2026 (1) TMI 54 - AT - IBC

Stamp duty and later loan sanction letters in guarantee deeds-insolvency admission u/s7 upheld; appeal dismissed.

Insufficient stamping of guarantee deeds was raised to defeat a s.7 IBC petition against the corporate guarantor. The Appellate Tribunal held that both ... Maintainability of section 7 petition against the Appellant-Corporate Debtor/Corporate Guarantor - Guarantee Deeds were insufficiently stamped documents - documents are inadmissible as evidence - HELD THAT:- Clause 1 of the above Guarantee Deed dated 22.08.2015 clearly stipulates that if at any time default is made by the borrower in making payment, the Corporate Guarantor-SEPL shall forthwith on demand pay to the Central Bank of India amount not exceeding Rs. 73.61 Cr. It is also clear from the language employed in the above Guarantee Deed that the guarantee could be invoked either by the consortium or any of the members. Thus, no bar was placed on individual constituent member of the consortium to proceed with invocation of the guarantee on a default committed by the Principal Borrower. Whether there was a novation of contract between the parties which necessitated invocation of Guarantee Deed of 06.11.2020 to render the Section 7 application maintainable? - HELD THAT:- It is noticed that even though sanction letters were issued on 26.12.2019 and 09.09.2020 for Ad- Hoc Limit and FITL by the Respondent Bank in respect of which the Appellant- Corporate Debtor/Corporate Guarantor had given a guarantee on 06.11.2020, the sanction letters had clearly mentioned that the securities which were covered in the guarantees dated 22.08.2015 and 18.11.2016 were to continue. Thus, the guarantees issued by the Corporate Guarantor on 22.08.2015 and 18.11.2016 continued to hold ground. Thus, the Corporate Debtor continued to remain bound by the earlier bank guarantees dated 22.08.2015 and 18.11.2016 to discharge the debt liability of the Principal Borrower - the submission of the Appellant that Guarantee Deed dated 06.11.2020 which was for term loan of Rs. 114.22 Cr. had wiped off the earlier guarantees cannot be accepted. This cannot be viewed as a novation of contract between the parties. The invocation of guarantee on 06.03.2023 by the Bank was therefore a correct invocation which obligated the Corporate Guarantor to clear the dues. There are also no merit in a related contention raised by the Appellant that the Respondent No.1 Bank being one of the constituents of the consortium of banks which had extended credit facilities to the Principal Borrower, it could not have filed the Section 7 application on its own - when the loan account of the Principal Borrower had been declared NPA on 29.11.2020, each of the consortium members was entitled to file the Section 7 application on their own steam without any need of consent or approval or permission from the other members. That being so, the right of the Respondent No.1 Bank to file the Section 7 petition cannot be questioned. Both the Principal Borrower and the Corporate Guarantor who were involved in the loan transaction held valid Stamp Duty Exemption Certificates. The SPML-Principal Borrowers’ Certificate covered Plot No. E-29 and E-39, Taluka Parner, Distt. Ahmednagar which was offered as primary security for the loan. Similarly, the property described at page 760 of Appeal Paper Book in Corporate Guarantor-SEPL’s own stamp duty exemption certificate viz. GAT No. 53, Km No. 17, Post Bhalwani was the same property which was mortgaged to secure the loans sanctioned to the Principal Borrower. The above properties referred to in the Stamp Duty Exemption Certificates were the same properties as was mentioned in the Section 13(2) SARFAESI Notice. Even at that stage, no objections were raised regarding insufficient stamping - Once the opportunity available to object to the admissibility of the document was not availed by the Appellant, the validity of the document cannot be ignored, discarded or wished away by them now. The insufficiently stamped Deed of Guarantee is a curable defect and the onus to cure the same was on the Principal Borrower or the Corporate Guarantor as it was their obligation to pay the stamp duty. Furthermore, we find that the Principal Borrower had even undertaken to pay the deficit stamp duty payable in case any such demand was raised. The deficit was admittedly not paid by the Principal Borrower as no such demand was raised. In such circumstances, when the Principal Borrower was expressly aware of the stamp duty that was required to be paid and having given an explicit undertaking to pay for any shortfall, they had ample opportunity to remedy the purported deficiency in the stamp duty payment - it is inclined to agree with the Respondent No.1 Bank that the issue of insufficient stamping has been raised as an after-thought in the present appeal and that such technical objections cannot be a ground to defeat the substantive rights of the Respondent Bank to initiate insolvency proceedings against the Corporate Debtor/Corporate Guarantor. The core issue of any insolvency proceeding is debt and default. Debt and default have not been contested by the Appellant. There is no submission of the Appellant that no amount is due qua their guarantee obligations. The Appellant has only tried to get over their liabilities on the ground that the earlier contract of guarantee having been novated, there was no liability on the part of the Corporate Guarantor until the new Guarantee Deed was invoked and on the ground that no occasion had arisen for the Appellant to discharge their liabilities due to insufficient stamping of the Guarantee Deeds. The admission of the Section 7 application cannot be obfuscated or defeated by raising such unfounded technical pleas. In the present case, when debt and default is undisputedly established, the Adjudicating Authority did not commit any error in accepting the Section 7 application. There are no error in the order passed by the Adjudicating Authority admitting Section 7 application. There is no merit in the Appeal - appeal dismissed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the corporate guarantor's liability under earlier deeds of guarantee stood extinguished by novation upon execution of later lending documents and a fresh guarantee, thereby requiring invocation of the later guarantee for maintainability of the insolvency application. (ii) Whether a consortium member bank could independently invoke the guarantee and maintain an insolvency application without consent/authorisation of other consortium members, having regard to the terms of the guarantee deeds. (iii) Whether the insolvency application could be defeated on the ground that the earlier guarantee deeds were insufficiently stamped and hence allegedly inadmissible/unenforceable, despite stamp duty exemption certificates and the Court's finding that stamping defects are curable and cannot defeat a debt-and-default based admission where liability is not disputed. 2. ISSUE-WISE DETAILED ANALYSIS (i) Novation and necessity of invoking the later guarantee Legal framework: The Court examined the plea of novation only on the basis of the contractual language and the contemporaneous sanction terms showing whether existing securities/guarantees were to continue. Interpretation and reasoning: The Court noted that the later sanction letters expressly stated that security would be 'as applicable for existing' limits and that 'all existing securities... will continue' and would also cover the fresh facility. The later consortium agreement was also noted to state it would not affect existing securities. On this footing, the Court held that the earlier guarantees continued to bind the corporate guarantor and were not wiped out merely because a later guarantee was executed for additional/restructured facilities. Conclusion: There was no novation extinguishing the guarantees of 2015 and 2016; invocation of those guarantees by the bank was valid, and non-invocation of the later guarantee did not render the insolvency application non-maintainable. (ii) Independent right of a consortium member to invoke guarantee and file insolvency application Legal framework: The Court confined itself to the contractual terms of the guarantee deeds regarding who could invoke and enforce the guarantee. Interpretation and reasoning: The Court read the guarantee deeds as conferring enforcement rights not only on the consortium collectively but also on 'any of the members.' On that wording, it rejected the contention that a consortium member could not proceed alone. The Court further reasoned that once default occurred (including classification of the principal borrower's account as NPA), each member was entitled to initiate insolvency proceedings independently without needing approval/consent from other lenders. Conclusion: A consortium member bank had an independent contractual right to invoke the guarantee and file the insolvency application on its own; maintainability could not be defeated on the ground of lack of consortium-wide consent. (iii) Effect of alleged insufficient stamping of guarantee deeds on admission Legal framework: The Court considered stamping objections in light of (a) stamp duty exemption certificates produced on record, and (b) its finding that insufficient stamping is a curable defect and that such technical objections should not defeat insolvency admission where debt and default are established. Interpretation and reasoning: The Court found that both the principal borrower and the corporate guarantor held valid stamp duty exemption certificates covering execution of bank loan documentation relating to the secured properties. It also noted the principal borrower's undertaking to pay stamp duty/deficit if required. The Court held that any insufficiency in stamping was curable, and the obligation/onus to ensure appropriate stamp duty lay with the borrower/guarantor; having not raised objections earlier and having not cured any alleged defect despite opportunity, the guarantor could not rely on that plea to avoid liability. The Court further treated the stamping objection as a belated technical plea and held it could not defeat the bank's substantive right to initiate insolvency proceedings, particularly where debt and default were not disputed. Conclusion: The alleged insufficient stamping did not bar reliance on the guarantee deeds for insolvency admission; the objection was rejected, and the guarantee invocation and resulting liability were upheld for the purpose of admission based on debt and default.