Stamp duty on debenture documents, novation, and proved default shaped admission of the Section 7 insolvency petition.

In a Section 7 insolvency proceeding, debenture documents executed outside Maharashtra and relied on in the State were treated as attracting differential stamp duty under the Maharashtra Stamp Act, and insufficient stamping was held capable of impounding, though one member viewed the defect as not requiring impounding at that stage. The alleged novation of the debenture arrangement was rejected because the purported settlement was not implemented, was later revoked, and the corporate debtor continued to acknowledge the liability. On the material on record, the Bench found financial debt and default established, held the petition maintainable, and directed commencement of CIRP and moratorium.

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Issues: (i) Whether the Debenture Subscription Agreement and Debenture Trust Deed executed outside Maharashtra required payment of differential stamp duty and could be impounded in these proceedings; (ii) whether there was novation of contract so as to extinguish the liability under the debentures; (iii) whether the corporate debtor had committed debt and default warranting admission of the Section 7 petition.

Issue (i): Whether the Debenture Subscription Agreement and Debenture Trust Deed executed outside Maharashtra required payment of differential stamp duty and could be impounded in these proceedings.

Analysis: The documents were executed in Delhi and were sought to be relied upon in Maharashtra. The Bench held that, under the Maharashtra Stamp Act, instruments executed outside the State and received for enforcement in Maharashtra attract the differential duty regime, and insufficiently stamped instruments may be impounded. The majority treated the stamping objection as a curable defect and held that the documents could be sent for payment of requisite duty. The dissenting Member held that, for deciding a Section 7 petition, these collateral documents need not be impounded at this stage because the petition was supported by other material showing the debt.

Conclusion: The majority held that the documents were liable to be impounded and sent for payment of requisite stamp duty; the issue was not unanimously concluded.

Issue (ii): Whether there was novation of contract so as to extinguish the liability under the debentures.

Analysis: The alleged larger settlement was examined against the contemporaneous correspondence, revised redemption schedules, and subsequent conduct of the parties. The Bench found that the proposed settlement was not acted upon and was later revoked, while the corporate debtor continued to acknowledge and restructure the debenture liability. On that material, the claim of substitution of the original obligation by a new contract was rejected.

Conclusion: Novation was not proved, and the debenture liability was held to subsist.

Issue (iii): Whether the corporate debtor had committed debt and default warranting admission of the Section 7 petition.

Analysis: The record showed subscription to secured redeemable non-convertible debentures, partial redemption, repeated requests for extension and reduction of interest, and continued reflection of the liability in the corporate debtor's financial statements. The remaining debentures were not redeemed despite the revised schedule. The Bench held that these materials established a financial debt and default under the insolvency framework, and that the petition satisfied the requirements for admission.

Conclusion: The Section 7 petition was held maintainable and admissible, and CIRP was directed to commence.

Final Conclusion: The corporate debtor's liability under the debentures was upheld, the insolvency petition was admitted, CIRP and moratorium were directed, and the stamp-duty question remained unresolved by the full Bench, necessitating reference for a further opinion.

Ratio Decidendi: In a Section 7 insolvency proceeding, the adjudicating authority may examine the enforceability of the debt documents and hold that a curable stamp-duty defect does not, by itself, negate an otherwise established financial debt and default; where the original contractual liability has not been validly substituted, the unpaid debenture obligation remains enforceable.

Issues: (i) Whether the Debenture Subscription Agreement and Debenture Trust Deed executed outside Maharashtra required payment of differential stamp duty and could be impounded in these proceedings; (ii) whether there was novation of contract so as to extinguish the liability under the debentures; (iii) whether the corporate debtor had committed debt and default warranting admission of the Section 7 petition.

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