Mr. Praful Nanji Satra Vs. Vistra ITCL (India) Ltd. - We note that that the issue of debt being due and payable in the present case is not interdicted by any law but only a technical deficiency of insufficiency of their stamping has been raised which can be cured.

NCLAT (02.08.2022) in Mr. Praful Nanji Satra Vs. Vistra ITCL (India) Ltd. [Company Appeal (AT) (Ins.) No. 713 of 2020] held that

• We note that that the issue of debt being due and payable in the present case is not interdicted by any law but only a technical deficiency of insufficiency of their stamping has been raised which can be cured.

Excerpts of the order;

This appeal has been filed by the Appellant (Praful Nanji Satra) against Vistra ITCL India Ltd. and Ors. under section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter called ‘IBC’) aggrieved by the order dated 3.8.2020 passed by the Judicial Member of the National Company Law Tribunal, Mumbai Bench (Adjudicating Authority) in company petition CP (IB) No. 1632 /MB/2019 (hereinafter called the ‘Impugned Order) and the order dated 10.2.2022 in C.P 1632/I&B/MB/2019. The Appellant is aggrieved by the Impugned Order which allowed the initiation of Corporate Insolvency Resolution Process (in short ‘CIRP’) on the basis of documents namely Secured Redeemable Non-Convertible Debentures Subscription Agreement dated 1.3.2014 and Debenture Trust Deed dated 1.3.2014, both of which are insufficiently stamped and under the Maharashtra Stamps Act which could not be admitted as evidence of debt and default.

 

# 5. The Adjudicating Authority admitted the section 7 application vide the Impugned Order dated 03.08.2022 but the members of the two-member bench differed on the issue of impounding of the Redeemable Non-Convertible Debenture Subscription Agreement and the Debenture Trustee Deed, both dated 01.03.2014 for proper stamping. The Judicial Member in the two-member bench held as follows :-

• “ 35. M.A. 180/2020 is partly allowed to the extent that the Debenture Trust Deep dated 1st March, 2014 and Redeemable Non-convertible Debenture Subscription Agreement dated 1st March, 2014, shall be impounded and be sent for payment of requisite stamp duty in accordance with the Maharashtra Stamp Act, 1958.”

 

The Technical Member of the bench, on the other hand, held as follows :-

• “m. It is to be noted that this is not a recovery proceeding but it is only a summary proceeding.

• n. In view of the above discussion, the MA No. 180 of 2020 filed by the Corporate Debtor is dismissed.”

 

This two-member bench framed the following question of law and referred the matter to the Hon’ble President of NCLT for adjudication by an appropriate bench or a third member :-

• “43. The question of law framed is as below – whether Debenture Trust Deed dated 1st March, 2014 and Redeemable Non-Convertible Debenture Subscription Agreement dated 1st March, 201, shall be impounded and be sent for payment of requisite stamp duty in accordance with the Maharashtra Stamp Act.”

 

# 6. The Hon’ble President of NCLT constituted a single member bench to consider the issue as framed by the two member bench, as noted above, regarding the matter of impounding of Redeemable Non-Convertible Debenture Subscription Agreement and Debenture Trust Deed, and the third member gave his opinion on the question of law raised by the original two-member bench as follows:-

• “11. For the foregoing reasons, I am of the considered opinion that the proper course of action that needs to be adopted is to dismiss the above Misc. Application without getting into the issue of stamp duty as it is irrelevant and uncalled for a Section 7 Application more so when the ‘debt’ and ‘default’ are provided otherwise without looking into those documents. However, the Petitioner/Corporate Debtor is at liberty to raise the above issue before the appropriate authority before whom the Financial Creditors relies on the above documents as evidence for enforcing their rights under the above documents.”

 

# 7. We thus note that the original bench which considered the section 7 application filed by Respondent No. 1, admitted it, but differed on the question of impounding of the two above-mentioned documents for payment of requisite stamp duty in accordance with the Maharashtra Stamp Act. The Appellant has challenged the Impugned order in this appeal. The issues that arise in this appeal are two-fold:-

• (i) Whether Redeemable Non-Convertible Debentures Subscription Agreement and the Debenture Trust Deed can be relied upon as valid legal documents, since they are insufficiently stamped as required under the Maharashtra Stamp Act, while considering the section 7 application under IBC? And whether the two above-mentioned documents should be impounded by the Adjudicating Authority and forwarded to the competent judicial authority for adequate stamping.

• (ii) Whether, in view of the settlement arrived at between the Satra Group, MJS Group and IIFL in meeting dated 31.01.2018, the debt relating to NCDs survive of the NCD Subscription Agreement and Debenture Trust Deed stand novated?

 

# 8. We heard arguments advanced by the Learned Counsels for the parties and the IRP-in-person, and also perused the record.

 

# 19. We, therefore, find force in the argument of the Learned Counsel of Respondents that the settlement entered into by SPIL and Praful Satra with the MJS Group and IIFL only covered loan taken from MJS Group upto Rs. 200 crores only and it did not cover the non-convertible debentures and that there was no novation of the NCD subscription agreement as a result of the larger settlement.

 

# 21. We are, therefore, not persuaded by the argument of the Learned Senior Counsel of the Appellant that the Debenture Subscription Agreement and the Debenture Trust Deed, both executed on 1.3.2014, stood novated through the “Settlement”.

 

# 22. The second issue that has been emphatically raised by the Learned Senior Counsel for Appellant relates to the inadmissibility of the Debenture Trust Deed and the Non-Convertible Debenture Subscription Agreement as valid and legal documents which could be relied upon in the admission of the section 7 application as they are not sufficiently stamped as required under the Maharashtra Stamp Act.

 

# 23. We peruse the affidavit-in-reply submitted by the Appellant in response to the section 7 application (refer Diary No. 25774 dated 1.3.2021). It is revealed in the reply, that the Appellant (Applicant of section 7 application) has not denied the execution of the Non-Convertible Debenture Subscription Agreement and Debenture Trust Deed, rather they admit execution of the documents. The para 6 of the Reply of Corporate Debtor to the section 7 application (at pg. 378 of the Reply of Corporate Debtor, Dy. No. 25774 dated 1.3.2021) us noted in this context :-

• “It would not be out place to mention that the Petitioner No. 2 including the MJS Group and Petitioner No. 3 have breached and resiled from their obligations under the novated Contract/Agreement between the parties, and the Respondent is in the process of taking steps to file a suit for recovery of damages for breach of contract, against the Petitioner Nos. 1 and 3 and their associate entities forming part of the MJS Group. The Respondent submits that the facts elucidated hereinafter, clearly establish that the debt and liabilities under the loan agreements that are the subject matter of this Petition stood discharged and the agreements stand novated in view of the overall settlement and larger understanding and therefore, there cannot be any default, as alleged or otherwise.”       (emphasis supplied)

 

# 24. The Corporate Debtor has, in his reply as above, only raised the issue of these agreements being novated in light of the ‘settlement and larger understanding’ having taken place between the Appellant and the MJS Group. Thus, admittedly, he has not raised the question of execution of the said documents.

 

# 25. The Learned Senior Counsel for Appellant has referred to the judgments of Hon’ble Supreme Court in Garware Wall Ropes Limited v. Coastal Marine Constructions and Engineering Limited (2019) 9 SCC 209 and SMS Tea Estates Private Limited v. Chandmari Tea company Private Limited ( supra) to claim that documents that are insufficiently stamped cannot be admitted as evidence, and therefore, the Redeemable Non-Convertible Debenture Subscription Agreement and Debenture Trust Deed should not have been considered by the Adjudicating Authority while adjudicating the section 7 application. On the other hand, the Learned Counsel for Respondents has claimed that the Hon’ble Supreme Court has overturned the above two judgments in Garware Wall Ropes Limited (supra) and SMS Tea Estates Private Limited (supra) by its judgment in N.N. Global Mercantile Pvt. Ltd. (supra) holding therein that there is no requirement for stamping and registration of arbitration agreement, which constitutes a separate  agreement under the theory of separability and kompetenz – kompetenz. We are of the view all the three judgments relate to the question of arbitration in relation to a contract. In our view, the corporate debtor has not raised any issue about the execution of the two documents in question in this case and hence we do not consider that these judgments (supra) will be applicable in the present case.

 

# 26. The Hon’ble Calcutta High Court in W. P. No. 5595 (W) of 2020 With C.A.N. 3347 of 2020 Univalue Projects Pvt. Ltd. Versus The Union of India & Ors. And W.P. No. 5861 (W) of 2020 With C.A.N. 3937 OF 2020 Cygnus Investments and Finance Pvt. Ltd. & Anr. Versus The Union of India & Ors., while quoting various judgments of the Hon’ble Supreme Court, has held as under:

• “50. The Supreme Court in Innoventive Industries (supra), while considering Section 7 of the IBC, 2016 directed itself to the AA Rules, 2016 and observed the following vis-à-vis Rule 4 and its appendage Form-1:

• “28. …[U]nder Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires….documents, records and evidence of default in Part V….[T]he speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of the evidence furnished by the financial creditor, is important.”

• “30. On the other hand, as we have seen, in case of a corporate debtor who commits a default of a financial debt, 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…”      (Emphasis supplied)

 

Rohinton Nariman, J., relied upon the above quoted paragraphs of Innoventive Industries (supra) while authoring his judgment in Swiss Ribbons (P) Ltd. (supra). In addition to this, he also considered the pertinence of the IU in paragraph 31 before quoting the other sources of evidence which evidence a financial debt, in the following words:

“32. Apart from the record maintained by such utility, Form I appended to the Insolvency and Bankruptcy (Adjudicating Authority) Rules, 2016, makes it clear that the following are other sources which evidence a financial debt:

a) Particulars of security held, if any, the date of its creation, its estimated value as per the creditor;

b) Certificate of registration of charge issued by the registrar of companies (if the corporate debtor is a company);

c) Order of a court, tribunal or arbitral panel adjudicating on the default;

d) Record of default with the information utility;

e) Details of succession certificate, or probate of a will, or letter of administration, or court decree (as may be applicable), under the Indian Succession Act, 1925;

f) The latest and complete copy of the financial contract reflecting all amendments and waivers to date;

g) A record of default as available with any credit information company;

h) Copies of entries in a bankers book in accordance with the Bankers Books Evidence Act, 1891.”     (Emphasis supplied)

Therefore, all eight classes of documents enumerated under Part V of Form-1 appended to the AA Rules, 2016 have been held by the Supreme Court to be ‘other sources which evidence a financial debt’. On a close due diligence of the various provisions above, including section 7 of the IBC, 2016 read with Rule 4 of the AA Rules, 2016 and Form-1 therein, and regulation 8 of the CIRP Regulations, 2016, observations of the Supreme Court in paragraph 32 (provided above), it becomes crystal clear that apart from the financial information of the IU, eight classes of documents can be considered to be sources that evidence a “financial debt”.

On a close due diligence of the various provisions above, including section 7 of the IBC, 2016 read with Rule 4 of the AA Rules, 2016 and Form-1 therein, and regulation 8 of the CIRP Regulations, 2016, observations of the Supreme Court in paragraph 32 (provided above), it becomes crystal clear that apart from the financial information of the IU, eight classes of documents can be considered to be sources that evidence a “financial debt”.       (Emphasis supplied)

 

# 27. Looking to the facts of the present case, we note that the Insolvency and Bankruptcy (Application to Adjudicating Authority) Regulations, 2016 (hereinafter called ‘Regulations’) lays down as explained in the above judgment the list of documents in Part V of the Form I which could be used for proving the debt and default in section 7 application.

 

# 28. We also consider the judgment in the matter of Innoventive Industries Ltd. vs. ICICI Bank & Anr (2018) 1 SCC 407, wherein Hon’ble Supreme Court has held as follows :-

• “30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, 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. It is of no matter that the debt is disputed so long as the debt is “due” i.e. payable unless interdicted by some law or has not yet become due in the sense that it is payable at some future date. It is only when this is proved to the satisfaction of the adjudicating authority that the adjudicating authority may reject an application and not otherwise.”

 

We note that that the issue of debt being due and payable in the present case is not interdicted by any law but only a technical deficiency of insufficiency of their stamping has been raised which can be cured.

 

# 29. Therefore, on the basis of detailed discussion in the aforesaid paragraphs, we are of the view that the Non-Convertible Debentures are clearly outside the purported “Settlement” arrived in the meeting held on 31.3.2018. Therefore, the Non-Convertible Debentures Subscription Agreement and the Debenture Trust Deed are not novated as a result of the “Settlement” and are relevant in establishing the debt of the corporate debtor as claimed in section 7 application, whose repayment is in default as per clause 11 of the Debenture Trust Deed. We, therefore, come to the conclusion that the section 7 application was admitted correctly by the Adjudicating Authority. We do not find merit in the appeal and accordingly dismiss it.

 

# 30. There is no order as to costs.

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