WHETHER AN OPERATIONAL CREDITOR HAS THE RIGHT TO ASSIGN THE DEBT DUE FROM A CORPORATE DEBTOR?

WHETHER AN OPERATIONAL CREDITOR HAS THE RIGHT TO ASSIGN THE DEBT DUE FROM A CORPORATE DEBTOR?

In

M/s. DF Deutsche Forfait AG and Anr. M/s. Uttam Galva Steels Limited:

FACTS OF THE CASE

M/s. Uttam Galva Steels Ltd. has been engaged in manufacturing of steel rolls and import business in relation to steel. At some time, the buyer had entered into a sales contract with AIC Handels GmBH (“AIC” or “the seller”) for supply of prime steel billets.

The contract between buyer and seller states that in case of any dispute, the arbitration shall be pursued in accordance with Swiss Rules of International Arbitration of the Swiss Chambers of Commerce.

Further, it was decided that AIC is entitled to pursue payment obligation of the buyer before any competent court where a specially abbreviated form of legal procedure exists.

Upon the execution of the shipment, Uttam Galva accepted the imports by the seller without any faults and also confirmed that the amount set out in invoice represents entire purchase price.

ASSIGNMENT OF THE DEBT BY AIC HANDELS GMBH

Subsequently, AIC executed a discounting agreement with DF Deutsche For fait AG (“Deutsche”), thereby assigning the entire debt owed to it by Uttam Galva Steels Ltd.

Deutsche, in turn, subsequently assigned part of its debts to Misr Bank Europe GmBH (“Misr”) through another discounting agreement. 

A notification of the same was sent by Deutsche to Uttam; however, was not confirmed by Uttam. This is the precise reason that both Deutsche and Misr are the parties to the application.

CONTENTION BY UTTAM GALVA STEELS LTD.

CD argued that that the definition of “dispute” is inclusive; mere denial to the claim shall be understood as “dispute”.

UTTAM also argued that the same bench member had rejected the application by the operational creditor in the matter of M/s. Kirusa Software Pvt. Ltd v. M/s. Mobilox on the ground that reply to the notice shows existence of dispute.

WHETHER THE OPERATIONAL CREDITOR HAS THE RIGHT TO ASSIGN THE DEBT DUE FROM UTTAM?

The Tribunal was of the opinion  approval of the corporate debtor is not sought for in case if there is a discounting agreement and mere intimation bounds the corporate debtor to be liable towards the new assignee.

WHETHER THE APPLICATION CAN BE FILED UNDER THE INSOLVENCY AND BANKRUPTCY CODE, WHERE THE CONTRACT PROVIDES FOR JURISDICTION FOR ENGLISH LAWS?

OC cited the provision in the sales contract relating to the provision that AIC is entitled to pursue payment obligation of the buyer before any competent court where a specially abbreviated form of legal procedure exists.

 However, the Bench declared that the corporate debtors has been under disturbing situation as the corporate debtor is consistently incurring into losses with amounts aggregating more than INR 15 billion. The bench is of the view that if any further delay is made in accepting the application, it will become nothing but defeat the purpose and object of the IBC Code.

DECISION BY NATIONAL COMPANY LAW TRIBUNAL

The Bench held that legal assignees are very much entitled to initiate CIRP action u/s 9. There need not exist a separate contract between corporate debtor and the assignees of corporate debtor to make their stand true to the fact under Indian Law. Also, the bench felt of no need to have permission of corporate debtor granted to assign the debts to the applicant’s viz. Deutsche and Misr in this case. Hence, the applicants are eligible under Section 9 as Operational Creditors to initiate insolvency action against M/s. Uttam Galva Steels Ltd.