Praful Nanji Satra v. Vistra ITCL (India) Ltd & Ors Vs. Vistra ITCL (India) Ltd & Ors
Company Appeal (AT) Ins.No.713 of 2020
Facts:
1.Satra Properties (India) Ltd (SPIL) in order to execute some projects, proposed to raise finances up to INR 56 crore by way of issuing Non-Convertible Debentures (NCDs). In view of the same, the Corporate Debtor, through corporate entity Vistra (ITCL) India Ltd agreed to subscribe to 5600 secured redeemable NCDs having face value of INR 1,00,000 i.e. Rupees one lakh each for a total consideration of INR 56 crore. In addition, a personal guarantee was executed by Mr. Praful Nanji Satra (Appellant) on March 15, 2014, and an escrow agreement was executed on December 02, 2014.
2.NCDs were to be redeemed after the end of 12 months from the date(s) of issue with interest in accordance with redemption scheduledebentures could not be redeemed in accordance with the redemption schedule provided in the Debenture Subscription Agreement, the Respondents filed an Application under Section 7 of the IBC. The Section 7 was admitted by the NCLT, Mumbai Bench vide order dated August 03, 2020 (Impugned Order).
3.Appellant filed an Appeal before NCLAT on the ground that the Impugned Order which allowed the initiation of Corporate Insolvency Resolution Process (CIRP) on the basis of documents, namely Secured Redeemable Non-Convertible Debentures Subscription Agreement dated March 01, 2014 and Debenture Trust Deed dated March 01, 2014, being insufficiently stamped and under the Maharashtra Stamps Act could not be admitted as evidence of debt and default.
Issue: Whether insufficiently stamped redeemable Non-Convertible Debentures Subscription Agreement and the Debenture Trust Deed can be relied upon as valid legal documents while considering an application filed under Section 7 of the IBC?
Arguments:
For appellant:
1.Counsel submitted that has argued that the issue framed by the original two-member bench for adjudication by a third member was regarding the impounding of the two above-mentioned documents and sending them for payment of requisite stamp duty, whereas the third member did not give his opinion on this point, but rather held that the issue of stamp duty is irrelevant and the petitioner/corporate debtor were at liberty to raise the issue of insufficient stamping before the appropriate authority
2.Further there has been a novation of the Redeemable Non-Convertible Debenture Subscription Agreement through settlement arrived at between the corporate debtor, MJS Group and IIFL in meeting held on 31.1.2018, which is recorded in the minutes of said meeting (in short ‘MoM’), which has not been considered in the Impugned Order
3.Counsel for Appellant has vehemently argued that the two documents, namely, Debenture Trust Deed and Redeemable Non-Convertible Debenture Subscription Agreement, which have been relied upon by the Respondents for establishing debt are insufficiently stamped and therefore, as per section 34 of The Maharashtra Stamp Act, any instrument which is insufficiently stamped cannot be acted upon or taken as evidence in a court proceeding.
For Respondent:
1.Counsel submitted that djustments through larger settlement arrived at in meeting dated 31.1.2018 only related to liabilities of Rs. 200 crores relating to the MJS Group and full and final settlement with the IIFL Group. He has also referred to a letter dated 21.1.2019 sent by MJS Infra LLP (attached at page 532 of the appeal paperbook, Vol.III) and another letter dated 24.1.2019 (attached at pg. 533 of appeal paperbook, vol. III) to show that the parties to the letter agreement dated 1.10.2018 and supplemental letter agreement dated 16.10.2018 failed to fulfill their obligations, holding that the transaction as contemplated therein was not executable and therefore the agreement is non-est and void.
2.Learned Counsel for Respondents has further argued that the original redemption schedule was extended and the same were redeemable in 5 tranches from 2/4/2019 to 2/12/2019 and this time schedule is much after the date of purported “Settlement”. He has contended that if the NCDs were purported to be part of the overall, all-encompassing settlement, there was no reason or need to change the schedule for their redemption to the year 2019.He has argued that since the redemption schedule was breached and there was default in repayment, Respondents No. 2 and 3 sent letter dated 12.4.2019 to the Debenture Trustee/Respondent No. 1 setting out the Events of Defaults that had occurred in respect of the NCDs’ redemption. Therefore, section 7 application was filed as a result of the default in payment of redemption value of the debentures.
3.Further argued that the Corporate Debtor continued to address letters to the debenture holders requesting for reduction in interest rate payable on the outstanding NCDs even after the date of purported “Settlement” and therefore, it is incorrect for the Appellant to say that the NCDs are covered in the larger settlement and that the NCD Subscription Agreement was novated.
4.Proceedings under IBC code are in the nature of summary proceedings and the Adjudicating Authority does not have to receive or record evidence in such proceedings in accordance with the provisions of the Evidence Act. Moreover, he has claimed, the insufficiency in the payment of stamp duty is attributable only to the corporate debtor and the corporate debtor cannot take advantage of his own wrong by setting up the defence of insufficient stamping of the documents which is basically his failing.
Decision:
The Non-Convertible Debentures Subscription Agreement and the Debenture Trust Deed are not novated as a result of the “Settlement” and are relevant in establishing the debt of the corporate debtor as claimed in section 7 application, whose repayment is in default as per clause 11 of the Debenture Trust Deed
Rationale:
1.The “Settlement” record mentions the Satra Hills project in Ghatkopar and security related to Borivali and Washi Projects receivables but nowhere it mentions the Jodhpur Project for which money was raised to issuance of non-convertible debentures. Moreover, even this settlement (which does not cover the NCDs) was cancelled vide letter dated 17.1. 2019 of IIFL informing of default in compliance of the corporate debtor’s obligations and a letter dated 21.1.2019 of the MJ Shah Infra LLP addressed to M/s Sameer Sanghvi and Associates, (the escrow agent) stating that the transaction as contemplated under the purported “Settlement” stood cancelled.
2.All these developments and circumstances/actions are very clear indication of the fact the Debenture Subscription Agreement and Debenture Trust Deed were not supposed to be part of the purported overall settlement dated 31.1.2018.settlement entered into by SPIL and Praful Satra with the MJS Group and IIFL only covered loan taken from MJS Group upto Rs. 200 crores only and it did not cover the non-convertible debentures and that there was no novation of the NCD subscription agreement as a result of the larger settlement.
3.We note that the Insolvency and Bankruptcy (Application to Adjudicating Authority) Regulations, 2016 (hereinafter called ‘Regulations’) lays down as explained in the above judgment the list of documents in Part V of the Form I which could be used for proving the debt and default in section 7 application.issue of debt being due and payable in the present case is not interdicted by any law but only a technical deficiency of insufficiency of their stamping has been raised which can be cured.
Order Copy:
