Introduction

The case of Palm Products Pvt. Ltd. v. T.V.L. Narsimha Rao And Another adjudicated by the National Company Law Appellate Tribunal (NCLAT) on March 8, 2021, delves into the intricacies of the Insolvency and Bankruptcy Code, 2016 (IBC). The dispute centered around the admissibility of an assignment deed and the consequent entitlement of the appellant to be included in the Committee of Creditors (CoC) during the Corporate Insolvency Resolution Process (CIRP) of the corporate debtor, M/s. Amrit Jal Ventures Pvt. Limited. The primary parties involved were Palm Products Pvt. Ltd. (Appellant) and T.V.L. Narsimha Rao along with another respondent.

Summary of the Judgment

The NCLAT dismissed the appellant's appeal against the National Company Law Tribunal (NCLT) Hyderabad Bench's impugned order, which had rejected the appellant's claim to be recognized as a Financial Creditor and its inclusion in the CoC. The crux of the decision hinged on the registration status of the Assignment Deed through which the appellant had acquired the debt from Respondent No. 2 (a related party under Section 29A of the IBC). The Adjudicating Authority found the Assignment Deed to be unregistered at the time the claim was filed, thereby rendering it inadmissible. Consequently, the appellant's status as a Financial Creditor and its entitlement to be part of the CoC were denied.

Analysis

Precedents Cited

The judgment references several pivotal cases that influenced the tribunal's decision:

• ICICI Bank Ltd. Vs. APS Star Industries Ltd. (2010 10 SCC 1): This Supreme Court ruling established that the purchase of debt at a discounted price does not inherently contravene public policy. The appellant relied on this precedent to argue against the tribunal's skepticism regarding the undervalued Assignment Deed.
• Swiss Ribbons (P) Ltd. & Anr. vs. Union of India & Ors. (2019 4 SCC 17): This case emphasized that Resolution Professionals lack adjudicatory powers, and thus, their decisions should be scrutinized within the broader legal framework. The appellant invoked this judgment to challenge the Resolution Professional's authority in deeming the Assignment Deed unenforceable.
• Fortune Pharma Pvt. Ltd. decided by the NCLT, Mumbai Bench: This case was used by the Resolution Professional to assert that an assignee’s rights are no superior to those of the assignor, indicating that the assignee steps into the assignor's shoes.

Legal Reasoning

The tribunal meticulously examined whether the Assignment Deed met the legal requirements under the Registration Act, 1908, specifically addressing Section 23, which mandates registration of such deeds within four months of execution. The appellant had executed the Assignment Deed on May 18, 2020, but it was registered only on July 15, 2020. At the time the claim was filed with the Resolution Professional (RP), the deed remained unregistered. The tribunal held that:

• The RP was justified in rejecting the unregistered Assignment Deed, as per Paragraph 15 of the impugned order, which stated that the deed must be registered at the time of claim submission.
• The appellant did not present evidence of the deed's registration status at the time of filing, weakening its claim.
• The Resolution Professional's decision was upheld, emphasizing adherence to procedural requirements under the IBC and the Registration Act.

Additionally, the tribunal dismissed the appellant's attempt to challenge the finality of the related party determination of Respondent No. 2, thereby reinforcing the stance that the appellant could not bypass existing classifications under the IBC.

Impact

This judgment underscores the paramount importance of adhering to procedural mandates, particularly the timely registration of Assignment Deeds under the Registration Act, to ensure their admissibility in insolvency proceedings. Future litigants and financial institutions must:

• Ensure that all assignment agreements are duly registered within the stipulated timeframe to safeguard their claims.
• Recognize that any lapses in procedural compliance can jeopardize their standing as Financial Creditors in the CoC.
• Understand that related party determinations are strictly enforced, and attempts to circumvent them without incontrovertible evidence will likely fail.

Moreover, the decision reaffirms the judiciary's commitment to maintaining procedural integrity within the IBC framework, thereby enhancing the reliability of insolvency proceedings.

Complex Concepts Simplified

• Committee of Creditors (CoC): A body comprised of financial creditors of the corporate debtor, responsible for making key decisions during the insolvency resolution process.
• Section 29A of the IBC: Defines related parties in insolvency proceedings, ensuring that parties with existing relationships do not unfairly influence or benefit in the process.
• Assignment Deed: A legal document through which creditors assign their debt claims to another party. Under the Registration Act, such deeds must be registered within four months of execution to be valid.
• Resolution Professional (RP): An individual appointed to manage the insolvency resolution process, including evaluating claims and facilitating negotiations among creditors.
• Innocency and Bankruptcy Code (IBC), 2016: Comprehensive legislation that consolidates and amends the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms, and individuals.

Conclusion