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The debtor asserted that such a confirmation and undertaking cannot be relied upon as evidence under Section 34 and Article 5(h)(A)(iv) of the Maharashtra Stamp Act. Since this document could not have been relied upon by the adjudicating authority, the debtor argued that there is a dispute in the existence of a default
The National Company Law Appellate Tribunal has recently observed that the non-stamping of a document does not render the Corporate Insolvency Resolution Process application non-maintainable.
“In the above-mentioned circumstances, non-stamping of document does not render the corporate insolvency resolution process (“CIRP”) application filed to be non-maintainable when there exists other material on record to prove existence of default in the payment of debt,” the order states.
The NCLAT bench in Delhi, consisting of Chairperson Justice Ashok Bhushan, Technical Member Barun Mitra, and Technical Member Arun Baroka, was hearing an appeal against the order of the NCLT that allowed a Section 7 application seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor.
The financial creditor had provided an inter-corporate loan of Rs. 7 crores at an interest rate of 12% per annum, supported by a document titled "confirmation and undertaking" indicating interest at 1% per month.
The corporate debtor committed to repay Rs. 7 crores on demand after a period of 90 days. The Corporate Debtor made interest payments until March 31, 2016, with the last payment made on July 4, 2017, amounting to Rs. 1 crore.
Subsequently, the financial creditor filed an application under Section 7 seeking to initiate the Corporate Insolvency Resolution Process (CIRP) against the debtor.
The debtor filed an appeal against the order of the NCLT allowing the application, contending that the confirmation and undertaking dated 24.09.2015, being an inter-corporate deposit agreement, is mandatorily required to be stamped.
The debtor asserted that such a confirmation and undertaking cannot be relied upon as evidence under Section 34 and Article 5(h)(A)(iv) of the Maharashtra Stamp Act. Since this document could not have been relied upon by the adjudicating authority, the debtor argued that there is a dispute in the existence of a default.
Consequently, it was claimed that there exists no other document that would demonstrate the existence or the terms and conditions for a default.
The NCLAT referred to the 7 judge bench of the Supreme Court which recently ruled that unstamped arbitration agreements are enforceable and observed that,
“..agreements which are not stamped or are inadequately stamped are inadmissible in evidence under Section 35 of the Stamp Act and such agreements are not rendered void or void ab initio or unenforceable and further non-stamping or inadequate stamping is a curable defect and therefore as claimed by the Appellant unstamped “confirmation and undertaking” doesn’t make the whole process illegal if this document is not even relied upon as an evidence,” the bench observed.
Therefore, the NCLAT, while rejecting the contentions of the appellant, stated that the Corporate Insolvency Resolution Process (CIRP) application would not become non-maintainable if there exists other material on record to prove the existence of default in the payment of debt.
“The plea of the Appellant, to claim that the unstamped agreement/instrument in question cannot be admitted into evidence under the provisions of the Maharashtra Stamp Act, as a defense, cannot render the corporate insolvency resolution process (“CIRP”) non[1]maintainable, when there exists other material on record to prove existence of default in payment of debt. On this count, we therefore, cannot find any fault in the orders of the Adjudicating Authority,” the order states.
Case title: Hiren Meghji Bharani vs Shankheshwar Properties Pvt. Ltd. & Anr
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