Debenture liability and stamp duty objections do not defeat section 7 insolvency claim where settlement does not novate the debt.

A debenture subscription agreement and debenture trust deed were held not to have been novated by the alleged settlement, because the settlement minutes covered only specifically recorded liabilities and the debtor's later conduct showed the debenture liability continued. The debt therefore remained enforceable and in default. An objection that the documents suffered from insufficient stamp duty also failed, as a section 7 insolvency proceeding is a summary process for establishing debt and default, and stamping issues did not bar reliance on the instruments for that limited purpose. The section 7 application was upheld and the appeal failed.

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Issues: (i) Whether the debenture subscription agreement and debenture trust deed were taken out of the alleged settlement so as to stand novated and cease to evidence the financial debt and default; (ii) Whether the alleged insufficiency of stamp duty on those documents prevented their reliance in a section 7 insolvency application.

Issue (i): Whether the debenture subscription agreement and debenture trust deed were taken out of the alleged settlement so as to stand novated and cease to evidence the financial debt and default.

Analysis: The settlement minutes were read as covering only the liabilities specifically reflected in them, and not the non-convertible debentures raised for the Jodhpur project. The later conduct of the corporate debtor, including extension of the redemption schedule, requests for reduction of interest, and disclosure of the debentures in the financial statements, was treated as inconsistent with any complete extinguishment of the debenture liability. On that footing, the agreement and trust deed continued to operate as the governing financial instruments and the debt remained enforceable and in default.

Conclusion: The documents were not novated by the settlement and the debenture liability survived, against the appellant.

Issue (ii): Whether the alleged insufficiency of stamp duty on those documents prevented their reliance in a section 7 insolvency application.

Analysis: The proceeding under the Insolvency and Bankruptcy Code was treated as a summary process for ascertainment of default, not as a civil trial on documentary proof. The existence of debt and default was held capable of being established from the materials placed under the insolvency framework, and the stamp objection was not accepted as a bar to considering the instruments for the limited purpose of the section 7 claim. The cited stamp-related objections did not displace the otherwise established default.

Conclusion: The stamping objection did not bar reliance on the documents in the insolvency proceeding, against the appellant.

Final Conclusion: The admission of the section 7 application was upheld, and the appeal failed.

Ratio Decidendi: In a section 7 insolvency proceeding, a financial debt remains provable if the underlying instruments continue to subsist and the alleged settlement does not clearly novate them, and a stamping objection does not, by itself, defeat the creditor's reliance on those instruments for establishing default within the summary insolvency process.

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