[ad_1]
Over the past few years, the constant interaction between
Insolvency & Bankruptcy Code, 2016
(“IBC/Code“) and the Indian Stamp Act,
1899 (“Stamp Act“) has given rise to
various intriguing questions, with one such primary question being
“whether insufficient stamping can be a ground for
rejection of an application under section 7 or 9 of the
Code?”.
While the IBC lays down provisions and procedures regarding
initiation of insolvency procedure, however, the plea of
“insufficient stamping” vide the
provisions of the Stamp Act has been used as a defense to claim
that the agreement/instrument in question cannot be admitted into
evidence to establish the existence of debt between the parties as
the instrument is not in compliance with the thresholds under the
Indian Evidence Act, 1872.
Through strenuous adjudication by the adjudicating authorities
time and again, the adjudicating authorities have emphatically
pronounced that non-stamping of documents 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 payment of debt. However, the above
dicta till now were mostly in relation to applications filed under
Section 7 of the IBC by financial creditors.
Recently, on 25 November, 2022, the Hon’ble National Company
Law Tribunal, New Delhi Bench (“NCLT“),
in Standard Chartered Bank Singapore (Ltd.) vs. RCI
Industries and Technologies Limited,[1] whilst adjudicating an application under
Section 9 of IBC, inter alia extended the afore laid down
principle to Section 9 applications filed by operational creditors
(“Judgment“). This comes as a welcome
step for the countless operational creditors in the interplay
between IBC and the Stamp Act.
In the present case, Standard Chartered Bank (Singapore) Ltd.
(“SCB“) entered into a Receivable
Purchase Agreement/Factoring Agreement
(“RPA“) in Singapore with one Sizer
Metals (“Sizer“). As per the RPA, all
the receivables of Sizer from one RCI Industries and Technologies
Limited (“the Corporate Debtor/RCI“)
were assigned to SCB. RCI was duly informed of the assignment
vide a notice of assignment of debt which was acknowledged
by RCI. Sizer and RCI, subsequently, entered into a contract, for
supply of goods by Sizer to RCI, resulting into six transactions
taking place, basis which six invoices were issued. On failure of
RCI in making the payments, SCB, as an operational creditor, filed
an application under Section 9 of the IBC for initiation of the
CIRP against RCI.
RCI, amongst several other contentions, primarily contended that
since the RPA for assignment of debt, having been executed in
Singapore, is not duly stamped under the provisions of the Stamp
Act, the same must not be relied upon by SCB, to claim itself to be
an operational creditor. RCI further relied upon the provisions of
the Factoring Regulation Act, 2011
(“FRA“) to state that since SCB does not
qualify as a ‘factor’ as per the definition given under the
FRA, and it cannot, therefore, claim any exemptions as are
available to factors when it comes to stamping of a document.
The main question, therefore, tabled before the NCLT was
whether insufficient stamping of an agreement will vitiate the
proceedings initiated under Section 9 of IBC.
Re: Interplay of IBC and Stamp Act
RCI has place reliance on Sections 3, 18 and 35 of the Stamp Act
to argue that a document executed outside India, i.e. the RPA in
the present case, would be inadmissible and cannot be relied upon
to prove debt in India, unless sufficiently stamped. RCI also
argued that lack of proper stamping vitiates reliance on the said
documents and that the same should be impounded under Section 33 of
the Stamp Act.
SCB on the other hand contended that under section 9 of the IBC,
the test for admission of a CIRP only includes (1) establishment of
a default on a debt payable, (2) and no pre-existing dispute. This
test can be satisfied by placing reliance on any document and not
necessarily the assignment of debt agreement. In this case, since
the notice of assignment was acknowledged by RCI, followed by
various emails where RCI had admitted to the debt being
outstanding, the test stood satisfied. To substantiate its
arguments SCB also placed reliance on a few judgments passed in
section 7 IBC application on the subject of
non-stamping.2 It was also argued that non-stamping of
the RPA is merely a procedural/technical defect, and does not
hamper the proceedings, and the application will suffice when there
are other materials on record which could be relied on for coming
to the conclusion that the default has been committed by the
Corporate Debtor in paying the debt.3
Interestingly, RCI raised another objection that the judgments
being relied by SCB are in context of section 7 of IBC i.e., for a
financial debt, whereas the present case pertains to an
‘operational debt’ under section 9 of the IBC. Such
objection was also countered by relying upon the definitions of
financial debt and operational debt, wherein in both the
definitions the term ‘legally assigned’ finds a mention.
Accordingly, it was argued that if the NCLTs/NCLAT have taken a
view that a debt which otherwise assigned, though inadequately
stamped, can be proved by other documents evidencing the debt and
the default, then such principle is equally applicable to an
application under section 9 of the IBC as well.
The NCLT agreed with the submissions made by SCB and stated the
following:
“We are of the view that even if the documents in
question i.e., the assignment/agreements have not been stamped
under the provisions of Indian Stamp Act, such non-stamping of the
said documents shall not render the instant application filed under
Section 9 of the Insolvency & Bankruptcy Code, 2016 as
non-maintainable, in view of other material n record which can be
relied upon to come to the conclusion that the Corporate Debtor has
committed default in payment of debt. Therefore, the present
Application under Section 9 of IBC is maintainable.“
Re: Interplay of IBC and FRA
Apart from the issue of insufficient
stamping, RCI also raised objections by relying of the provisions
of FRA to contend that SCB, being a foreign bank and having no
certificate of registration under the Reserve Bank of India, 1934,
was not legally capable of factoring receivables, and if the same
was permitted, it would be violative of Section 23 of the Indian
Contracts Act, 1932.
SCB on the contrary, submitted that the RPA, having been
executed in Singapore, was not mandated to comply with the
provisions of the FRA. This was substantiated by the fact that SCB
was not seeking to enforce the RPA, but to initiate CIRP against
the Corporate Debtor, which is distinct and independent.
NCLT agreed with the SCB on this count as well and held that the
provisions of the FRA were not to have any holding/effect in the
adjudication of the Section 9 application filed for initiation of
CIRP. Further, after ascertaining that the debt was admitted via
numerous email exchanges, absence of a pre-existing dispute and in
light of the aforementioned position of law with the facts of the
case, the NCLT admitted the Section 9 application.
Other defences/counter argument raised by SCB were with respect
to the arguments having been raised by RCI as an afterthought and
beyond the pleadings etc., which also finds mention in the
Judgment.
Analysis/Personal Views
The Judgement herein furthers the resolve and intent of IBC by
disallowing procedural lacunas in the nature of insufficiently
stamped documents to give a right to desist to the defaulting
corporate debtors and escape from the clutches of the Code. It
advances the independence and pertinence of the Code in protecting
the operational creditors from mere procedural irregularity,
especially when there persists evidence to corroborate the default
of the admitted debt.
While looking beyond the insufficiency of stamping in the
documents, the adjudicating authorities have rightly upheld the
spirit and intent of the Code by opining that the primary test
remains of the debt and default and if the same can be proven by
other documents, then NCLTs ought not rely upon insufficiently
stamped documents as the sole basis for rejecting an application
under Section 7 or 9 of the Code.
Footnotes:
2 Edelweiss Asset Reconstruction Co. Ltd. vs. Sejal Glass
Ltd., CP 1799 (IB)/MB/2018; see also Religare Finvest Ltd.
v. Bharat Road Network Ltd., CP 540 (IB)/KB/2018.
3 Koncentric Investments Ltd. and Ors. v. Standard
Chartered Bank, London and Ors, CA (AT) (Ins) No. 911 of 2021;
see also Ashique Ponnamparambath v. The Federal Bank
Limited, CA (AT) (CH)(Ins.) No. 22 of 2021; Vistra ITCL India
Limited v. Satra Properties (India) Limited, 2022.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
[ad_2]
Source link
