No Need To Produce Trust Deed If Debt Assigned To ARC Through Valid Assignment Agreement: DRAT Kolkata

The Debts Recovery Appellate Tribunal (DRAT) at Kolkata has recently held that when a debt is assigned to an Asset Reconstruction Company through a valid assignment agreement, production of a Trust Deed cannot be insisted upon where the assignment itself is not based on a trust deed.

Chairperson Justice Anil Kumar Srivastava observed:

“Accordingly, when the registration, under Section 3 of the Act, was done to become an Asset Reconstruction Company and the assignment was made on the basis of the Assignment Agreement, there is no requirement of any Trust Deed as it was not based on a Trust Deed.”

The ruling arose from two appeals filed in 2026 by National Asset Reconstruction Company Ltd. (NARCL) and SEW LSY Highways Ltd. against a March 10, 2025 order of DRT-II Hyderabad passed in proceedings initiated by Punjab National Bank and other lenders in OA 3824 of 2017.

During the proceedings, the lenders assigned the debt to NARCL through a registered joint assignment agreement dated March 21, 2024, after which NARCL sought substitution in place of the original applicants.

The DRT allowed substitution but directed NARCL to produce the Trust Deed during the course of the proceedings.

Challenging this direction, NARCL argued that the assignment had been effected through a registered assignment agreement in its favour as an Asset Reconstruction Company and therefore, the filing of any trust deed was not required.

The appellate tribunal examined the scheme of the SARFAESI Act and noted that NARCL was duly registered as an Asset Reconstruction Company under Section 3 and had acquired the financial assets under Section 5 of the Act.

The tribunal held that once the assignment had been validly executed in favour of the ARC on the basis of the assignment agreement, the direction to produce a Trust Deed was unwarranted and self-contradictory, especially when the DRT itself had held that the assignment was not based on any trust deed.

Accordingly, the DRAT set aside the direction requiring production of the Trust Deed while upholding the order permitting substitution of NARCL in place of the original lenders.

The appeal filed by the borrower company SEW LSY Highways Ltd was dismissed, and the tribunal directed the DRT to proceed expeditiously with the recovery proceedings, which have been pending since 2017.