TMI Blog2022 (9) TMI 750X X X X Extracts X X X X X X X X Extracts X X X X ..... ignment of debt was alongwith the relevant rights and liabilities of the Assignor with the consent of the Confirming Party (Corporate Debtor). The Assignment Deed which contains all rights and liabilities indicates that the assignment was not of only actionable claim. Whether Registration of Assignment Deed was necessary? - HELD THAT:- The assignment by the Assignor to the Appellant was alongwith relevant rights and liabilities. We have noticed above that for securing the repayment of Inter-Corporate Deposit, Corporate Debtor and Reliance Infrastructure Ltd. entered into Hypothecation Deed as well as an Indenture of Mortgage dated 11.07.2018. The assignment in favour of the Appellant by the Assignor of entire debt was with relevant rights and liabilities of the Assignor, which has now been assigned to the Appellant - the Adjudicating Authority did not commit any error by coming to the conclusion that the Assignment Deed dated 01.03.2019 required registration. Whether Assignment Deed was insufficiently stamped? - HELD THAT:- Reliance Infrastructure Ltd. had given Inter-Corporate Deposit for which Deed of Hypothecation and Indenture of Mortgage was entered on 07.03.2018. Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsiwala and Mr. Dayal Deshpande , Advocates for Intervenors JUDGMENT ASHOK BHUSHAN , J. This Appeal has been filed challenging the order dated 22.02.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench Court No.2 rejecting Intervention Application I.A. No. 02 of 2021 filed by the Appellant in C.P. (IB) 418/AHD/2018. The brief facts of the case necessary to be noticed for deciding this Appeal are: (i) The Corporate Debtor Reliance Naval Engineering Ltd. was declared NPA by IDBI Bank on 28.02.2018. Reliance Infrastructure Limited advanced a sum of Rs.2,500 Crores to the Corporate Debtor by way of interest bearing Inter-Corporate Deposits. The loan was secured by way of Deed of Hypothecation dated 07.03.2018 and indenture of Mortgage dated 07.03.2018. (ii) IDBI Bank filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as I B Code ) against the Corporate Debtor in September, 2018. (iii) The Appellant Citi Securities Financial Services Pvt. Ltd claimed to have obtained assignment of debt of Reliance Infrastructure Limited by documents dated 01.03.2019. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Debtor being a related party does not lend to the conclusion that the Appellant is also a related party. An Assignee could not be held to the suffering from same deficiency by which the Assignor was suffering. The Assignment of debt in favour of the Appellant was a bonafide transaction, on payment of valuable consideration of Rs.114.93 Crore which was also paid by the Appellant to Reliance Infrastructure Limited. The Adjudicating Authority has also erred in observing that the Assignment Deed is not appropriately stamped, could not be looked into whereas the Deed being not sufficiently stamped was a curable defect which could have been very well cured by the Appellant. It is submitted that Assignment Deed dated 01.03.2019 was assignment of actionable claim , hence, it did not require any registration. It is further submitted that in any view of the matter even if for arguments sake it is accepted that Appellant is a related party, the Appellant s claim as Financial Creditor ought to have been accepted whereas the Adjudicating Authority committed error in rejecting the claim of the Appellant altogether. 3. Learned counsel for the Respondent Resolution Professional refuting the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cum Show Cause Notice to 28 entities. The Appellant is at serial number 10 of the notice issued by order dated 11.02.2022. It is submitted that the SEBI after detailed investigation ad obtaining materials has opined that the Appellant has no net-worth nor any revenue so as to be given a loan of Rs.220 Crores by Reliance Home Finance Ltd. After receiving Rs.220 crore from Reliance Home Finance Ltd., the same was also forwarded onward to other group company of Reliance, which proved the circuitous transaction between the different Reliance Group Companies and other entities. The Appellant has no net-worth to make any payment of Rs.114.93 Crores nor any securities has been shown except circuitous transaction by Reliance group. It is submitted that the Adjudicating Authority has rightly rejected the claim filed by the Appellant. The Assignment Deed dated 01.03.2019 itself being not admissible, the rejection of claim by the Adjudicating Authority is wholly justified. 4. Learned counsel for both the parties have placed reliance on the judgment of the Hon ble Supreme Court in Phoenix ARC Private Limited vs. Spade Financial Services Limited Ors., (2021) 3 SCC 475 . Learned counsel fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Lenders), and shall be in a form and manner satisfactory to the Lenders. The security interest over the Hypothecated Assets shall, at all times, be subservient, subordinated and subject only to the interest, claim, rights and interest of the Existing Lenders in the Hypothecated Assets pursuant to the Existing Hypothecation thereon created pursuant to the Existing DOH. 6. On the same dated, 07.03.2018, an Indenture of Mortgage was also executed between the parties to secure the Inter-Corporate Deposit of Rs.2500 Crore. Schedule-III contains details of the property with regard to which mortgage was created. Para 5 of the Indenture of Mortgage provide:- 5. GRANT AND TRANSFERS For the consideration aforesaid and as continuing security for the payment and discharge of the outstandings and performance of all obligations by the Borrower hereby secured or intended to be hereby secured, the Borrower doth, hereby grant, assign, convey, assure charge and transfer unto Lenders by way of continuing security:- (a) all the rights, title, interest and benefit in all and singular the beneficial right, title and interest of the Borrower, including the leasehold rights in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Two Only) at a value of Rs.114,93,00,000/- (Rupees One Hundred and Fourteen Crore Ninety Three Lakhs Only) along with all its relevant rights and liabilities for the Assignor with the consent of the Confirming party ( hereinafter referred to as Assignment ). 9. The assignment of debt was alongwith the relevant rights and liabilities of the Assignor with the consent of the Confirming Party (Corporate Debtor). The Assignment Deed which contains all rights and liabilities indicates that the assignment was not of only actionable claim. 10. The Adjudicating Authority by the impugned order has rejected the claim of the Appellant holding that the Assignment Deed dated 01.03.2019 was required to be registered under Section 17 of the Registration Act and further being insufficiently stamped could not be looked into for any claim of the Appellant. We need to, thus, consider as to whether registration as well as appropriate stamping of the Assignment Deed was necessary as held by the Adjudicating Authority or it was not required to be registered and in so far as insufficient stamping is concerned it is a curable defect. Whether Registration of Assignment Deed was necessary? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant. When we look into the definition of actionable claim , as noticed above, there is clear exclusion other than a debt secured by mortgage of immoveable property or by hypothecation or pledge . . The debt have been secured by mortgage of immoveable property or by hypothecation of moveable property. Thus, in the present case, the debt which has been assigned to the Appellant is not covered by the definition of actionable claim being secured by the mortgage of immovable property as well as hypothecation of movable property. The Assignment Deed dated 01.03.2019 contains rights of the Assignor, hence, the Deed, as per Section 17(1) (b) and (c) required the registration. The consequences and benefits of registration have been reiterated time and again by the Hon ble Supreme Court. In Suraj Lamp Industries (P) Ltd. vs. State of Haryana, (2009) 7 SCC 363 , Hon ble Supreme Court held that Registration Act, 1908 was enacted with intention of providing public notice in regard to transactions relating to immovable property and protection from fraud and forgery of documents of transfer, which is achieved by requiring compulsory registration of certain types of documents. In P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is context, we may refer to the judgment of Hon ble Supreme Court in Committee of Creditors of Essar Steel India Ltd. vs. Satish Kumar Gupta Ors. , where the Hon ble Supreme Court had occasion to consider the provisions of I B Code. Several Civil Appeals and Writ Petitions were decided by the judgment. One of the Civil Appeals which was decided by the Hon ble Supreme Court was Civil Appeal No. 7266 of 2019 and 7260 of 2019, where claim was rejected by the Resolution Professional on the ground of non-availability of duly stamped agreement in support of the claim. The decision of the Resolution Professional was affirmed by the Hon ble Supreme Court. In Para 152 of the judgment following has been laid down:- 152. So far as Civil Appeal No. 7266 of 2019 and Civil Appeal No. 7260 of 2019 are concerned, the resolution professional has rejected the claim of the Appellants on the ground of non-availability of duly stamped agreements in support of their claim and the failure to furnish proof of making payment of requisite stamp duty as per the Indian Stamp Act despite repeated reminders having been sent by the resolution professional. The application filed by the Appellants before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered. Section 21(2) first proviso which is relevant in the present case is as follows:- 21(2) The committee of creditors shall comprise all financial creditors of the corporate debtor: Provided that a 1[financial creditor or the authorised representative of the financial creditor referred to in sub-section (6) or sub-section (6A) or sub-section (5) of section 24, if it is a related party of the corporate debtor,] shall not have any right of representation, participation or voting in a meeting of the committee of creditors: 19. The Hon ble Supreme Court deliberated on the meaning and object of Section 21(2) and laid down following in Para 98:- 98. Hence, we would need to consider the meaning of the first proviso in the light of the context, object and purpose for which it was enacted. The purpose of excluding a related party of a corporate debtor from the CoC is to obviate conflicts of interest which are likely to arise in the event that a related party is allowed to become a part of the CoC. The logic underlying the exclusion has been summarised as follows: The Committee was of the view that the disability under the first proviso to Section 21(2) is ai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or where the related party entity had stopped being a related party long ago. 102. In this regard, it is relevant to note the observations in the Insolvency Law Committee Report of 2020 clarifying the eligibility of thirdparty assignees of the debt of a related party creditor, to be members of the CoC. It was observed: 11.09 As a third-party assignee, who by itself is not a related party, would not have any such conflict of interest, it should not be disabled from participating in the CoC. Further, the aforesaid disability is not related to the debt itself but is based on the relationship existing between a related party creditor and the corporate debtor. Therefore, as the disability imposed under the first proviso to Section 21(2) pertains to the related party financial creditor and not to the debt it is owed, the Committee agreed that it is clear that when a related party financial creditor assigns her debt to a third party in good faith, such third party should not be disqualified from participating, voting or being represented in a meeting of the CoC. 11.10. However, the Committee discussed that in certain cases, a related party creditor may assign its d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evise a mechanism to remove its label of a related party before the Corporate Debtor undergoes CIRP, so as to be able to enter the CoC and influence its decision making at the cost of other financial creditors. 21. Coming to the facts of the present case, Reliance Infrastructure Ltd. had given Inter-Corporate Deposit for which Deed of Hypothecation and Indenture of Mortgage was entered on 07.03.2018. Application under Section 7 by the IDBI Bank against the Corporate Debtor was filed in September, 2018 and after filing of the application within six months Assignment Deed dated 01.03.2019 was executed by the Assignor in favour of the Assignee. The purpose and object was obvious that Reliance Infrastructure Ltd. being related party could not have participated in the CoC of the Corporate Debtor, hence, Assignee has been brought into for the sole purpose of participating in the CoC which Assignee as per the case of the Appellant is not a related party. Further, the debt of Rs.2538 Crore has been assigned for amount of Rs.114.93 Crores speaks for itself. Further, the Reliance Infrastructure Ltd. had Hypothecation Deed and Mortgage. The time and manner in which assignment has been ..... 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