Insufficiency Of Stamp On Loan Documents Not Relevant For Admissibility Of Section 7 Petition: NCLT Mumbai Reiterates

Background facts

Hybro Foods Private Limited (“Corporate Debtor”) availed a Credit Facility Loan from Religare Finvest Limited (“Original lender”) with a cash credit limit of Rs. 11,00,00,000 at a floating reference rate of 13% p.a. The Original Lender entered into an Assignment Agreement with Kotak Mahindra Bank Limited (“Financial Creditor”) on 09.10.2018 vide which the debt along with the rights and liabilities of the Original Lender were assigned to the Financial Creditor.

The Financial Creditor alleged that the Corporate Debtor defaulted in the repayments and the Financial Creditor issued two letters dated 23.09.2019 and 13.12.2019 demanding the outstanding amount. The Corporate Debtor issued a letter to the Financial Creditor seeking time for settlement of dues on 15.01.2020. Due to further continuous defaults between December 2019 and January 2020, the accounts of the Corporate Debtor became irregular and were classified as Non-performing Assets. The Financial Creditor issued a Demand Notice under Section 13(2) of SARFAESI Act, 2002 on 27.02.2020. Failing to reply to the Demand Notice, the Financial Creditor issued a letter dated 12.03.2020 recalling the facility till payment and realization. Hence the present petition under Section 7 of IBC was filed.

On the contrary, the Corporate Debtor submitted that the Assignment Deed is not duly stamped as per Section 18 of the Maharashtra Stamp Act, 1958 according to which any instrument executed outside the state has to be stamped within 3 months from the date it is first received in the state. It was alleged that since it is unclear when these documents were received from New Delhi, the document is insufficiently stamped. It was further alleged that the Financial Creditor on multiple occasions had claimed that only 90% of the loan was assigned from the Original Lender and the balance 10% continues to be due to the Original Lender. Hence since the Original lender has not been arraigned, the petition is liable to be dismissed. Further the Corporate Debtor alleged that the petition is hit by section 10A of IBC and that there is no privity of contract between the Financial Creditor and the Corporate Debtor. Hence the petition is liable to be dismissed.

Observations of the Tribunal

The Tribunal reiterated that the question of insufficiently stamped loan documents is not relevant while adjudicating upon the admissibility of a Petition under Section 7 of IBC. The Tribunal Relied on the Hon’ble Madras High Court judgment of SpiceJet Limited v/s Credit Suisse AG 2022 SCC OnLine Mad 112 which stated that it is not relevant if the document sought to be relied upon a sufficiently stamped or not. The thing which is to be verified is that whether the debt is bonafide disputed and whether the said defence is a substantial one.

The Tribunal further observed that Section 10A of IBC was introduced in order to protect defaulting borrowers by barring initiation of Corporate Insolvency Resolution Process applications for a limited duration of 1 year between 24.03.2020 till 25.03.2021. The intent of the legislature was to provide temporary protection to borrowers and the provision cannot be misused to set away a debt taken prior to the introduction of provision 10A. The loan account of the Corporate Debtor was classified as NPA on 31.01.2020 and the Demand Notice under SARFAESI Act, 2002 was issued on 27.02.2020 with further recall notice dated 12.03.2020. Since both the classification as NPA and Demand Notice are much prior to the period under Section 10A, the petition is not hit by Section 10A.

Further the Tribunal observed that the Assignment Agreement itself provided that the Financial Creditor has the right institute a recovery proceeding in its own name. Also the Corporate Debtor addressed the letter dated 15.01.2020 for requesting time for settlement of dues to the Financial Creditor and not the Original Lender, thus acknowledging the locus standi of the Financial Lender.

With the aforementioned observations, the Tribunal admitted the petition and initiated the CIRP against the Corporate Debtor.

Case:Kotak Mahindra Bank Ltd. Vs M/s Hybro Foods Private Limited

Case No. :C.P.(IB) No. 295 of 2022

Counsels for the Petitioner:Mr. Shyam Kapadia and Mr. Nikhil Rajani I/b. Ms. V. Deshpande & Co.

Counsel for the Respondent :Mr. Sujit S Mashal i/b Nasikwala Law Office

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