Payment of stamp duty is one of the essential compliance for “instruments” recording a financial transaction. Levy of stamp duty offers legal recognition to an instrument. At a national level Indian Stamp Act, 1899, is the guiding document for the stamp duty applicable in India. Besides the said central legislation, various states have enacted their own enactments on applicable stamp duty rates for instruments executed or brought to the state for a purpose.
Section 7 of the Insolvency and Bankruptcy Code, 2016 (“I&B Code”) deals with the initiation of the Corporate Insolvency Resolution Process (“CIRP”) by the Financial Creditors. A Financial Creditor, in order to initiate the CIRP, should own a financial debt or should be legally assigned with the ownership of financial debt. Section 5(8) of the I&B Code provides the definition of financial debt. The trigger of CIRP is upon default by a creditor.
On an application under Section 7 of the I&B Code, the existence of debt due to the financial creditor may be proved on the basis of – (a) the records available with an information utility, if any; or (b) other relevant documents, including – (i) a financial contract supported by financial statements as evidence of the debt; (ii) a record evidencing that the amounts committed by the financial creditor to the corporate debtor under a facility have been drawn by the corporate debtor; (iii) financial statements showing that the debt has not been paid; oran order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any.
As per Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, an application by a Financial Creditor can be made by —(1) A Financial Creditor, either by itself or jointly, shall make an application for initiating the corporate insolvency resolution process against a corporate debtor under section 7 of the Code in Form 1, accompanied with documents and records required therein and as specified in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.(2) Where the Financial Creditor who is an applicant in section 7 proceedings is an assignee or transferee of a financial contract, the application shall be accompanied with a copy of the assignment or transfer agreement and other relevant documentation to demonstrate the assignment or transfer. Admission of the Section 7 application is upon the satisfaction of adjudicating authority that the default has occurred, provided the applicant is able to prove its authority/capacity to file such an application and by filing all relevant documents before the adjudicating authority as required under the rules as aforesaid.
In the recent judgment of Phoenix ARC v. Cherupushpam Films Private Limited, the Hon’ble National Company Law Tribunal, Kochi Bench, analyzed the validity of an insufficiently stamped assignment deed and whether the petitioner has proved its authority to institute such a petition.
To narrate the brief facts, the Section 7 application was moved by Phoenix ARC (“Financial Creditor”) against Cherupushpam Films Private Limited (“Corporate Debtor”). The argument of the applicant Financial Creditor was that they have a deed of assignment in their favour from the principal creditor dated 17.03.2017. This deed of assignment was executed at Ernakulam, Kerala. The deed was executed on a non-judicial stamp paper of value Rs. 500. Further, the Financial Creditor contended that the debt is acknowledged in favour of the principal creditor (the assignor to them) in the balance sheet of the Corporate Debtor. Therefore, by virtue of the said documentation, the applicant has the authority to initiate such a proceeding.
The question before the Hon’ble Tribunal was the following:
The Hon’ble Tribunal considered the fact that the assignment deed was executed in Kerala and therefore, Kerala Stamp Act, 1959 will be applicable, and the provisions of section 8F of the Indian Stamp Act, 1889, granting exemption to stamp duty for assignment deed executed in favour of ARCs will not be applicable as the exemption provided in the Indian Stamp Act is exclusively for exemption under the Indian Stamp Act and not under the Kerala Stamp Act.
The Hon’ble Tribunal observed that the deed of assignment of debt in favour of the ARC should be treated as a conveyance, and stamp duty at the rate of 8% is applicable.Further, the Hon’ble Tribunal also observed that as per Section 34 of the Kerala Stamp Act,1959, insufficiently stamped documents could notbe considered. The deed of assignment produced being not the photocopy of the original, the option of impounding was ruled out based on the judgment in Hariom Agarwal vs Prakash Chand Malviya 2008(3)CTC 457. After due analysis of the relevant facts, the Hon’ble Tribunal concluded that the assignment of debt dated 17.03.2017 in favour of the ARC is an unenforceable, Instrument.
The Hon’ble Tribunal also observed that the petition is filed by an assignee of loan of corporate debtor. In the cause title the Phoenix ARC Private Limited, company isreferred as Trustee of Phoenix Trust FY17-8. It depicts the petition is filed bytrustee Phoenix ARC Private Limited company, for the Phoenix Trust FY17-8.The trust is a non-living juristic person, it can function through living person asTrustees or through non-living juristic person company as trustee. In this case thePhoenix ARC Private Ltd a company filed the petition for Phoenix Trust FY 17-8 as it’s Trustee. On the petitioner side Trust deed is not produced, it is vitaldocument to ascertain the existence of Trust and nature of Trust either public orprivate trust and to ascertain the beneficiaries of Trust etc., In the Trust there mustbe three elements they are donor or author of trust, Trustees and beneficiaries oftrust. The Trustee is only a custodian or manager of Trust, only on production ofTrust deed it can be ascertained whether the Phoenix ARC Private Limited,company is trustee of Phoenix Trust FY17-8 or not. The actual beneficiaries oftrust also can be culled out only on production of Trust deed. When the proceedingis filed by the trustee for the Trust, the Trust deed must be filed. In the assignmentdeed dated 17.03.2017 it is mentioned that the petitioner Phoenix ARC PrivateLimited is also acting in the capacity as Trustee of Phoenix Trust FY 17-8 pursuantto the trust deed dated 06.02.2017. In this case also petition is filed by a trustee,for the trust but the trust deed is not produced. Without producing the trust deedthe proceeding filed by the trustee for Trust is not maintainable. In part I of thepetition, details of trustee (phoenix ARC Private Ltd is given but the details ofpetitioner/Trust is not given. Rule 4(2) of the Adjudicating Authority Rules saysin case of assignment of the debt, the assignee shall produce all relevant documentspertaining to the assignment or transfer. Here the particulars of trustee alone arefurnished but particulars of Trust is not furnished, the basic document Trust deedalso not produced. Even after the plea raised in this regard on the corporate debtorside, the petitioner not inclined to produce the Trust deed, it leads to filing ofincomplete petition. In fine it is answered that the petitioner has not proved itsauthority to institute this petition.
The outcome stresses the importance of paying sufficient stamp duty to ensure the enforceability of Financial Contracts and for producing documents which adequately proves the authority.
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