NCLAT (19.07.2021) in Ashique Ponnamparambath Member of Suspended Board of Directors Vs. The Federal Bank Limited (Company Appeal (AT) (CH) (Insolvency) No. 22 of 2021) held that;
However, in addition to the Term Loan Agreement, the Financial Creditor relies on Demand Promissory Note, Hypothecation letter regarding depositing of title deed, a certified copy of the bank statement, and so many other documents filed along with the Application. Therefore, even if it is considered that the Term Loan Agreement is insufficiently stamped and it cannot be accepted in evidence, then also alleged debt and default are proved beyond doubt. Furthermore, the Application filed under Section 7 is complete.
Excerpts of the order;
The Appellant, Suspended Director of the Corporate Debtor, M/S Platino Classic Motors, had challenged the admission order passed under Section 7 of the Insolvency and Bankruptcy Code 2016 by the Adjudicating Authority/National Company Law Tribunal in IBA/25/KB/2020 dated the 7th of December 2020. Parties original status in the Company Petition represents them in this Appeal for the sake of convenience.
Brief Facts
# 2. The Financial Creditor/Respondent herein is the Federal Bank Ltd has applied under Section 7 of the Insolvency and Bankruptcy Code 2016 to initiate a Corporate Insolvency Process again the Corporate Debtor ‘Platino Classic Motors’.
# 4. The Financial Sector/Federal Bank contends that on the 30th of June 2019, the Corporate Debtor had availed, among other things, a term loan of Rs. ten crores with an agreement to repay the same in 120 monthly instalments together with interest and charges outlined in the loan document. The Corporate Debtor as collateral security for the debt created an equitable mortgage favouring the Applicant. However, due to default in monthly instalments, the Corporate Debtor account status regarding the credit facility changed to a Non-Performing Asset with effect from the 29th of October 2019. The Financial Creditor caused a demand notice dated the 16th of December 2019 to the Corporate Debtor requiring them to repay the outstanding loan amount. The Corporate Debtor failed to pay the amount demanded. As of the 16th of March 2020, an amount of Rs. 6,39,13,042 is due from the Corporate Debtor, and it has committed default in paying the same.
Discussion and findings
# 13. We have heard the argument of the learned Counsels for the parties and perused the record. The impugned Order is mainly challenged on the ground that the petition filed under Section 7 of the Code is not maintainable. After all, the entire loan transaction is based on the ‘Term Loan Agreement’, an inadequately stamped document inadmissible in evidence.
# 14. The following points arise for our consideration:
Whether petition filed under Section 7 of the code is not maintainable because the entire loan transaction is based on the ‘Term Loan Agreement’, which is an inadequately stamped document, therefore, inadmissible in evidence ?
# 15. The Appellant contends that the purported Term Loan Agreement is the Umbrella Agreement with respect to the subject loan itself and the various security obligations/ documents thereunder. It is an Agreement creating a right/title/interest in immovable property. It provides for the hypothecation of immovable property, the mortgage of other pieces of immovable properties owned by the Corporate Debtor by deposit of title deeds and the creation of a floating charge on the Appellant’s asset. The Adjudicating Authority has failed to consider that it is settled law that as per Section 17 of the Registration Act, 1908, such Agreements must be compulsorily registered for being considered admissible.
# 16. It is further contended that all the ancillary security documents executed pursuant to the Term Loan Agreement specify that they are being entered into as a result of the obligations imposed upon parties in the Term Loan Agreement. Thus, by the said Term Loan Agreement, all the Corporate Debtor’s security obligations were registered in writing, including the creation of charges and mortgage over immovable property. Therefore, the registration of such a document is compulsory.
# 17. The Adjudicating Authority further failed to consider the case-law of the Hon’ble Supreme Court, State of Haryana v Navir Singh, 2010 SCC OnLine SC 36, and in the case of United Bank of India versus Lekharam Sonaram and Company, AIR 1965 SC 1591.
State of Haryana and Ors. vs Navir Singh and Ors. (07.10.2013-SC) MANU/SC/ 1036/ 20
“14. Mortgage inter alia means transfer of interest in the specific immovable property for the purpose of securing the money advanced by way of loan. Section 17(1)(c) of the Registration Act provides that a non-testamentary instrument which acknowledges the receipt or payment of any consideration on account of the creation, declaration, assignment, limitation or extension of any such right, title or interest, requires compulsory registration. Mortgage by deposit of title-deeds in terms of Section 58(f) of the Transfer of Property Act surely acknowledges the receipt and transfer of interest and, therefore, one may contend that its registration is compulsory. However, Section 59 of the Transfer of Property Act mandates that every mortgage other than a mortgage by deposit of title deeds can be effected only by a registered instrument. In the face of it, in our opinion, when the debtor deposits with the creditor title-deeds of the property for the purpose of security, it becomes mortgage in terms of Section 58(f) of the Transfer of Property Act and no registered instrument is required Under Section 59 thereof as in other classes of mortgage. The essence of mortgage by deposit of title deeds is handing over by a borrower to the creditor title deeds of immovable property with the intention that those documents shall constitute security, enabling the creditor to recover the money lent. After the deposit of the title-deeds the creditor and borrower may record the transaction in a memorandum but such a memorandum would not be an instrument of mortgage. A memorandum reducing other terms and conditions with regard to the deposit in the form of a document, however, shall require registration Under Section 17(1)(c) of the Registration Act, but in a case in which such a document does not incorporate any term and condition, it is merely evidential and does not require registration.”
# 18. The Appellant has further placed reliance on the Hon’ble Supreme Court’s decision in United Bank of India v Lekharam Sonaram & Co, AIR 1965 SC 1591 wherein it is stated that;
“Parties reducing the contract to writing - Registration, held, necessary. The essence of a mortgage by deposit of title deeds is the actual handing over by a borrower to the lender of documents of title to immovable property with the intention that those documents shall constitute a security which will enable the creditor ultimately to recover the money which he has lent. But if the parties choose to reduce the contract to writing, this implication of law is excluded by their express bargain, and the document will be the sole evidence of its terms. In such a case the deposit and the document both form integral parts of the transaction and are essential ingredients in the creation of the mortgage. It follows that in such a case the document which constitutes the bargain regarding security requires registration under S. 17 of the Indian Registration Act, 1908, as a non-testamentary instrument creating an interest in immovable property, where the value of such property is one hundred rupees and upwards. If a document of this character is not registered it cannot be used in the evidence at all and the transaction itself cannot be proved by oral evidence either. In the present case the letter does not mention what was the principal amount borrowed or to be borrowed. Neither does it refer to rate of interest for the loan. The letter does not mention details of title deeds which are to be deposited with the plaintiff-bank. The document was not intended to be an integral part of the transaction and did not, by itself, operate to create an interest in the immovable property. It follows, therefore, that the document did not require registration under S. 17 of the Indian Registration Act. “
# 19. In reply to the above, the learned Counsel for the Respondent/Financial Creditor had taken a stand before the Adjudicating Authority that the contention of the Corporate Debtor that ‘Term Loan Agreement” is an insufficiently stamped document, hence inadmissible in evidence, was an incorrect one. The Term Loan Agreement is a document that purports to create a right, title and interest in immovable property that is incorrect. At the broadest imagination, the same could only amount to security for payment of money. At the same breath, it is to be noted that the said document would not create a mortgage concerning the property mentioned therein. In the circumstances, the said document is not such a document for which registration is compulsory.
# 20. Further, the Corporate Debtor’s contention that the letter of hypothecation has to be deemed an agreement related to deposit of title deeds and compulsorily registrable is also incorrect and unsustainable, as the said document does not even indicate the deposit of the title deed.
# 21. The Appellant further contends that the impugned Order of admission was made despite the Corporate Debtor making the oral submission without prejudice willing to pay the outstanding amount to the Respondent within six months, thereby rendering the need for admission of insolvency proceedings superfluous infructuous. In the circumstances, there was no necessity of putting the Corporate Debtor into rigours of the Corporate Insolvency Resolution Process for one purportedly outstanding debt. The Appellant has stated that it is at an advanced stage of entering into a settlement with the Financial Creditor. It has proposed a short six months to settle all disputes between the parties.
# 22. Further, on the 10th of March 2021, the Appellant sent an email to the Financial Creditor making the settlement offer. Based on the settlement offer Appellant has prayed that the impugned Order of admission should be set aside.
# 23. It is to be clarified that the impugned Order of admission cannot be set aside simply in anticipation of settlement in the parties.
# 24. The Appellant has annexed the list of documents submitted by the Financial Creditor along with the Application, which is on page No 101 of the Appeal paper book. The list of the document shows that the Financial Creditor had submitted Term Loan Agreement, dated the 30th of June 2014; Demand Promissory Note for Rs. ten crores, dated the 30th of June 2014; Security Deposit Letter, dated the 30th of June 2014; Agreement of Guarantee executed by Ashique P P and Shameena Ashique, dated the 30th of June 2014; Agreement of Guarantee by M/S Koyenco Auto Ltd, dated the 30th of June 2014; a letter evidencing the deposit of title deed, dated the 01st of July 2014; certificate of registration of charge with the ROC, dated the 30th of June 2014; Sale Deed No’s 3992, 3993 and 3994, dated the 24th of November 2010 of M/S Platino Classic Motors; a statement of accounts; certificate under the Bankers Book of Evidence Act; CIBIL report etc.
# 25. Based on the documents filed by the Financial Creditor, it is clear that the Financial Creditor has proved that the Corporate Debtor has defaulted in making the payment Rs. 6,39,13,042 due on the Corporate Debtor. Therefore, if it is considered that the Term Loan Agreement is insufficiently stamped for argument sake, then it is inadmissible in evidence. Furthermore, the claim of the Financial Creditor is fully corroborated by other evidence filed.
# 26. The Corporate Debtor committed default in repayment of the loan amount to the Financial Creditor. Hence its loan account was declared as NPA. In light of facts and circumstances, debt and default are reasonably established by the Financial Creditor.
# 27. The Application filed by the Financial Creditor under Sub-section (4) of Section 7 of the Insolvency and Bankruptcy Code 2016 was complete in all respects. Therefore, the Adjudicating Authority admitted the petition filed under Section 7 of the Code.
# 28. The objections raised by the Appellant/Corporate Debtor are unsustainable. First, the Appellant emphasised the alleged insufficiently stamped Term Loan Agreement. However, in addition to the Term Loan Agreement, the Financial Creditor relies on Demand Promissory Note, Hypothecation letter regarding depositing of title deed, a certified copy of the bank statement, and so many other documents filed along with the Application. Therefore, even if it is considered that the Term Loan Agreement is insufficiently stamped and it cannot be accepted in evidence, then also alleged debt and default are proved beyond doubt. Furthermore, the Application filed under Section 7 is complete.
# 29. Based on the above discussion, we find no merit in the Appeal, hence liable to be dismissed.
-------------------------------------------
Hon'ble Supreme Court in Chilakuri Gangulappa vs Revenue Divisional Officer [Appeal (civil) 1800 of 2001] held as under:
ReplyDelete“13. In the present case, an argument is raised that the instrument is not actually an agreement of sale as envisaged in the Schedule to the Stamp Act (subject to amendment made by the State of Andhra Pradesh) but it is only a deed of compromise entered into by two disputing persons. We refrain from expressing any opinion on the said plea as it is open to the parties to raise their contentions regarding the nature of the document before the trial court. In the present case the trial court should have asked the appellant, if it finds that the instrument is insufficiently stamped, as to whether he would remit the deficient portion of the stamp duly together with a penalty amounting to ten time the deficiency. If the appellant agrees to remit the said amount the court has to proceed with the trial after admitting the document in evidence. In the meanwhile, the court has to forward a copy of the document to the Collector for the purpose of adjudicating on the question of deficiency of the stamp duty as provided in Section 40(1)(b) of the Act. Only if the appellant is unwilling to remit the amount the court is to forward the original of the document itself to the Collector for the purpose of adjudicating on the question of deficiency of the stamp duty. The penalty of ten times indicated therein is the upper limit and the Collector shall taken into account all factors concerned in deciding as to what should be proper amount of penalty to be imposed.
14. Inasmuch as none of the above proceedings had been adopted by any of the authorities including the High Court, we set aside the impugned orders. We direct the Munsif to consider first whether the document is insufficiently stamped and if he finds that question in the affirmative he has to adopt the next step indicated above.
15. This appeal is accordingly allowed."