Assignment of Business Debts
An assignment of business debts (also called assignment of receivables or book debts) is the transfer of the right to receive payment from a debtor — from the assignor (original creditor) to the assignee (new creditor). Under Section 130 of the Transfer of Property Act, 1882: a transfer of an actionable claim (debt) may be effected by executing an instrument in writing. The debtor need not consent to the assignment — but must be NOTIFIED to ensure valid payment to the assignee. Assignment of debts is used in: (a) factoring (selling receivables to a factor for immediate cash), (b) securitization, (c) business sales (receivables transferred as part of the business), (d) debt recovery (assigning bad debts to collection agencies).
Specimen Deed of Assignment
[Illustrative]
DEED OF ASSIGNMENT OF BOOK DEBTS
Between [Assignor Name] (the "Assignor") AND [Assignee Name] (the "Assignee")
1. The Assignor hereby assigns, transfers, and conveys to the Assignee ALL right, title, and interest in the debts listed in the Schedule hereto — being amounts due from [Debtor Name(s)] to the Assignor.
2. Consideration: Rs. [Amount] — being [100% / discounted value at X%] of the total debts assigned.
3. Notice to Debtors: The Assignor shall send written notice to each debtor within [7] days informing them that the debt has been assigned to the Assignee and that future payments must be made to the Assignee.
4. Warranties: The Assignor warrants: (a) the debts are genuine and legally enforceable, (b) the amounts are correctly stated, (c) no prior assignment or charge, (d) no disputes or set-offs known.
5. Collection: From the date of assignment: the Assignee shall have the exclusive right to collect the debts — including: issuing demand notices, filing suits, and executing decrees.
Schedule — Debts Assigned
| Debtor | Invoice No. | Date | Amount (Rs.) |
|---|
| [Name] | [Number] | [Date] | [Amount] |
Key Legal Points
(a) Section 130 TPA: Assignment must be by written instrument signed by the assignor. (b) Notice: The assignor MUST give written notice to the debtor (Section 131) — until notice is given, the debtor can validly pay the assignor (and is discharged). (c) The debtor's defences are preserved: The assignee takes the debt subject to all equities — the debtor can raise against the assignee any defence they could have raised against the assignor (set-off, fraud, payment already made). (d) Stamp duty: Nominal — Rs. 100-500 in most states. (e) Registration: Not required (debts are movable property — registration is optional).
Disclaimer: This article is for informational purposes only and does not constitute legal or professional advice. While every effort has been made to ensure accuracy based on the latest laws and amendments, readers should consult a qualified professional before acting on any information provided. For expert assistance, contact us.
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❓ Frequently Asked Questions
Must the debtor consent to the assignment of debt?
NO — the debtor's consent is NOT required. Under Section 130 TPA: the assignor can assign the debt by written instrument without the debtor's agreement. However: the debtor must be given NOTICE of the assignment (Section 131). Until notice is given: the debtor can validly pay the assignor (and is discharged from the debt). After notice: the debtor must pay the ASSIGNEE only — payment to the assignor after notice does not discharge the debt.
What defences can the debtor raise against the assignee?
The assignee takes the debt SUBJECT TO ALL EQUITIES — the debtor can raise against the assignee ANY defence available against the assignor: (1) SET-OFF — the debtor owes the assignor but the assignor also owes the debtor, (2) PAYMENT already made to the assignor before notice, (3) FRAUD by the assignor, (4) the debt is DISPUTED or contested, (5) the goods/services were DEFECTIVE (counterclaim), (6) LIMITATION — the debt is time-barred. The assignee should conduct DUE DILIGENCE on each debt before accepting — verify that the debts are genuine, undisputed, and enforceable.
What is the difference between assignment and factoring?
ASSIGNMENT: transfer of specific debts to the assignee — the assignee collects from the debtor. May be WITH or WITHOUT recourse. FACTORING: a financial arrangement where a FACTOR (NBFC/bank) purchases the assignor's receivables at a DISCOUNT — providing immediate cash. The factor assumes the collection responsibility. Types: (a) recourse factoring — if the debtor doesn't pay, the factor can recover from the assignor, (b) non-recourse factoring — the factor bears the credit risk. Factoring is governed by the Factoring Regulation Act, 2011. Assignment is the legal mechanism underlying factoring.
What stamp duty applies on assignment of debts?
NOMINAL — Rs. 100-500 in most states. Debts are MOVABLE property — stamp duty is lower than immovable property transfers. Some states: no specific entry for debt assignment — nominal duty under the 'agreement' category. For FACTORING transactions: stamp duty may be different (check the Factoring Regulation Act, 2011 and state amendments). Registration: NOT required (movable property — optional). Best practice: execute on proper stamp paper and retain copies for evidence.
Can future debts be assigned?
YES — future debts (not yet due or not yet accrued) can be assigned — provided they are sufficiently IDENTIFIABLE. Example: 'All debts arising from invoices issued by the Assignor to [Customer Name] during the period [Date] to [Date].' Future debt assignment is common in: (a) factoring — ongoing assignment of all receivables, (b) securitization — pooling future receivables, (c) project finance — assignment of future revenue streams. The assignment takes effect when the debt ACTUALLY ARISES — the assignee's rights crystallize at that point.
