Even If Credit Facility Agreement Is Unstamped, Section 7 Petition Is Maintainable, On Proving Financial Debt : NCLAT Principal Bench

Background Facts

A Secured Cash Credit facility agreement ("Facility Agreement") was executed between Nagpur Nagarik Sahakari Bank Ltd. ("Financial Creditor") and Greatwall Corporate Service Pvt. Ltd. ("Corporate Debtor") on 21.08.2017 for an amount of Rs. 6,00,00,000/-, alongside an Equitable Mortgage was created by the Corporate Debtor by deposit of title deeds.

When the Corporate Debtor failed to clear the dues under the Facility Agreement, the Financial Creditor filed a petition under Section 7 of the IBC before the National Company Law Tribunal, Mumbai Bench ("Adjudicating Authority"), seeking initiation of Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor for default of Rs. 7,66,45,930/-. The Adjudicating Authority vide an order dated 15.03.2022 passed in C.P No.73/(IB)-MB-V/2021 had admitted the petition and initiated CIRP against the Corporate Debtor.

The Managing Director ("Appellant") of the Corporate Debtor filed an appeal before NCLAT, challenging the order dated 15.03.2022.

Contentions Of The Appellant

The Appellant submitted that the Facility Agreement was not stamped and on account of the document not being stamped, the same could not have been relied upon while passing an order under Section 7 of IBC. It was further submitted that the Appellant is ready and willing to make the payment of Rs.7,66,00,000/- within two weeks time to the Financial Creditor and End The Financial Debt.

Decision Of The NCLAT

The NCLAT Bench observed that the present case is a case of mortgage by deposit of title deed. Therefore, even if the Facility Agreement was not stamped, there were other materials on the record to prove the existence of a financial debt owed by the Appellant. The Bench dismissed the appeal and upheld the order of the Adjudicating Authority wherein CIRP was initiated.

Further, the Bench granted the Appellant an opportunity to make the payment of Rs.7,66,00,000/- within two weeks. It was further held that if the payment is made, then it will be open for the Appellant to make an application before the Adjudicating Authority, which shall pass appropriate order on the said Application as per law, if settlement takes place. However, if the payment is not made as directed, then after two weeks the Committee of Creditors shall be constituted.

Case Title: Mr. Aashish Kadam & Anr. v Nagpur Nagarik Sahakari Bank Ltd. & Anr., Comp. App. (AT) (Ins.) No. 355 of 2022.

Counsel for Appellant: Mr. Shikhil Suri, Ms. Nikita Thapar, Ms. Madhu Suri, Ms. Vikita Thapar, Ms. Mahima Aggarwal, Advocates.

Counsel for Respondent: Mr. Sandeep Bajaj, Ms. Aakansha Nehra, Ms. Sakshi Digvijay, Advocates for R1. Mr. Ravi Raghunath, Ms. Rathina Maravarman, Ms. Aakashi Lodha, Advocates for Intervener.

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