NCLT Bengaluru: Insufficiently Stamped Agreements Not a Bar to Section 7 IBC Application
Pranav B Prem
The National Company Law Tribunal (NCLT), Bengaluru Bench, comprising Shri. Sunil Kumar Aggarwal (Member – Judicial) and Shri. Radhakrishna Sreepada (Member – Technical), admitted a petition filed under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process (CIRP) against M/s Redwoods Infrastructure Private Limited. The Tribunal reiterated that insufficiently stamped or unstamped agreements do not constitute a bar to maintainability of a Section 7 application under the Code. It also held that mere disputes over enforceability or attestation of loan documents do not affect admission when default is otherwise clearly established.
Background
The application was filed by M/s Embassy Services Private Limited (Financial Creditor) under Section 7 of the Code, read with Rule 4 of the Insolvency & Bankruptcy (Application to Adjudicating Authority) Rules, 2016, for a total claim of ₹2,16,03,836. The sum included a principal loan amount of ₹1 crore and interest of ₹1,16,03,836 accrued from October 2016 to March 2023. The Corporate Debtor had sought financial assistance from the Financial Creditor to expand its business and entered into a loan agreement dated 25.10.2016. A demand promissory note dated 20.10.2016 was also executed. Although the original repayment term was six months, the period was mutually extended until 31.12.2020 through letters dated 24.03.2017 and 01.04.2019. A legal notice for recovery was issued on 05.05.2023, but the Corporate Debtor failed to repay the amount.
Contentions of the Corporate Debtor
The Respondent contested the petition, primarily raising the objection that the application was barred by limitation and that the supporting documents were insufficiently stamped and legally unenforceable. It was argued that the loan agreement, executed on ₹200 stamp paper, did not comply with the Karnataka Stamp Act, 1957, and lacked attestation by witnesses. Therefore, it was submitted, the agreement could not be treated as a valid and enforceable document. It also claimed that the demand promissory note was defective under the Negotiable Instruments Act, 1881.
The Respondent further contended that the petition had been filed beyond the permissible three-year limitation period, asserting that the extended repayment date ended on 31.12.2020, while the application was filed only on 21.09.2023.
Observations and Findings of the Tribunal
Rejecting the Respondent’s contentions, the Tribunal held that the application was filed well within the statutory limitation period. The date of default, as reflected in Form IV and corroborated by the Record of Default (ROD) issued by NeSL, was 19.05.2023. Moreover, even if the extended repayment date of 31.12.2020 is considered, the petition filed in September 2023 was within the three-year limitation window, which would expire on 31.12.2023.
The Tribunal also found sufficient evidence of the loan through the corporate debtor’s own balance sheets, which acknowledged the outstanding liability for financial years 2018–2019 through 2021–2022. Relying on the Supreme Court’s decision in Innoventive Industries Ltd. v. ICICI Bank and Ors. [(2018) 1 SCC 407], it reiterated that the Adjudicating Authority must admit the application if the default is established through records of information utility or other evidence, regardless of whether the debt is disputed.
On the issue of inadequate stamping and attestation, the Tribunal placed reliance on the decision of the NCLT Mumbai Bench in Axis Trustee Services Ltd. v. Reliance Infrastructure Consulting & Engineers Pvt. Ltd., CP (IB) 1/MB/2023, which held that: “Inadequacy of any document in terms of requirement of the Stamp Act cannot be made a ground to nonsuit the Petitioner in an Application u/s 7 of the Code… For admission under Section 7, findings need not rest solely on loan documents; balance sheets, bank statements, and acknowledgements may suffice.”
The Tribunal rejected the contention that the interest rate of 18% p.a. was excessive and fell afoul of the Karnataka Money Lenders Act, 1961. It held that such contractual interest terms cannot invalidate an otherwise clear case of financial debt and default under the Code.
Verdict
Finding that the debt and default had been clearly established, and that the application fulfilled the necessary requirements under Section 7 of the Code, the NCLT Bengaluru Bench admitted the petition. A moratorium under Section 14 of the Code was declared, and Mr. Venkataraman Jayagopal was appointed as the Interim Resolution Professional (IRP). The Financial Creditor was directed to deposit ₹2,00,000 with the IRP to cover public notice and claim-related expenses. The IRP was further directed to constitute the Committee of Creditors (CoC) and file a report on its formation within the statutory time frame.
Appearance
For Petitioner: Shri Srihari. S.
For Respondent: None
Cause Title: M/s Embassy Services Private Limited V. Redwoods Infrastructure Private Limited
Case No: CP (IB) No. 65/BB/2024
Coram: Hon’ble Shri. Sunil Kumar Aggarwal [Member (Judicial)], Hon’ble Shri. Radhakrishna Sreepada [Member (Technical)]
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