2022 (8) TMI 110 - AT - Insolvency and Bankruptcy

CIRP proceedings - Evidence of debt - documents insufficiently stamped - validity and admissibility of documents - Redeemable Non-Convertible Debentures Subscription Agreement - Debenture Trust Deed - NCLT admitted the application u/s 7 - Appellant is personal guarantor - whether the two above-mentioned documents should be impounded by the Adjudicating Authority and forwarded to the competent judicial authority for adequate stamping? - HELD THAT - It is revealed in the reply, that the Appellant (Applicant of section 7 application) has not denied the execution of the Non-Convertible Debenture Subscription Agreement and Debenture Trust Deed, rather they admit execution of the documents. - The Corporate Debtor has, in his reply as above, only raised the issue of these agreements being novated in light of the settlement and larger understanding having taken place between the Appellant and the MJS Group. Thus, admittedly, he has not raised the question of execution of the said documents. - the issue of debt being due and payable in the present case is not interdicted by any law but only a technical deficiency of insufficiency of their stamping has been raised which can be cured. Whether the agreement has been novated through the settlement - HELD THAT - The Settlement record mentions the Satra Hills project in Ghatkopar and security related to Borivali and Washi Projects receivables but nowhere it mentions the Jodhpur Project for which money was raised to issuance of non-convertible debentures. Moreover, even this settlement (which does not cover the NCDs) was cancelled vide letter dated 17.1. 2019 of IIFL informing of default in compliance of the corporate debtor s obligations and a letter dated 21.1.2019 of the MJ Shah Infra LLP addressed to M/s Sameer Sanghvi and Associates, (the escrow agent) stating that the transaction as contemplated under the purported Settlement stood cancelled. All these developments and circumstances/actions are very clear indication of the fact the Debenture Subscription Agreement and Debenture Trust Deed were not supposed to be part of the purported overall settlement dated 31.1.2018 - it is noted that the corporate debtor made a request to the debenture holders for resetting the interest rate from 12% to 9% vide letter dated 14.2.2018 (attached at page 69 of reply of Respondent Nos. 1 to 3). This request for resetting of the interest rate on redemption of NCDs was also done on a date after the date of Settlement , which also supports the inference that the Settlement did not cover the NCDs and that the NCD Subscription Agreement was novated. The argument of the Learned Senior Counsel of the Appellant that the Debenture Subscription Agreement and the Debenture Trust Deed, both executed on 1.3.2014, stood novated through the Settlement , cannot be agreed upon. Inadmissibility of the Debenture Trust Deed and the Non-Convertible Debenture Subscription Agreement as valid and legal documents which could be relied upon in the admission of the section 7 application as they are not sufficiently stamped as required under the Maharashtra Stamp Act - HELD THAT - The Non-Convertible Debentures are clearly outside the purported Settlement arrived in the meeting held on 31.3.2018. Therefore, the Non-Convertible Debentures Subscription Agreement and the Debenture Trust Deed are not novated as a result of the Settlement and are relevant in establishing the debt of the corporate debtor as claimed in section 7 application, whose repayment is in default as per clause 11 of the Debenture Trust Deed. The section 7 application was admitted correctly by the Adjudicating Authority - there are no merit in the appeal - appeal dismissed.

Summary

Issues Involved:
1. Validity and admissibility of the Redeemable Non-Convertible Debentures Subscription Agreement and the Debenture Trust Deed under the Maharashtra Stamp Act.
2. Impact of the purported settlement on the debt related to the NCDs and whether the agreements stand novated.

Issue-wise Detailed Analysis:

Issue 1: Validity and Admissibility of Documents under the Maharashtra Stamp Act

The Appellant argued that the documents relied upon for initiating the Corporate Insolvency Resolution Process (CIRP), namely the Redeemable Non-Convertible Debentures Subscription Agreement and the Debenture Trust Deed, were insufficiently stamped under the Maharashtra Stamp Act. According to the Appellant, these documents could not be admitted as evidence of debt and default. The Adjudicating Authority admitted the section 7 application but differed on whether the documents should be impounded for proper stamping. The Judicial Member suggested impounding the documents for payment of requisite stamp duty, while the Technical Member dismissed the need for such action, considering the summary nature of the proceedings.

The third member, constituted by the Hon'ble President of NCLT, opined that the issue of stamp duty was irrelevant for a section 7 application under IBC, as the debt and default could be established otherwise without relying on the insufficiently stamped documents. The Appellant's argument was that insufficient stamping goes to the root of the legality of the documents, citing Supreme Court judgments in Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Limited and SMS Tea Estates Private Limited v. Chandmari Tea company Private Limited. However, the Respondents countered that the proceedings under IBC are summary in nature and that the insufficiency in stamp duty was attributable to the corporate debtor.

The Tribunal noted that the Corporate Debtor had not denied the execution of the documents but only raised the issue of their novation. The Tribunal also referred to the Calcutta High Court judgment in Univalue Projects Pvt. Ltd. v. The Union of India & Ors., which emphasized that various documents could be considered as evidence of financial debt under IBC, irrespective of their stamp duty status. Therefore, the Tribunal concluded that the technical deficiency of insufficient stamping could be cured and did not impede the establishment of debt and default.

Issue 2: Impact of the Purported Settlement on the Debt

The Appellant claimed that the debt related to the NCDs was settled as part of a larger settlement between the Satra Group, MJS Group, and IIFL, as recorded in the minutes of the meeting dated 31.1.2018. The Appellant argued that this settlement novated the NCD Subscription Agreement and Debenture Trust Deed. However, the Respondents contended that the settlement only related to liabilities of Rs. 200 crores and did not cover the NCDs. They pointed to subsequent communications and actions, including requests for resetting interest rates and revised redemption schedules, as evidence that the NCDs were not part of the settlement.

The Tribunal examined the minutes of the meeting and other related documents and found no specific mention of the NCDs or the Jodhpur project. The purported settlement was also later cancelled by the parties involved. The Tribunal concluded that the NCDs were not included in the settlement and that the Debenture Subscription Agreement and Debenture Trust Deed remained valid and enforceable.

Conclusion:

The Tribunal held that the section 7 application was correctly admitted by the Adjudicating Authority. The arguments regarding insufficient stamping were dismissed as the deficiency could be cured, and the debt and default were established through other evidence. The purported settlement did not novate the NCD Subscription Agreement and Debenture Trust Deed. Consequently, the appeal was dismissed, and the initiation of CIRP was upheld.