NCLT Mumbai: Insufficiently Stamped Assignment Deed Transferring Loan To Corporate Debtor Is Void And No CIRP Can Be Initiated Under IBC

The National Company Law Tribunal ('NCLT'), Mumbai Bench, comprising of Justice V.G. Bisht (Retd.) (Judicial Member) and Mr. Prabhat Kumar (Technical Member) dismissed the Corporate Insolvency Resolution Process ('CIRP') and held that the Transfer of loan from Principal Borrower to Corporate Debtor through assignment agreement, which is not stamped is a void contract and CIRP under Section 7 of Insolvency and Bankruptcy Code, 2016 ('IBC') cannot be initiated against the Corporate Debtor.

Background Facts

A loan of Rs. 1.10 crores was availed by Modesto Logistics & Cargo Pvt. Ltd. (Modesto) from Vinsari Fruitech Ltd. (Financial Creditor). In 2021, Modesto approached Effort BPO Pvt. Ltd. (Corporate Debtor) to pay the loan due to its inability to pay.

A Deed of Assignment dated 01.04.2021 was entered into by the Corporate Debtor and the Financial Creditor basis which the outstanding amount was to be repaid within 6 months at an interest rate of 18% and Modesto would return the said amount to the Corporate Debtor within 12 months at an interest rate of 24%.

The Financial Creditor filed a CIRP petition under Section 7 of IBC against the Corporate Debtor as it failed to repay the amount of Rs. 1.10 crore with an interest rate of 18% from 01.04.2021.

Contention of the Corporate Debtor:

The Corporate Debtor contended that CIRP cannot be initiated unless the Assignment deed is impounded and adequately stamped. In the present case, the Assignment Deed is insufficiently stamped as only a stamp paper of Rs. 500 is affixed whereas the stamp duty payable is Rs.10,000 on the document since a debt of Rs.1.10 crores is assigned.

NCLAT Verdict:

The NCLT Mumbai dismissed the CIRP petition and held Transfer of loan from the Principal Borrower to the Corporate Debtor through an Assignment deed, which is not stamped is a void contract and insolvency u/s 7 of IBC cannot be initiated against the Corporate Debtor.

The Tribunal placed reliance on the recent Supreme Court decision in N.N. Global Mercantile Pvt . Ltd. v Indo Unique Flame Ltd. and Other which directed the Court or Public Authority to impound such instrument if it is unstamped or is found insufficiently stamped and mandates it to ensure that the Stamp Duty is paid as per the applicable Stamp Act before allowing enforcement of rights arising from such instrument.

Further, the principle was evolved in the decision that such a contract gets revived upon payment of duty with penalty under the Stamp Act. It follows that an instrument, insufficiently stamped or unstamped, is eclipsed by the shadow of insufficiency of stamp duty paid on such instrument and cannot be taken in evidence and once such shadow gets removed, the contract revives and becomes an enforceable instrument.

The Tribunal observed that presently, the assignment of debt by Modesto to the Corporate Debtor if the deed is insufficiently stamped, the debt cannot be said to be due from the Corporate Debtor, as the assignments which are legally carried out are only included in the definition of Financial Creditor under the Code.

In conclusion, NCLT directed that the affected party may file the appropriate application as per an enforceable Assignment date by approaching the collector of stamps, Mumbai, to decide upon the quantum of stamp duty payable on the document and thus, pay such stamp duty.

Case Title: Vinsari Fruitech Ltd. vs. Effort BPO Pvt. Ltd.

Case No.: CP (IB) No. 330/MB/2023

Counsel for Financial Creditor: Mr. Agam Maloo, Advocate

Counsel for Corporate Debtor: Mr. Yash, Advocate

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