Recently, the principal bench of National Company Law Appellate Tribunal, Delhi (“NCLAT”) vide its order dated 2nd August 20221 (“Order”) dismissed an appeal filed by Mr. Praful Nanji Satra, the promoter of Satra Properties (India) Limited (“Appellant”) against Vistra ITCL (India) Limited and Ors under Section 61 of the Insolvency and Bankruptcy Code, 2016 (“IBC”). The NCLAT in the said Order has clarified that insufficiency of the stamp duty paid on a document is a mere technical deficiency.
- Satra Properties (India) Limited (“Corporate Debtor”) proposed to issue up to 5,600 secured redeemable non-convertible debentures (“NCDs”) in favour of certain debenture holders.
- Pursuant to default in redemption of the NCDs, an application under Section 7 of the IBC was filed against the Corporate Debtor.
- The Appellant claimed that the application filed by the debenture holders for initiating Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor under Section 7 of the IBC, is not maintainable inter alia as the Subscription Agreement and the DTD were insufficiently stamped, hence, not admissible as evidence of the debt and default in repayment. Certain other grounds were also raised. The Adjudicating Authority admitted the said application vide the impugned order dated 3rd August 2020 (“Impugned Order”).
- The matter was further referred to a single member bench (“Third Member”) to consider whether the debenture trust deed required impounding. The Third Member considered that the issue of stamp duty becomes irrelevant when an application under Section 7 of the IBC has been filed, especially where debt and default become quite apparent.
- The Appellant then filed an appeal in the NCLAT challenging the Impugned Order.
Issue in relation to stamp duty
- Whether the Subscription Agreement and the DTD can be relied as valid legal documents, since they are insufficiently stamped as required under the Maharashtra Stamp Act, 1958 (“Stamp Act”), while considering the Section 7 application under IBC?
It was contended before the NCLAT on behalf of the Appellant that:
- The issue framed by the original two-member bench for adjudication by a third member was regarding the impounding of the two above-mentioned documents and sending them for payment of requisite stamp duty, whereas the Third Member did not give his opinion on this point
- The Subscription Agreement and the DTD are insufficiently stamped and therefore, as per Section 34 of the Stamp Act, any instrument which is insufficiently stamped cannot be acted upon or taken as evidence in a court proceeding as it is not merely a technical defect but questions the legality of the said documents.
It was contended for the respondent as follows:
- The proceedings under the IBC are in the nature of summary proceedings under the Indian Evidence Act, 1872. Moreover, the insufficiency in the payment of stamp duty is attributable only to the Corporate Debtor and it cannot be taken as a defence by the Corporate Debtor.
- The Debenture Subscription Agreement sets out the events of default and the debenture holders' right to call the unpaid amount as a consequence of the default. Thus, it implies the existence of the debt and the default in repayment of such debt and the same has been acknowledged by the Corporate Debtor in its audited balance sheet for the year ending 31st March 2018.
The NCLAT noted that under the affidavit-in-reply submitted by the Appellant in response to the application filed under section 7 of the Code, the Appellant has admitted the execution of the Subscription Agreement and the DTD.
The NCLAT also reiterated the findings of the Supreme Court in Innoventive Industries Limited vs. ICICI Bank & Anr2. that in terms of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Regulations, 2016 (hereinafter called ‘Regulations'), apart from records maintained by the information utility, there are eight classes of documents in Part V of the Form 1 which could be used for proving the debt and default in section 7 application such as certificate of registration of charge with the Registrar of Companies and copies of entries in the bankers books.
The NCLAT further noted that the Hon'ble Supreme Court in Innoventive had held that “in the 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. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date” (emphasis supplied)
Thus, the NCLAT while dismissing the appeal, held that that the issue of debt being due and payable has not been interdicted by any law in the present case, rather the insufficiency of stamping of the documents is only a technical deficiency, which can be cured.
This judgment will reassure lenders and prevent borrowers from benefiting from their own non-compliance in payment of stamp duty. It also serves as a reminder to lenders to ensure that records with information utilities are properly maintained and charges are duly registered with the registrar of companies wherever required.
1 Judgment dated 2nd August 2022 in Company Appeal (AT) (Insolvency) No. 713 of 2020
2 (2018) 1 SCC 407
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.