Insufficiently Stamped Agreements Do Not Present A Bar To Application U/S 7 Of IBC: NCLT Bengaluru
Mohd.Rehan Ali
12 April 2025 8:30 AM
The National Company Law Tribunal (NCLT), Bengaluru Bench, consisting of Shri. Sunil Kumar Aggarwal, Member (Judicial), and Shri. Radhakrishna Sreepada, Member (Technical), admitted a petition filed under Section 7 of the IBC, 2016, read with Rule 4 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016, seeking to initiate the Corporate Insolvency...
The National Company Law Tribunal (NCLT), Bengaluru Bench, consisting of Shri. Sunil Kumar Aggarwal, Member (Judicial), and Shri. Radhakrishna Sreepada, Member (Technical), admitted a petition filed under Section 7 of the IBC, 2016, read with Rule 4 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016, seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, M/s. Redwoods Infrastructure Private Limited. The tribunal reiterated that insufficiently stamped/unstamped agreements do not present a bar to a Section 7 application. The tribunal also observed that the mere fact that the debt is disputed does not affect the application, as long as the debt is due.
Background
The corporate debtor sought financial assistance from the financial creditor to expand its business. A loan agreement was signed between them on October 25, 2016, for lending a sum of Rs. 1 Cr. A demand promissory note dated October 20, 2016, was also executed. The agreement stipulated a six-month repayment term, which later extended to December 31, 2020. The financial creditor issued a legal notice to the corporate debtor seeking repayment of the outstanding amount. The corporate debtor failed to make the payment; hence, the application was filed by the financial creditor.
Contention of the Parties
The respondent contended that the present application is barred by the limitation, and the requisite stamp duties have also not been paid on the instrument on which the petition is filed. The respondent submitted that the loan agreement dated October 25, 2016, has been executed on stamp paper and is not sufficiently stamped as per the Karnataka Stamp Act, 1957. It was also highlighted that the signatures of the witnesses were not there on the stamp paper; hence, the attestation of the document is incomplete.
The respondent also contended that the demand promissory note is not an enforceable document as it does not meet all the requirements of a promissory note as defined under the Negotiable Instrument Act, 1881.
Observations of the Adjudicating Authority
The tribunal observed that the repayment date was mutually extended by the parties, hence, the contention of the respondent that the petition is barred by the limitation is not sustainable. The tribunal found the acknowledgment of the loan amount in the balance sheet of the corporate debtor. While placing reliance on the Hon'ble Supreme Court ruling in the case of Innoventive Industries Ltd. vs. ICICI Bank and Ors. (2018) 1 SCC 407, the tribunal discussed that the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred.
While considering the issue of debt being insufficiently stamped and not properly attested, the tribunal cited the NCLT Mumbai Bench decision in the case of Axis Trustee Services Limited vs Reliance Infrastructure Consulting & Engineers Pvt. Ltd., CP (IB) 1/MB/2023, and held that it is a well settled law that insufficiently stamped/ unstamped agreements do not present a bar to a Section 7 application.
Case Title: M/s Embassy Services Private Limited v. Redwoods Infrastructure Private Limited
Case Number: CP (IB) No. 65/BB/2024
For Petitioner: Shri Srihari
For Respondent: None
Bench: Shri. Sunil Kumar Aggarwal, Member (Judicial), and Shri. Radhakrishna Sreepada, Member (Technical)
Order Date: 07/04/2025