Technical Objections like Insufficient Stamp Duty Cannot Defeat Insolvency Proceedings When Debt and Default Proven: NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT), Principal Bench at New Delhi, has dismissed an appeal filed by assessee, suspended Director, and upheld the order of the National Company Law Tribunal (NCLT), Mumbai Bench, admitting a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC).

The Appellant, Siddharth Satish Katariya, had challenged the NCLT’s order dated 07.01.2025, whereby the Adjudicating Authority had admitted Superfine Extrusions Pvt. Ltd. (Corporate Guarantor) into the Corporate Insolvency Resolution Process (CIRP) for a financial default amounting to ₹94.71 crore.

A consortium of banks, led by the Central Bank of India, had extended various credit facilities to Superfine Metals Pvt. Ltd. (Principal Borrower). To secure these facilities, Superfine Extrusions Pvt. Ltd. (SEPL) executed corporate guarantee deeds dated 22.08.2015 and 18.11.2016, guaranteeing repayment of amounts up to ₹73.61 crore and ₹92.47 crore, respectively.

Subsequently, the consortium sanctioned additional facilities through letters dated 26.12.2019 (ad-hoc limit of ₹3.70 crore) and 09.09.2020 (FITL of ₹3.16 crore). A new Working Capital Consortium Agreement and a fresh Corporate Guarantee Deed were executed on 06.11.2020, adding Bank of Maharashtra to the consortium of lenders.

The account of the principal borrower was classified as Non-Performing Asset (NPA) on 29.11.2020, and following the issuance of a recall notice in January 2023, the Central Bank of India invoked the corporate guarantees on 06.03.2023. Thereafter, the Bank filed a Section 7 petition before the NCLT, which was admitted.

Section 7 reads as follows:

Initiation of corporate insolvency resolution process by financial creditor.

(1) A financial creditor either by itself or jointly with [other financial creditors, or any other person on behalf of the financial creditor, as may be notified by the Central Government] may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred.

[Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6A) of section 21, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per cent. of the total number of such creditors in the same class, whichever is less:

Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent. of the total number of such allottees under the same real estate project, whichever is less:

Provided also that where an application for initiating the corporate insolvency resolution process against a corporate debtor has been filed by a financial creditor referred to in the first and second provisos and has not been admitted by the Adjudicating Authority before the commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2020, such application shall be modified to comply with the requirements of the first or second proviso within thirty days of the commencement of the said Act, failing which the application shall be deemed to be withdrawn before its admission.]

(2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed.

(3) The financial creditor shall, along with the application furnish—

(4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnished by the financial creditor under sub-section (3).

4[Provided that if the Adjudicating Authority has not ascertained the existence of default and passed an order under sub-section (5) within such time, it shall record its reasons in writing for the same.]

(5) Where the Adjudicating Authority is satisfied that—

Provided that the Adjudicating Authority shall, before rejecting the application under clause (b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days of receipt of such notice from the Adjudicating Authority.

(6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5).

(7) The Adjudicating Authority shall communicate—

within seven days of admission or rejection of such application, as the case may be.

The Appellant, represented by Senior Advocate Ashish Mohan, contended that the Section 7 petition was not maintainable on two principal grounds: unstamped guarantee deeds and novation of contract. As per him, the guarantee deeds dated 22.08.2015 and 18.11.2016 were allegedly insufficiently stamped under the Maharashtra Stamp Act and, therefore, inadmissible in evidence.

The Appellant further argued that with the execution of a new Working Capital Consortium Agreement and Corporate Guarantee Deed on 06.11.2020, the earlier guarantees of 2015 and 2016 stood extinguished due to novation. Hence, the invocation of earlier guarantees was legally unsustainable, and any insolvency proceedings should have been based on the 2020 guarantee deed.

Opposing the appeal, Senior Advocate Kunal Tandon, appearing for the Central Bank of India, submitted that the objections raised by the Appellant were purely technical and devoid of merit. It was argued that Stamp Duty Exemption Certificates had been issued to both the Principal Borrower and Corporate Guarantor under the Bombay Stamp Act, 1958, covering the mortgaged properties used for availing the credit facilities. Therefore, the plea of insufficient stamping was untenable.

Further, the sanction letters of 2019 and 2020 clearly stated that the existing securities and guarantees would continue as security for the restructured or additional facilities, thereby negating the plea of novation.

The Respondent relied on the NCLAT’s earlier decision in Hiren Meghji Bharani v. Shankheshwar Properties Pvt. Ltd., which held that objections relating to technical irregularities like insufficient stamping cannot defeat the substantive right to initiate CIRP.

The Bench comprising Justice Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) examined the rival submissions and upheld the NCLT’s findings.

The Tribunal noted that both sanction letters dated 26.12.2019 and 09.09.2020 categorically provided that “existing securities shall continue to be security for the revised facilities.” Hence, the guarantees executed in 2015 and 2016 remained valid and binding.

Regarding the stamp duty objection, the Bench observed that both the Principal Borrower and Corporate Guarantor possessed valid Stamp Duty Exemption Certificates issued by the Directorate of Industries, Maharashtra. Moreover, any alleged deficiency was curable, and the borrower had undertaken to bear the cost if required. The Tribunal emphasized that insolvency proceedings cannot be stalled on hyper-technical objections when debt and default stand established.

The Bench further held that each member of a banking consortium possesses independent rights to enforce its debt and initiate insolvency proceedings, and the Central Bank of India was fully entitled to file the Section 7 application in its individual capacity.

Rejecting the Appellant’s plea that the guarantees were unenforceable or novated, the NCLAT held that “The admission of the Section 7 application cannot be obfuscated or defeated by raising such unfounded technical pleas. When debt and default are undisputedly established, the Adjudicating Authority did not commit any error in accepting the Section 7 application.”

Accordingly, the Tribunal dismissed the appeal, affirming the NCLT’s order admitting Superfine Extrusions Pvt. Ltd. into CIRP, and held that the grounds of insufficient stamping and novation were without merit.

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