NCLT Mumbai Bench Rejects Claim Of Insufficiency Of Stamp Duty, Proceedings Under IBC Not To Enforce Guarantee
The National Company Law Tribunal Mumbai bench of Justice V. G. Bisht (Judicial Member) and Prabhat Kumar (Technical Member) has rejected contention regarding the insufficiency of stamp duty on the guarantee agreement. The bench held that the proceedings under the Insolvency and Bankruptcy Code (IBC) are intended to address insolvency issues rather than to enforce...
The National Company Law Tribunal Mumbai bench of Justice V. G. Bisht (Judicial Member) and Prabhat Kumar (Technical Member) has rejected contention regarding the insufficiency of stamp duty on the guarantee agreement.
The bench held that the proceedings under the Insolvency and Bankruptcy Code (IBC) are intended to address insolvency issues rather than to enforce the guarantee itself.
Brief Facts:
The matter pertained to a petition filed under Section 95 of the Insolvency and Bankruptcy Code, 2016 by Bank of Baroda (Petitioner/Financial Creditor/Creditor) seeking to initiate insolvency proceedings against Jitendra V Kikavat (Respondent/Personal Guarantor/Guarantor) for the recovery of a sum amounting to Rs. 66,35,16,757.11/-.
The Petitioner claimed that the Respondent served as a personal guarantor for M/s Mahavir Roads and Infrastructure Private Limited (Corporate Debtor/borrower). The Corporate Debtor's account was declared a Non-Performing Asset (NPA) by the Bank of India in 2016. The Bank of India subsequently filed an application under Section 7 of the IBC, 2016 which led to the initiation of Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor and the Respondent was suspended from managing the Corporate Debtor.
The Petitioner submitted documents including a sanction letter, a deed of guarantee, and a demand notice invoking the guarantee concerning unpaid debt owed by the Corporate Debtor. According to the guarantee deed, the Respondent is liable to pay Rs. 30,00,00,000/- plus interest at a rate of 14.25% and other costs. A demand notice was issued by the Petitioner requesting payment of Rs. 66,35,16,757.11/- along with unapplied interest and relevant charges. The Respondent did not respond or make any payments following this notice.
The Respondent contended that the Guarantee Letter was insufficiently stamped according to the Maharashtra Stamp Act, 1958, which requires stamp duty of Rs. 6,00,000/- for a guarantee of Rs. 30,00,00,000/-. Additionally, the Respondent argued that the CIRP initiation and the petition were affecting ongoing settlement efforts with the Bank of India and that the amount claimed was unjustly inflated.
Observations by the NCLT:
The NCLT noted that the Corporate Debtor defaulted on the repayment of the loan amount provided by the Financial Creditor. The default was not only by the Corporate Debtor but also involved Jitendra V Kikavat, who was the Personal Guarantor for M/S Mahavir Roads and Infrastructure Pvt. Ltd. The NCLT noted that the default by the Personal Guarantor was evident from the demand notice issued under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019.
The NCLT noted that the Petitioner provided a Commercial Credit Information Report which confirmed the existence of the debt. Given these circumstances, the petition was deemed to be within the prescribed limitation period.
Regarding the Respondent's challenge to the validity of the Guarantee Agreement based on insufficiency of stamp duty, the NCLT referred to the Supreme Court decision in N.N. Global Mercantile vs. Indo Unique Flame & Ors. The Supreme Court clarified that under Section 35 of the Stamp Act, an instrument with insufficient stamp duty is not void but rather inadmissible in evidence. The Stamp Act provides a procedure to cure such defects.
The NCLT noted that the guarantee agreement, though questioned for insufficient stamp duty, was validly invoked which created an obligation for the Respondent to pay the demanded amount. The bench held that the proceedings under the IBC are designed for the resolution of insolvency issues rather than enforcement of the guarantee.
Therefore, the Insolvency Resolution Process was initiated against Mr. Jitendra V Kikavat.
Case Title: Bank of Baroda vs Mr. Jitendra V Kikavat
Case Number: C.P. (IB) NO. 139/MB/2022
For the Petitioner/Financial Creditor: Mr. Kairav Trivedi, Advocate
For the Respondent : Mr. Siddharth Shankar, Advocate i/b Agarwal and Dhanuka Legal
Date of Judgment: 30.07.2024
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