NCLT Rightly Initiated CIRP as CD’s Post-hearing Objections to Debt Assignment’s Stamp Duty Were Unjustified and Late

Case Details: Loramitra Rath v. JM Financial Asset Reconstruction Co. Ltd. - [2024] 163 taxmann.com 485 (NCLAT- New Delhi)

Judiciary and Counsel Details

• Ashok Bhushan, Chairperson, Barun Mitra & Arun Baroka, Technical Member
• Saswat K. Acharya & Dhananjay Bhaskar Ray, Advocates for the Appellant.
• Utsav Mukherjee & Vikalp Wange, Advocates for the Respondent.

Facts of the Case

In the instant case, the corporate debtor obtained a credit facility from the original lender, i.e., ‘KBL’. Since the corporate debtor failed to repay the loan amount, the loan account was classified as a Non-Performing Asset (NPA). Later, KBL assigned its debt to Respondent No.1, i.e., the assignee and the corporate debtor proposed a One-Time Settlement (OTS), which was accepted.

However, the corporate debtor failed to pay back in terms of OTS, leading to its revocation. Respondent No. 1 then filed a section 7 petition to initiate the Corporate Insolvency Resolution Process (CIRP), and the NCLT reserved its order before the order was pronounced.

Subsequently, the corporate debtor filed an application before the NCLT seeking to recall the reserved order and rehear the case on the ground that the loan was taken from KBL, not from Respondent No. 1. The corporate debtor questioned Respondent No. 1’s standing to file the section 7 application and further alleged that the debt assignment from KBL to Respondent No. 1 through the Assignment Deed was insufficiently stamped, making it inadmissible as evidence.

The NCLT, vide the impugned order, dismissed the application and initiated the CIRP. The appellant, i.e. the suspended director of the corporate debtor, appealed against the NCLT’s order before the National Company Law Appellate Tribunal (NCLAT).

It was noted that the corporate debtor was not only aware of the debt assignment but had accepted and acknowledged this fact by sending an OTS proposal to the assignee. Thus, the corporate debtor was not justified in raising the issue of non-admissibility of the assignment agreement on the ground of insufficient stamp duty after the conclusion of the hearing in the main petition, and the matter was reserved for orders.

NCLAT Held

Further, the NCLAT observed that where the balance sheets of the corporate debtor reflected that debt was owed by the corporate debtor to the original financial creditor and since the appellant was well aware of the assignment of debt, they could not take advantage of the anomaly in the balance sheet with respect to the continuation of the name of the original financial creditor as debtor.

The NCLAT held that since, in view of the facts of the present case, a debt had arisen that was due and payable by the corporate debtor and default had occurred, admission of the section 7 application could not be obfuscated by raising technical pleas, and that too after the hearing in the main petition stood concluded and the matter was reserved for hearing. Therefore, the impugned order passed by the NCLT was justified.

List of Cases Reviewed

• MAA Durga Commotrade (P.) Ltd. v. JM Financial Asset Reconstruction Company Ltd. [2024] 163 taxmann.com 484 (NCLT -CUTTACK) [para 18] affirmed [see annex].