Insufficiently Stamped Agreement Between Parties , Not A Ground To Dismiss CIRP Applications :NCLT Mumbai

Brief Facts:

Q West Infrastructure Private Limited (Applicant/ Financial Creditor), a non-banking finance company, filed a Company Petition seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against Starwort Engineers Private Limited (Corporate Debtor/ Respondent). The petition was filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, read with Rule 4 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016 which alleged that the Corporate Debtor defaulted on repayment of an outstanding principal debt amounting to INR 17,90,73,973/-.

The dispute arose from an Inter Corporate Deposit (ICD) Agreement executed wherein the Financial Creditor disbursed INR 11,00,00,000/- to the Corporate Debtor at an interest rate of 15% per annum. The repayment of this amount, including accrued interest, was originally due on November 10, 2021. However, the Corporate Debtor requested an extension of the repayment date. Despite the extension, the Corporate Debtor failed to meet the revised deadline. Subsequently, a settlement agreement was reached where the Corporate Debtor agreed to repay INR 11,00,00,000/- along with the accrued interest in two installments. When the Corporate Debtor failed to adhere to this settlement, the Financial Creditor issued a Demand cum Invocation Notice. Subsequently, it approached the NCLT.

In its defense, the Corporate Debtor contended the Financial Creditor has not provided valid evidence to substantiate the existence of the financial debt and default. It pointed out that the Inter-Corporate Deposit Agreement and the Settlement Agreement, which the Financial Creditor relies on, are insufficiently stamped according to the Maharashtra Stamp Act, 1958. The Corporate Debtor argued that these documents should have been stamped in accordance with the law to be admissible in evidence.

Observations by the NCLT:

The NCLT noted that the primary goal of the IBC is to facilitate the revival of distressed companies rather than merely enforcing recovery of debts. The NCLT referred to the Supreme Court's decision in the case of Swiss Ribbons Pvt. Ltd. & Anr. Vs. Union of India & Ors., which highlighted that the IBC is designed to protect and revive corporate debtors rather than functioning solely as a debt recovery mechanism.

The NLCT noted that proceedings under Section 7 of the IBC are not intended to be recovery proceedings. Instead, they focus on resolving the distressed status of a corporate debtor. The NCLT pointed out that the IBC does not require strict adherence to loan agreements or security documents to establish the existence of debt and default. Other forms of evidence, such as bank statements and financial records, can be sufficient.

The NCLT noted that even if the documents in question were deemed insufficiently stamped, the evidence provided, including bank statements and financial records, demonstrated the existence of debt and default.

Further, the NCLT ˍeld that inadequacies in document stamping do not preclude the admission of the application under Section 7 of the IBC. It held that the Corporate Debtor failed to repay its debt and was in a financial position that necessitated resolution. Given that the application was filed within the prescribed period of limitation, the NCLT decided to admit the application and proceed with the Corporate Insolvency Resolution Process.

Case Title: In the matter of Q West Infrastructure Private Limited vs Starwort Engineers Private Limited

Case Number: CP(IB)No. 229/MB/2024

For the Financial Creditor : Mr.Anirudh Lad, Advocate

For the Corporate Debtor : Mr.Sameer Singh,Advocate

Date of Judgment: 16.07.2024

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