) (Insolvency) No. 28 of 20183
Learned counsel appearing for the appellants refers to Section 5(7) r/w (8)
to suggest that the 1st appellant comes within the meaning of ‘Financial Creditor’.
Reliance was also placed on Section 5(24) of the I&B Code which defines ‘related
party’ in relation to a ‘Corporate Debtor’ which means a ‘Director or partner’ of
the ‘Corporate Debtor’ or a relative of a ‘Director or partner’ of the ‘Corporate
Debtor’ etc. According to the learned counsel for the appellants Mr. Sudhakar
Mulay having assigned debt in favour of the 1 st appellant and he being not the
Director of the ‘Corporate Debtor’ or relative of the Director of the ‘Corporate
Debtor’ cannot be treated to be a ‘related party’ within the meaning of Section
5(24) of the I&B Code.
The Adjudicating Authority taking into consideration the facts and
circumstances of the case observed that meticulous planning was made by the
Director of the ‘Corporate Debtor’ to execute ‘Assignment Deed’ with the sole
intention to bring down the voting power to the ‘State Bank of India’ which
cannot be regarded as a natural business decision. The Adjudicating Authority
also observed that ‘related party’ cannot suddenly become a ‘non-related party’
because he just washes off his hands and hands over the paper to other party
who had no valid reasons for taking up the assignment of a debt.
It is not in dispute that the assignor Mr. Sudhakar Mulay was the
Director/promoter of the ‘Corporate Debtor’.
Therefore, he is ‘related party’
within the meaning of Section 5(24). A legal transfer of ‘debt’ account from a
‘creditor’ (assignor) to a third party (assignee) provides the rightful ownership to
the assignee. The ‘debt assignment’ is a transfer of debt with all the rights and
obligations associated with it from a creditor to a third party, who is’ assignee’.
Company Appeal (AT) (Insolvency) No. 28 of 20184
The ‘debt’ is in the form of loan from a ‘financial institution’, the debtor is referred
as a ‘borrower’ and if the debt is in the form of securities, such as bonds, the
debtor is referred to as an ‘issuer’. Undisputedly, the assignment is the transfer
of one’s right to recover the debt of another person as a contractual right. Rights
of an ‘assignee’ are no better than those of the ‘assignor’. It can be, therefore,
held that ‘assignor’ assigns its debt in favour of the ‘assignee’ and ‘assignee’ steps
in the shoes of the ‘assignor’. The ‘assignee’ thereby takes over the right as it
actually did and also takes over all the disadvantages by virtue of such
What cannot be achieved directly by Mr. Sudhakar Mulay, he did it
indirectly assigning his debt in favour of the 1st appellant. Mr. Sudhakar Mulay
being the ‘related party’, with the assignment of ‘debt’, the disadvantage also
goes to the 1st appellant. For the reasons aforesaid, we hold that the issue has
been rightly decided by the Adjudicating Authority and no ground has been made
out to interfere with the impugned order. In absence of any merit, the appeal is
dismissed. No cost.