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TMI Blog2024 (5) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... ng rise to this appeal are: (i) Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd. (KAIJS Bank), a cooperative bank sanctioned a term loan of Rs.10 Crore to Shri Tradco Deesan Pvt. Ltd. (Borrower No.1) and Rs.15 Crore term loan was sanctioned to Shri Tradco India Pvt. Ltd. (Borrower No.2) on 27.03.2019. (ii) On 28.03.2019, Bairagra Builder Pvt. Ltd. (Corporate Debtor) executed two registered simple mortgage deeds in favour of KAIJS Bank for securing the above mentioned two loans. (iii) On 29.03.2019, two loan agreements for Rs.10 Crore and Rs.15 Crore each were executed by KAIJS Bank with both the Borrowers. (iv) On 29.03.2019, two guarantee bonds were executed by the Corporate Debtor guaranteeing the repayment of both the loans. (v) On 29.04.2019, Deeds of Mortgage was registered by Corporate Debtor with the ROC. (vi) On 27.04.2019 and 03.05.2019, Deeds of Guarantee were registered by the Corporate Debtor with ROC. (vii) On 27.01.2020, Borrower-1 and Borrower-2 loan accounts were declared non-performing assets. (viii) On 21.03.2020, several loan accounts including the Borrowers loan accounts were assigned by KAIJS Bank in favour of Encore Asset Reconstruction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd issued consequential orders. 2. This appeal was immediately filed by the Appellant after passing of the impugned order. When appeal came for consideration before this Tribunal on 26.05.2023, a statement was made by the Appellant that Appellant has approached the Financial Creditor and given a proposal for settlement and the Appellant is still ready and willing to enhance the offer. This Tribunal passed following order on 26.05.2023: "ORDER 26.05.2023: Learned Counsel for the Appellant submits that after the impugned order was passed, the Appellant approached the Financial Creditor and given a proposal for settlement. It is submitted that Appellant is still ready and willing to enhance the offer which offer shall be made within 48 hours. Let this Appeal be taken on 31st May, 2023. In the event CoC has not been constituted, the same shall not be constituted till 31.05.2023." 3. On 02.06.2023, following statement was recorded on behalf of the Respondent: "ORDER 02.06.2023: Learned Counsel for the Appellant submits that the Appellant is present. Learned Counsel for the Respondent submits that the Respondent is also present. Counsel for the Respondent submits that the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready to pay Rs.24.10 Crore and Court noticing that issue between the parties is time of payment, by order dated 16.08.2023, allowed three months' further time. Order dated 16.08.2023 is as follows: "ORDER 16.08.2023: Learned Counsel for the Appellant submits that it is already recorded in the order of the Court that the Appellant is ready to pay the amount of Rs. 24.10 crores as also agreed by the Respondent. The issue between the parties was regarding the time of payment. In the order of this Tribunal dated 05.07.2023 and 28.07.2023 the following was noticed:- "05.07.2023: Learned Counsel for the appellant referring to the affidavit submits that appellant is still ready to pay the amount of Rs. 24.10 crores, however, they require six months time. It is further submitted that the appellant has also given an offer to the Bank to sell the mortgage property for which reserve price of the failed notice is Rs. 23 crores. Learned Counsel for the Respondent submits that the six months time is a too long period and in event the appellant is ready to pay within three months, the Respondent shall accept the offer with 25% up front. It is further submitted that Respondent Bank shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted to the Appellant but the Appellant has not yet deposited the amount and no further opportunity be granted and the matter be heard. 3. Considering the submission of the Appellant that a last opportunity be granted to deposit the amount as per the order dated 16.08.2023, we permit the Appellant or proposed investors to deposit the amount by 04.12.2023. 4. Let the amount be deposited as directed earlier. We make it clear that in event the amount is not deposited, the matter shall be heard. All Intervention Applications filed be also considered on the next date. 5. Learned Counsel for the interveners seeks liberty to file hardcopy of the applications. He may do so during the course of the day. 6. List the Appeal on 05.12.2023. Interim order to continue." 9. Thereafter, the appeal was taken on several dated and interim order was continued from time to time but Appellant failed to comply the commitment as reflected in orders, as extracted above. 10. Learned counsel for the Appellant proceeded to address arguments on merits. After hearing the parties, judgment was reserved on 10.04.2024. 11. From the above proceeding which took place in this appeal, it is clear that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be relied and acted upon which is inadmissible. Learned counsel for the Appellant has relied on judgment of Hon'ble Supreme Court in "In Re: Interplay, 2023 SCC Online SC 1666". It is submitted that exemption to stamping under Section 5(1A) of SARFAESI Act, is not applicable, in view of the Maharashtra Stamp Act which has repealed the Indian Stamp Act in the State of Maharashtra. It is submitted that the Mortgage Documents cannot create any financial debt as mortgage cannot amount to a financial claim against the Corporate Debtor. Appellant has relied on judgment of Hon'ble Supreme Court in "Anuj Jain vs. Axis Bank Limited, (2020) 8 SCC 401". There being no valid Assignment Agreement in favour of the Respondent No.1, invocation of guarantee by Respondent No.1vide its notice dated 20.05.2021 is not valid. Shri Dutta submits that the very basis of the claim of Respondent No.1 i.e. the Assignment Deed dated 07.08.2020 being inadmissible, Section 7 application deserve to be rejected and the Adjudicating Authority committed error in admitting Section 7 application. 15. Shri Sudhir Makkar, learned senior counsel appearing for the Respondent refuting the submissions of learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a registered Assignment Deed by which debt has been assigned to Respondent No.1 by the Financial Creditor. 16. Learned counsel for the Intervener, who is none other than wife of the Appellant claiming to be holding 49.50% share of the Corporate Debtor, submits that the Intervener was not aware of the mortgage and further inspection of minute book of Corporate Debtor revealed that it has passed two resolutions dated 28.03.2019 giving Corporate Guarantee of Rs.10 Crore and Rs.15 Crore in favor of the Cooperative Bank. Reference has been made to the Company Petition filed by the Intervener under Section 241-244 of the Companies Act before NCLT, Mumbai highlighting the acts of oppression and mismanagement for declaring the two resolutions passed, creation of Corporate Guarantee and Simple Mortgage Deed as null and void. It is submitted that the Company Petition under Section 241-242 has been dismissed on 10.08.2023 against which Company Appeal has already been filed by the Intervener. 17. We have considered the submissions of learned counsel for the parties and perused the record. 18. From the facts and the material on the record, it is undisputed that the loan was sanctioned to B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Rs.10,00,00,000/- (RUPEES TEN CRORES ONLY) under Mortgage Term Loan at any one time and interest thereon as also the costs, charges and expenses that may become payable by the mortgagors/borrowers to the mortgagee upon any account/s opened or to be opened in or credit facilities the name of the mortgagors/borrowers from time to time for granting credit or other financial facilities to the mortgagors and such account/s is/are to be considered to be closed for the purpose of this security and this security shall be considered to be closed for the purpose of this security and this security shall not be considered as exhausted or discharged or released merely by reason of the said account/s being brought to credit at any time or from time to time." 19. It is further relevant to notice that the Corporate Debtor has also executed two Deeds of Guarantee dated 29.03.2019 on behalf of the Corporate Debtor which guarantee was for Rs.10 Crores and 15 Crores, respectively. 20. The mortgage Deeds executed by the Corporate Debtor was duly stamped as per the Maharashtra Stamp Act, 1958. Appellant itself has brought on the record the Registered Mortgage Deed dated 28.03.2019 which contains pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uisition of the financial assets by the asset reconstruction company is for the purposes other than asset reconstruction or securitisation.] (2) If the bank or financial institution is a lender in relation to any financial assets acquired under sub-section (1) by the 1[asset reconstruction company], such 1[asset reconstruction company] shall, on such acquisition, be deemed to be the lender and all the rights of such bank or financial institution shall vest in such company in relation to such financial assets." 24. Learned counsel for the Appellant referring to Section 5 Sub-section (1A) submits that although by virtue of above provision there was exemption from stamp duty in accordance with the provisions of section 8F of the Indian Stamp Act, 1899 but the Indian Stamp Act having been repealed by virtue of Maharashtra Stamp Act, 1958, the exemption of stamp duty is not available with regard to acquisition of rights and interest by Asset Reconstruction Company. Learned counsel for the Appellant has referred to Schedule-II r/w Section 76 of Maharashtra Stamp Act by virtue of which Indian Stamp Act, 1899 has been repealed in the State of Maharashtra. 25. Section 5 of the SARFAESI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal for Jaypee Infratech Limited vs. Axis Bank Ltd. & Ors., MANU/SC/0228/2020: (2020) 8 SCC 401", which is to the following effect: "22.2.1. As regards construction of a deeming fiction, this Court pointed out the basic and settled principles in the following: "88. In every case in which a deeming fiction is to be construed, the observations of Lord Asquith in a concurring judgment in East End Dwellings Co. Ltd. v. Finsbury Borough Council: 1952 AC 109 (HL) are cited. These observations read as follows: (AC pp. 132-133) "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it.... The statute says that you must Imagine a certain state of affairs. It does not say that, having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." These observations have been followed time out of number by the decisions of this Court. (See, for example, M. Venugopal v. Divisional Manager, LIC: MAN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean that wherever it is used it has that effect; to deem means simply to judge or reach a conclusion about something, and the words "deem" and "deemed" when used in a statute thus simply state the effect or meaning which some matter or thing has the way in which it is to be adjudged; this need not import artificiality or fiction; it may simply be the statement of an undisputable conclusion.' (Per Windener, J. in Hunter Douglas Australia Pty. v. Perma Blinds: MANU/AUSH/0055/1970: (1970) 44 Aust LJ R 257) 15. When a thing is to be "deemed" something else, it is to be treated as that something else with the attendant consequences, but it is not that something else (per Cave, J., in R. v. Norfolk County Court: (1891) 60 LJ QB 379). 'When a statute gives a definition and then adds that certain things shall be "deemed to be covered by the definition, it matters not whether without that addition the definition would have covered them or not.' (Per Lord President Cooper in Ferguson v. McMillan 1954 SLT 109 (Scot)) 16. Whether the word "deemed" when used in a statute established a conclusive or a rebuttable presumption depended upon the context (see St. Leon Village Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tee to secure the loan facility. The above provision is sufficient to hold that Respondent No.1 was fully competent to file Section 7 application as a lender to the facilities extended to Borrower-1 and Borrower-2 of which Corporate Debtor was Guarantor and Mortgagor. 28. Learned counsel for the Respondent has submitted that the stamp duty paid on the Assignment Agreement was in accordance with the Maharashtra Stamp Act, 1958. Learned counsel for the Respondent has referred to a Notification dated 06.05.2002 issued by Revenue and Forests Department, Government of Maharashtra under which stamp duty of maximum one lakh was fixed on instrument of assignment of receivables. Notification dated 06.05.2002 is as follows : REVENUE AND FORESTS DEPARTMENT Mantralaya, Mumbai 400 032, dated the 6th May 2002. Order BOMBAY STAMP ACT, 1958. No. Mudrank-2002/875/C.R. 173-M-1. ~ in exercise of the powers conferred by clause (a) of section 9 of the Bombay Stamp Act, 1958 (Bom. LX of 1958), and in supersession of Government notification, Revenue and Forests Department No. STP. 1094/C.R.-369/(c).M-1, dated the 11th May 1994, the Government of Maharashtra hereby reduces with effect from 1st Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assignment Agreement or Guarantee Deed shall have no bearing on the proceedings which have already admitted on 16.05.2023. 32. As noted above, it is also relevant to note that in this appeal, Appellant has made a statement that he is ready to pay amount of Rs.24.10 Crores to the Financial Creditor as settlement of his dues and after recording this statement he filed complaints in August, 2023, which indicate that the conduct of the Appellant was not bonafide since very beginning. Before this Tribunal he made statement that he is taking steps to honour its commitment and on the other hand filed complaint with regard to insufficient stamp in the Assignment Deed as well as the Guarantee Deed. In any view of the matter, the complaints filed by the Appellant subsequent to passing of order impugned has no bearing. 33. Learned counsel for the Appellant has also relied on the judgment of Hon'ble Supreme Court in "In Re: Interplay between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899, 2023 SCC Online SC 1666". In the said case, the Hon'ble Supreme Court was called upon to decide issue in context of the Arbitration and Conciliation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in the present reference. Complementing the same, I would like to provide additional justifications for the final conclusion, viz., unstamped or insufficiently stamped instruments inadmissible in evidence in terms of Section 35 of the Indian Stamp Act, 18991, are not rendered void and void ab initio; an objection as to the under-stamping or non-stamping of the underlying contract will not have any bearing when the prima facie test, "the existence of arbitration agreement", is applied by the courts while deciding applications under Sections 82 or 113 of the Arbitration and Conciliation Act, 19964; and an objection as to insufficient stamping of the underlying agreement can be examined and decided by the arbitral tribunal. Accordingly, the majority decision of the Constitution Bench in N.N. Global Mercantile (P) Ltd. v. Indo Unique Flame Ltd.5 should be overruled." 35. Further reliance has been placed on Paras 7 to 11 of the judgment, which are as follows: "7. Section 35 states that an instrument not duly stamped and chargeable with duty shall not be admitted in evidence by any person having by law or by consent of the parties the authority to receive evidence. The words "for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon by such person or a public officer till it is duly stamped. As rightly observed by Hon'ble the Chief Justice, Section 35 deals with admissibility etc. of an instrument and not invalidity." 36. Admittedly, Justice Sanjiv Khanna has recorded his concurrence with the judgment delivered by the larger bench. In Para 42 of the judgment, concurring with the conclusions following has been held: "42. For the reasons set out in detail by Hon'ble the Chief Justice and recorded herein, I agree with the conclusions drawn, and referred to above. I also concur with the other findings and ratio in the judgment by Hon'ble the Chief Justice." 37. The above judgment clearly indicates that the conclusions which were summarized in Para 224 were unanimous conclusions. It was held by the larger bench that agreements which are not stamped or are inadequately stamped are inadmissible in evidence under Section 35 of the Stamp Act. It was held that such agreements are not void or void ab initio or unenforceable. 38. Present is a case where the Assignment Agreement which is challenged by the Appellant is a registered document duly stamped for Rs.1,01,500 and it is submitted by the Respondent that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interim resolution professional ("IRP" for short) in the corporate insolvency resolution process ("CIRP" for short) concerning the corporate debtor company viz. Jaypee Infratech Ltd. ("JIL" for short; also referred to as "the corporate debtor") seeking avoidance of certain transactions, whereby the corporate debtor had mortgaged its properties as collateral securities for the loans and advances made by the lender banks and financial institutions to Jaiprakash Associates Ltd. ("JAL" for short), the holding company of JIL, as being preferential, undervalued and fraudulent, in terms of Sections 43, 45 and 66 of the Insolvency and Bankruptcy Code, 2016 (hereinafter also referred to as "the Code" or "IBC")." 42. In the above case argument was raised on behalf of lenders of JAL that they are Financial Creditors of the Corporate Debtor, which argument was not accepted and repelled. It is relevant to notice Para 46 where essentials of financial debt and financial creditor have been noticed. Para 46 of the judgment is as follows: "46. Applying the aforementioned fundamental principles to the definition occurring in Section 5(8) of the Code, we have not an iota of doubt that for a debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance to the corporate debtor nor towards protecting any facility or security of the corporate debtor, it cannot be said that the corporate debtor owes them any "financial debt" within the meaning of Section 5(8) of the Code; and hence, such lenders of JAL do not fall in the category of the "financial creditors" of the corporate debtor JIL." 44. The present is a case where the Corporate Debtor has given a guarantee. The Corporate Debtor having given Corporate Guarantee, both the Cooperative Bank (the original lender) and Respondent No.1 (the Assignee) were fully entitled to file Section 7 application against the Corporate Debtor. The judgment of Hon'ble Supreme Court in Anuj Jain's Case was on its own facts and there are distinguishing features in the present case with those of the Anuj Jain's Case. 45. Learned counsel for the Appellant has also relied on judgment of Hon'ble Supreme Court in "Asset Reconstruction Company (India) Limited vs. Bishal Jaiswal, (2021) 6 SCC 366" in response to the submission of the Respondent that the Balance Sheet of the Corporate Debtor also reflect the liabilities of the Corporate Debtor. It is submitted that the Appellant's Balance Sheet have no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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