Crystallise First, Assign Later: NCLT Delhi on Assignment of Avoidance Transaction Claims

I. Introduction

In Ritu Tandon v Rain Automotive India Pvt Ltd. (NCLT New Delhi, August 2023) (“Rain Automotive”), the National Company Law Tribunal, Delhi (“the Tribunal”) held that avoidance claims under sections 43 to 66 of the Insolvency and Bankruptcy Code, 2016 (“the Code”) cannot be assigned through the substitution of the assignee in pending proceedings and that such assignment (if at all) can only take place post-crystallisation, i.e. after the NCLT has adjudicated the claim amount. Together, they hollow out the purpose of Regulation 37A. This piece argues that a legitimate fact-specific concern was converted into a doctrinal misstep with consequences beyond the case itself. This piece, thus, examines the facts in Part II, analyses the substitution bar in Part III and the post-crystallisation restriction in Part IV, addresses the order’s additional infirmities in Part V, and concludes in Part VI.

II. Facts

On facts, the liquidator of Rain Automotive India Private Limited executed a Deed of Assignment transferring all rights and recoveries from three pending avoidance applications, filed under Sections 45, 50 and 66 of the Code (“avoidance transaction claims”) with a combined claimed value of Rs 26.38 crore, to a third party (Inquest Fintech Private Limited) for a total consideration of Rs 50,000. Under Regulation 37A of the IBBI (Liquidation Process) Regulations, 2016, avoidance claims can be assigned by the Liquidator as Not Readily Realisable Assets (“NRRA”). Inquest Fintech then approached the NCLT seeking substitution as an applicant in those avoidance proceedings.

The Tribunal drafted two issues. First, whether an assignee of an avoidance transaction can be substituted in place of the liquidator in pending proceedings. Second, at what stage can a liquidator assign such claims, if at all. The Tribunal ruled against the assignee on both.

III. Issue 1: Can Assignee Replace the Liquidator

On the first issue, the Tribunal held that applications under sections 43, 45, 50, and 66 can only be filed and pursued by the RP or the liquidator. For this, the Tribunal majorly relies on bare interpretation of the statutory provisions of the Code, and it is correct to a limited extent that no provision allows an assignee to step into these proceedings.

The Tribunal further holds that such substitution would cause the NCLT to lose jurisdiction under Section 60(5)(c) as the application would cease to be “an issue arising out of CIRP or Liquidation of the Corporate Debtor”, and would instead be pursued by a third party whose asset pool would receive any recovery. However, this is questionable since the nature of those proceedings doesn’t change merely because the assignee has become the economic beneficiary. The relevant inquiry under Section 60(5)(c) is whether the cause of action arises out of or in relation to the CIRP, which continues to be satisfied. Regardless of who receives the proceeds, whether a transaction is PUFE is still a question “arising out of or in relation to the insolvency” of the corporate debtor. The Tribunal, thus, conflates the beneficiary’s identity with the subject matter of the proceedings.

At the same time, the Tribunal clarifies that this does not preclude assignment altogether and that a crystallised debt may still be assigned “by following the due procedure prescribed under law.” The order, however, does not identify the procedure or the forum to which the assignee would apply.

The subsequent treatment of this legal position does not clarify this either. In TDT Copper Ltd v Ujala Pumps Pvt. Ltd. (NCLT New Delhi, February 2024), the New Delhi Bench considered a case in which the trademark of the corporate debtor had been assigned to Ujala as an NRRA under Regulation 37A. Ujala then sought substitution in the pending avoidance proceedings relating to that trademark. The NCLT rejected the assignment, reiterating that the assignment of an NRRA does not permit the assignee to substitute the liquidator in avoidance proceedings.

In contrast, the Mumbai Bench adopted a different view. In the matter of Gupta Global Resources Private Limited (NCLT Mumbai, January 2024) (“Gupta Global Resources”), the liquidator sought permission under Regulation 37A to assign pending avoidance applications to a third party: LegalPay (an Indian legal financing firm). Noting the apprehensions arising from Rain Automotive, the Mumbai Bench nonetheless observed:

“Liquidator may proceed to consider assigning the Avoidance Applications to third party in consultation with the Stakeholders’ Committee. Insofar as prosecution of such pending application by such assignee is concerned, the Bench were of considered view that the applications already filed by the person competent to do so, can be prosecuted by the assignees subsequently.”

This position was subsequently reaffirmed by the same bench in February 2025 (also see IBBI Paper [Para 11.1]). However, no concrete response was received from any assignee, and the applications were ultimately distributed to first-priority creditors under Regulation 38.

Read together, the two orders leave the legal position unclear. The Tribunal in Rain Automotive does not explain what an assignee is expected to do with an avoidance claim it has acquired but is unable to pursue. It assumes that the liquidator must first conduct the litigation, the claim must crystallise, and only then may the resulting debt be assigned for recovery. In fact, the Tribunal’s conclusion on the second issue follows from this premise and, therefore, inherits its problems.

IV. Assignment Pre-Crystallization or Post?

On the second issue i.e. when can the assignment take place, the Tribunal’s concern is that contingent claims should not be transferred because the claim amount has not been ascertained. The claim might yield full value or nothing at all. Assigning it before crystallisation may leave creditors with only a fraction of its value, as it seems to have happened here as well.

But the issue with this holding is that the entire premise of assigning avoidance transaction claims as NRRAs is that the estate “lack[s] of funding for meeting the legal expenses” for an uncertain return. It recognises the potential but cannot invest in it, so assignment becomes the trade-off; transferring the risk to a party willing to pursue it in exchange for consideration. But if the estate has already borne the litigation burden through to the determination of the claim amount, why would it then assign the crystallised claim to a third party? At that stage, the proceeds would simply go to the creditor pool. There is no trade-off left to make. The Tribunal’s holding, thus, permits assignment when the estate no longer needs it.

Gupta Global Resources illustrates this in practice. Even with judicial authorisation to assign pending, unadjudicated applications, no third-party buyer was identified. The claims were ultimately distributed to first-priority creditors under Regulation 38.

Thus, Rain Automotive’s restrictive interpretation of Regulation 37A only narrows this further without resolving the underlying problem.

V. Other Issues in the Tribunal's Holding

Granted, the Tribunal was dealing with a situation where claims valued at Rs 26.38 crore were assigned for Rs 50,000. Suspecting foul play was reasonable, and the risk of prejudice to creditors was real. But the issues with the order go beyond these two holdings.

Firstly, the Tribunal noted that both the RP and the liquidator can assign NRRA’s. This seems to be incorrect. Regulation 37A is a liquidation mechanism. There is no equivalent provision for the RP. Where avoidance transaction claims have appeared in resolution plans, this has occurred at the discretion of the CoC under the resolution framework, not as an exercise of a Regulation 37A power.

Finally, although the case did not concern third-party funding (“TPF”), it is difficult to read the order without noticing the appellant’s submissions invoking TPF jurisprudence in a context where it had no application. TPF typically involves a financier funding litigation expense without replacing the claimant in exchange for a share of recovery. What occurred in Rain Automotive, however, was a complete assignment of the claim. The two are conceptually distinct. The closest the NCLT has come to examining TPF is in the matter of Go Airlines (India) Limited, where Burford Capital agreed to fund SIAC arbitration costs without replacing the estate as claimant. The NCLT declined to examine the arrangement but did not find it impermissible. By contrast, Rain Automotive is concerned with the assignment of the claim itself, where the assignee may replace the claimant.

To its credit, however, the Tribunal did not rely on these submissions and instead interpreted the statutory provisions independently. However, since the principles cited were irrelevant, it ought to have flagged the conflation. Whether the TPF jurisprudence quietly coloured the Tribunal’s reasoning is difficult to say. What is clear is that both issues deserved cleaner treatment than they received.

VI. Conclusion

The facts in Rain Automotive warranted intervention. An assignment of Rs 26.38 crore in claims for Rs 50,000 to a third party raises a legitimate question of whether Regulation 37A’s process was followed at all.

But that concern called for a targeted, process-based remedy, i.e., scrutiny of whether the Stakeholders’ Committee approved the transaction at a reasonable valuation, rather than a blanket bar on pre-crystallisation assignments. The broader principles the Tribunal announced serve neither the estate’s creditors nor the statute’s purpose.

Courts should interpret Regulation 37A to permit assignment of pending avoidance claims where the prescribed process is followed, and should allow the assignee to prosecute those claims to conclusion. The Mumbai Bench’s approach reflects this position and, until the NCLAT or the IBBI resolves the current split, represents the more defensible reading of the provision.

About the Author

Myra Khanna and Lavanya Sehgal are fourth-year law students at the Maharashtra National Law University, Mumbai.

Editors

Aahini Gandhi, Senior Editor

Megha Chhari, Assistant Editor