The Principal Bench of the National Company Law Appellate Tribunal (NCLAT), in the matter of Praful Nanji Satra v Vistra ITCL (India) Limited & Others in Company Appeal (AT) (Ins.) No 713 of 2020, dated 2 August 2022, has passed a judgment stating that insufficient payment of stamp duty on the Non-Convertible Debentures Subscription Agreement and the Debenture Trust Deed, both dated 1 March 2014 (Documents), will not influence the admission of corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (Code) as it is irrelevant and uncalled for a Section 7 application (Application).
B. Facts of The Matter
M/s Satra Properties (India) Limited (Corporate Debtor) is engaged in the business of real estate. The Corporate Debtor has raised finances up to 56,00,00,000 by issuing 5,600 secured non-convertible debentures (NCDs) to Mr.Mayank J. Shah and Mrs.Shruti Mayank Shah (Respondents) for the purpose of development of projects at Borivali and Jodhpur and for other general corporate purposes. The Corporate Debtor failed to redeem the remaining 4330 NCDs in accordance with the Documents.
The National Company Law Tribunal (NCLT) admitted the Application. Thereafter, Mr.Praful Nanji Satra (Appellant) filed an appeal before the NCLAT under Section 61 of the Code.
C. Proceedings Before NCLAT
1. Arguments by the Appellant
1.1 The Appellant stated that the Corporate Debtor had entered into negotiations with MJS Group and IIFL Group for settlement of the liabilities (including the NCDs which remained to be redeemed) and that a settlement was arrived at among the parties on 31 January 2018 (Settlement). It also claimed that the Documents have been novated through the Settlement considering that all the existing debt stood settled.
1.2 The Appellant contended that the Application may be restricted in putting only the Jodhpur project under CIRP instead of all the projects of the Corporate Debtor since the NCDs were issued to procure financing and also provided security for the Jodhpur project only.
1.3 The Appellant further claimed that the Documents are insufficiently stamped.
2. Key Issues
2.1 Whether the debt related to the NCDs were considered under the Settlement?
2.2 Whether the Documents can be considered as a valid legal document despite being insufficiently stamped or whether the Documents must be impounded and forwarded to the competent authority for adequate stamping?
3. Arguments by the Respondents
3.1 The Respondents contended that the Settlement is related to the liabilities of Indian Rupees Two Hundred Crores relating to MJS Group and IIFL Group and not the NCDs. The Respondents also contended that pursuant to the request of the Corporate Debtor, the interest rates were reduced the through the letters dated 14 February 2018 and 27 March 2018 issued by the debenture trustee. The debenture trustee (acting on the instructions of the Respondents) had also extended the redemption schedule of the NCDs. It was thus argued by the Respondents that both these aforementioned actions were done at a later date, after the purported Settlement was arrived at.
3.2 The Respondents stated that the Settlement was itself withdrawn as evidenced by the letter dated 24 January 2019 issued by IIFL Group considering the Corporate Debtor failed to fulfil its obligations under the Settlement.
3.3 The Respondents have claimed that the proceedings under the Code are in the nature of summary proceedings, and the adjudicating authority does not have to record evidence as per the Evidence Act, 1872.
3.4 The Respondents also argued that Corporate Debtor is solely responsible for the adequate stamping of the Documents (as per the provisions agreed in terms of the Documents) and that the Corporate Debtor itself cannot take advantage of his own failure.
4. Observations and Decision by the NCLAT
4.1 NCLAT accepted the contention of the Respondents that the Settlement is in relation to the finance availed from MJS Group and does not cover the debts under the NCDs and dismissed the argument of the Corporate Debtor that there was indeed any novation of the Documents post the Settlement.
4.2 NCLAT opined that the Corporate Debtor has admitted to the execution of the Documents and the same was not challenged by the Corporate Debtor.
4.3 NCLAT has referred to the judgment of the Supreme Court in Innoventive Industries Limited v ICICI Bank & Another, (2018) 1 SCC 407, which clearly stated: -
“in case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred…”.
4.4 NCLAT referred to the Swiss Ribbons Private Limited v Union of India, (2019) 4 SCC 17, which also quoted the judgment in Innoventive Industries matter, stating that the Form I appended to the Insolvency and Bankruptcy (Adjudicating Authority) Rules, 2016 provides a list of sources which evidence a financial debt.
4.5 NCLAT observed that the issue of debt being due and payable in not interdicted by any law but only a technical deficiency of insufficiency of stamping has been raised which can be cured. NCLAT held that the Documents are sufficient to prove the debt of the Corporate Debtor as claimed under the Application.
D. KCO Comments
The judgment clarifies the position as regards to inadequate stamping of documents when produced for filing of an Application under the Code, as previously, there were various conflicting opinions of different NCLTs on this particular issue as highlighted below:
- NCLT Chandigarh in Edelweiss Asset Reconstruction Company Limited v M/s Winsome Yarns Limited (in CP (IB) No. 291/CHD/2018) rejected a section 7 application due to the unenforceable nature of the deed of assignment arising from insufficient stamping of the document.
- NCLT Mumbai held in the matter of Vistra ITCL (India) Limited v M/s Satra Properties (India) Limited (in C.P. (IB) No. 1632/MB/2019) allowed an insolvency application only upon a condition that the debenture trust deed and debenture subscription agreement be impounded, and requisite (differential) stamp duty be paid in relation thereto.
This judgment reinforces the view that inadequate stamping being only a technical curable defect shall not in any manner affect the liability of a corporate debtor. However, the parties must ensure that the appropriate stamp duty on the documents is paid to avoid complexities at the time of initiating CIRP. It also emphasised on the principle that no person can take advantage of his own wrongdoings.
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