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Synopsis

The National Company Law Tribunal in Mumbai recently declined to initiate the Corporate Insolvency Resolution Process (CIRP) against a corporate debtor because the principal borrower had transferred the loan to the corporate debtor through an agreement that was not sufficiently stamped.

“In the present matter, the debt was assigned to the Corporate Debtor by the principal borrower. Hence, the liability of Corporate Debtor accrues from the said Assignment Deed and if the deed is insufficiently stamped, the debt cannot be said to be due from the Corporate Debtor, as the assignment which are legally carried out are only included in the definition of Financial Creditor under the Code,” the order reads.

A division bench of NCLT Mumbai, consisting of Judicial Member VG Bisht and Technical Member Prabhat Kumar, heard a Section 7 petition filed by the financial creditor seeking to initiate the Corporate Insolvency Resolution Process (CIRP).

The principal borrower had obtained a loan of Rs. One Crore Ten Lakhs from the creditor. However, as the borrower was unable to repay the loan, the borrower transferred the loan to the corporate debtor. 

Despite receiving repeated reminders from the financial creditor, the corporate debtor, even after acknowledging the debt, failed to settle the outstanding amount.

The corporate debtor argued that the assignment deed was insufficiently stamped. The stamp duty payable on the document, through which a debt of Rs. 1,10,00,000 was assigned, is Rs. 10,000. However, only a stamp paper of Rs. 500 is affixed to the assignment deed.

The debtor also contended that FORM-5 was not filed in the prescribed format, and the form lacked the name and designation of the authorized representative at the bottom.

The bench referred to the NN Global Judgment of the Supreme Court, where it was held that unstamped agreements are not enforceable, and remarked that,

“From the above proposition, this Bench notices that the Hon’ble Court held that an instrument, which is not stamped or insufficiently stamped in accordance with the Stamps Act, is not an enforceable instrument, hence is a void contract in terms of provisions of Contract Act. Accordingly, such instrument cannot be taken in evidence by the Court,” the order reads.

However, it is to be noted that the 7 Judge Bench of the Supreme Court has recently overruled the NN Global judgement.

Advocate Agam Maloo appeared for the financial creditor. 

Advocate Yash appeared for the corporate debtor. 

Case title: Vinsari Fruitech Limited vs Effort BPO Private Limited