2021 (7) TMI 816 - AT - Insolvency and Bankruptcy

Validity of admission of application u/s 7 of IBC - entire loan transaction is based on the 'Term Loan Agreement' - inadequately stamped document - admissible in evidence or not - debt and default have been proved beyond doubt - HELD THAT - Based on the documents filed by the Financial Creditor, it is clear that the Financial Creditor has proved that the Corporate Debtor has defaulted in making the payment is 6,39,13,042 due on the Corporate Debtor. Therefore, if it is considered that the Term Loan Agreement is insufficiently stamped for argument sake, then it is inadmissible in evidence. Furthermore, the claim of the Financial Creditor is fully corroborated by other evidence filed - Corporate Debtor committed default in repayment of the loan amount to the Financial Creditor. Hence its loan account was declared as NPA. In light of facts and circumstances, debt and default are reasonably established by the Financial Creditor - the Application filed by the Financial Creditor under Sub-section (4) of Section 7 of the Insolvency and Bankruptcy Code 2016 was complete in all respects. Therefore, the Adjudicating Authority admitted the petition filed under Section 7 of the Code. The objections raised by the Appellant/Corporate Debtor are unsustainable. First, the Appellant emphasised the alleged insufficiently stamped Term Loan Agreement. However, in addition to the Term Loan Agreement, the Financial Creditor relies on Demand Promissory Note, Hypothecation letter regarding depositing of title deed, a certified copy of the bank statement, and so many other documents filed along with the Application - Therefore, even if it is considered that the Term Loan Agreement is insufficiently stamped and it cannot be accepted in evidence, then also alleged debt and default are proved beyond doubt. Furthermore, the Application filed under Section 7 is complete. The Appeal is dismissed.

Issues Involved:
1. Maintainability of the petition filed under Section 7 of the Insolvency and Bankruptcy Code (IBC) 2016.
2. Admissibility of the Term Loan Agreement due to insufficient stamping.
3. Requirement of registration for the Term Loan Agreement and ancillary security documents.
4. Validity and enforceability of the Demand Promissory Note and Agreement of Guarantee.
5. Completeness of the application filed under Section 7 of the IBC.
6. Establishment of debtor-creditor relationship and default.

Issue-wise Detailed Analysis:

1. Maintainability of the Petition under Section 7 of the IBC:
The Appellant challenged the maintainability of the petition filed under Section 7 of the IBC on the grounds that the entire loan transaction was based on an inadequately stamped Term Loan Agreement, making it inadmissible in evidence. The Tribunal found that the petition was maintainable as the Financial Creditor had provided sufficient evidence of debt and default beyond the Term Loan Agreement.

2. Admissibility of the Term Loan Agreement:
The Appellant argued that the Term Loan Agreement was insufficiently stamped and thus inadmissible in evidence. The Tribunal acknowledged this argument but noted that the Financial Creditor had submitted additional documents, such as the Demand Promissory Note, Hypothecation letter, certified bank statements, and other relevant documents, which corroborated the debt and default independently of the Term Loan Agreement. Therefore, the inadmissibility of the Term Loan Agreement did not affect the overall evidence of debt and default.

3. Requirement of Registration for the Term Loan Agreement and Ancillary Security Documents:
The Appellant contended that the Term Loan Agreement and ancillary security documents required compulsory registration under Section 17 of the Registration Act, 1908, as they created rights, titles, and interests in immovable property. The Tribunal referred to case laws, including the Supreme Court's decisions in State of Haryana v. Navir Singh and United Bank of India v. Lekharam Sonaram & Co., to clarify that while a memorandum of deposit of title deeds requires registration, the actual deposit of title deeds does not. The Tribunal concluded that the documents submitted by the Financial Creditor did not necessitate compulsory registration.

4. Validity and Enforceability of the Demand Promissory Note and Agreement of Guarantee:
The Appellant argued that the Demand Promissory Note and Agreement of Guarantee were not legally valid and enforceable due to their dependence on the unregistered Term Loan Agreement. The Tribunal dismissed this argument, stating that the Financial Creditor had provided sufficient evidence of debt and default through other documents, making the enforceability of the Demand Promissory Note and Agreement of Guarantee irrelevant to the case.

5. Completeness of the Application Filed under Section 7 of the IBC:
The Appellant claimed that the application under Section 7 was incomplete as it lacked necessary documents mandated by the IBC, such as records of default recorded with the information utility. The Tribunal found that the Financial Creditor had submitted all required documents, including the Term Loan Agreement, Demand Promissory Note, Hypothecation letter, certified bank statements, and other relevant evidence, fulfilling the requirements of Section 7(3) of the IBC.

6. Establishment of Debtor-Creditor Relationship and Default:
The Appellant argued that there was no debtor-creditor relationship or default as defined under Sections 5(7) and 5(8) of the IBC. The Tribunal found that the Financial Creditor had sufficiently established the debtor-creditor relationship and default through the submitted documents. The Corporate Debtor's loan account had been declared a Non-Performing Asset (NPA), and the outstanding amount of ?6,39,13,042 was due and unpaid, confirming the default.

Conclusion:
The Tribunal dismissed the appeal, finding no merit in the Appellant's arguments. The objections raised by the Appellant were deemed unsustainable, and the evidence provided by the Financial Creditor was sufficient to establish debt and default. The application under Section 7 of the IBC was complete, and the petition was maintainable. The appeal was dismissed with no order as to costs.

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