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TMI Blog2022 (8) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Judicial Member of the National Company Law Tribunal, Mumbai Bench (Adjudicating Authority) in company petition CP (IB) No. 1632 /MB/2019 (hereinafter called the Impugned Order) and the order dated 10.2.2022 in C.P 1632/I B/MB/2019. The Appellant is aggrieved by the Impugned Order which allowed the initiation of Corporate Insolvency Resolution Process (in short CIRP ) on the basis of documents namely Secured Redeemable Non-Convertible Debentures Subscription Agreement dated 1.3.2014 and Debenture Trust Deed dated 1.3.2014, both of which are insufficiently stamped and under the Maharashtra Stamps Act which could not be admitted as evidence of debt and default. 2. It is the case of the Appellant that the Corporate Debtor M/s. Satra Properties (India) Ltd. (in short SPIL ) is engaged in the business of real estate and development of residential and commercial properties, and in order to execute some projects of the corporate debtor it proposed to raise finances up to Rs. 56 crores by way of issuing non-convertible debentures (in short NCDs ). He has stated that Respondents No. 2 and 3, namely, Mr. Mayank J. Shah and Mrs. Shruti Mayank Shah had an ongoing business relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porate debtor started depositing the monies due to be deposited in the escrow account, in the current bank account of Satra Properties (India) Ltd. He has further claimed that from October, 2017 onwards the Satra Group (which includes the corporate debtor Satra Properties (India) Limited) entered into negotiations with MJS Group (to which Respondents No. 2 and 3 belong) and IIFL group for amicable settlement of liabilities and a settlement was arrived at (hereinafter called Settlement ), in the course of a meeting held on 31.1.2018, which is recorded in the minutes of this meeting. He claims that the remaining 4330 NCDs amounting to Rs.43.30 crores which remained to be redeemed were part of the overall settlement between the Satra Group, MJS group and IIFL. The Appellant has further stated that in accordance with the Settlement , the Satra group took various steps, which included appointment of MJS group representatives on the board of Satra Property Developers Pvt. Ltd. (in short SPDPL ), transfer of 49% of the shareholding in SPDPL to MJS Group, and procuring NOC from Airports Authority of India for SPDPL project. Thereafter, in two other meetings held between the representati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust Deed, and the third member gave his opinion on the question of law raised by the original two-member bench as follows:- 11. For the foregoing reasons, I am of the considered opinion that the proper course of action that needs to be adopted is to dismiss the above Misc. Application without getting into the issue of stamp duty as it is irrelevant and uncalled for a Section 7 Application more so when the debt and default are provided otherwise without looking into those documents. However, the Petitioner/Corporate Debtor is at liberty to raise the above issue before the appropriate authority before whom the Financial Creditors relies on the above documents as evidence for enforcing their rights under the above documents. 7. We thus note that the original bench which considered the section 7 application filed by Respondent No. 1, admitted it, but differed on the question of impounding of the two above-mentioned documents for payment of requisite stamp duty in accordance with the Maharashtra Stamp Act. The Appellant has challenged the Impugned order in this appeal. The issues that arise in this appeal are two-fold:- (i) Whether Redeemable Non-Convertible Debentures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he debenture subscription agreement and debenture trust deed stood novated, a fact which should have been considered by the Adjudicating Authority while admitting the section 7 application. 10. The Learned Senior Counsel for Appellant has vehemently argued that the two documents, namely, Debenture Trust Deed and Redeemable Non-Convertible Debenture Subscription Agreement, which have been relied upon by the Respondents for establishing debt are insufficiently stamped and therefore, as per section 34 of The Maharashtra Stamp Act, any instrument which is insufficiently stamped cannot be acted upon or taken as evidence in a court proceeding. He has further argued that this is not merely a technical defect, but goes to the very root of the legality of the two documents and therefore, the initiation of CIRP on the basis of these documents ought to be set aside. He has referred to the decision of the Hon ble Supreme Court in the matter of Innoventive Industries Ltd. vs. ICICI Bank Anr (2018) 1 SCC 407 wherein it is held that when a debt which is due, is interdicted by some law, the section 7 application should be rejected. He has also argued that since all the existing liabilities in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal paperbook, Vol.III) and another letter dated 24.1.2019 (attached at pg. 533 of appeal paperbook, vol. III) to show that the parties to the letter agreement dated 1.10.2018 and supplemental letter agreement dated 16.10.2018 failed to fulfill their obligations, holding that the transaction as contemplated therein was not executable and therefore the agreement is non-est and void. He has thus claimed that letter dated 14.2.2018, which was sent after the meeting dated 31.1.2018 wherein the proposed settlement was discussed, to show that a request for reduction of interest on Non-Convertible Debentures from 12% to 9% was made even after the Settlement that the corporate debtor purports to be an all-encompassing settlement covering the NCDs and their redemption. He has contended that it is obvious that if the Settlement was all-encompassing, there was no need for the corporate debtor to send a letter requesting for resetting the interest rate for the NCDs. 13. The Learned Counsel for Respondents has further argued that the original redemption schedule was extended and the same were redeemable in 5 tranches from 2/4/2019 to 2/12/2019 and this time schedule is much after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Escrow agent vide his letter dated 8.8.2019 returned back all the documents kept with them in escrow. He has claimed that the stand taken by the Appellant that the amount due and payable as a result of default in redemption of NCDs were part of the Settlement does not stand to any reason in view of the circumstances and actions of all the related parties including the corporate debtor. 14. With regard to the payment of insufficient stamp duty with respect to the two documents viz. Debenture Trust Deed and Redeemable Non-Convertible Debenture Subscription Agreement, the Learned Counsel for Respondents has claimed that the proceedings under IBC code are in the nature of summary proceedings and the Adjudicating Authority does not have to receive or record evidence in such proceedings in accordance with the provisions of the Evidence Act. Moreover, he has claimed, the insufficiency in the payment of stamp duty is attributable only to the corporate debtor and the corporate debtor cannot take advantage of his own wrong by setting up the defence of insufficient stamping of the documents which is basically his failing. 15. Finally, the Learned Counsel for Respondents has argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Axis Bank Limited is the escrow bank and IL FS First Company Limited is the differential trustee and the escrow account has to be opened by SPIL in the name of Satra Properties (India) Ltd-Escrow A/c and the escrow bank is given the responsibility of operating the escrow account. Furthermore, clause A of the recital mentions that 'one of the terms of the issuance of debentures is that the Receivables from the proposed project at Jodhpur, shall be routed through/deposited in the Escrow Account . Moreover, the said debentures is to be secured through first equitable mortgage of a commercial plot in Jodhpur ad-measuring 4,141 square yards, personal guarantee of Mr. Praful N. Satra and deposit of title deeds of Jodhpur plot. 18. The minutes of the meeting dated 31.1.2018 (attached at page 497 of appeal paper book, Vol. III) shows that Mr. Praful Satra and/or his different entities have availed finance from MJS Group across several entities, out of which only INR 200 crore is recorded to be adjusted against the Ghatkopar Project. Similarly, the MoM also state that Mr. Praful Satra and/or his entities availed certain credit facilities from IIFL which would be settled fully and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n agreement as a result of the larger settlement. 20. Our inference is also supported by the fact that pursuant to various requests by the Corporate Debtor, the original redemption schedule of the NCDs which was 12 months after the issue of debentures, was extended and the same were to be repaid in five tranches from 2nd April 2019 to 2nd December 2019. We also accept the argument that if the NCDs were to be a part of the overall larger settlement dated 31.1.2018, why would the corporate debtor offer redemption of NCDs to be made in five tranches from 2nd April 2019 to 2nd December 2019 as these dates are much after the purported Settlement . We also note 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. Further, our view about the NCDs being kept out of the overall settlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts elucidated hereinafter, clearly establish that the debt and liabilities under the loan agreements that are the subject matter of this Petition stood discharged and the agreements stand novated in view of the overall settlement and larger understanding and therefore, there cannot be any default, as alleged or otherwise. (emphasis supplied) 24. 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. 25. The Learned Senior Counsel for Appellant has referred to the judgments of Hon ble Supreme Court in Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Limited (2019) 9 SCC 209 and SMS Tea Estates Private Limited v. Chandmari Tea company Private Limited ( supra) to claim that documents that are insufficiently stamped cannot be admitted as evidence, and therefore, the Redeemable Non-Convertible Debenture Subscription Agreement and Debenture Trust Deed should not have been considered by the Adjudicating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns (P) Ltd. (supra). In addition to this, he also considered the pertinence of the IU in paragraph 31 before quoting the other sources of evidence which evidence a financial debt, in the following words: 32. Apart from the record maintained by such utility, Form I appended to the Insolvency and Bankruptcy (Adjudicating Authority) Rules, 2016, makes it clear that the following are other sources which evidence a financial debt: a) Particulars of security held, if any, the date of its creation, its estimated value as per the creditor; b) Certificate of registration of charge issued by the registrar of companies (if the corporate debtor is a company); c) Order of a court, tribunal or arbitral panel adjudicating on the default; d) Record of default with the information utility; e) Details of succession certificate, or probate of a will, or letter of administration, or court decree (as may be applicable), under the Indian Succession Act, 1925; f) The latest and complete copy of the financial contract reflecting all amendments and waivers to date; g) A record of default as available with any credit information company; h) Copies of entries in ..... 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