Limitation and stamping objections in Section 7 insolvency proceedings do not defeat a claim where later default and record evidence establish debt.
A Section 7 insolvency application is not time-barred merely because an earlier interest default occurred, where the claim is founded on a later default within three years of filing and the Code does not require a financial creditor to move at the first possible default. Default may also be proved from the overall record, and the application need not fail because some facility documents are unstamped or insufficiently stamped if other material, including mortgage records, admitted disbursements and correspondence, establishes financial debt and default. The insolvency admission order was upheld, and the appeal failed.
Issues: (i) whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation on account of an earlier interest default, and (ii) whether the financial creditor's application could be rejected because the facility documents were insufficiently stamped.
Issue (i): whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation on account of an earlier interest default
Analysis: Default under the Code includes non-payment of the whole or any part or instalment of the debt when due. The non-payment of interest on 30 June 2015 constituted a default, but the creditor was not bound to initiate insolvency proceedings on that first default alone. The repayment schedule showed that the first principal instalment became due on 30 November 2015, and the facility was later accelerated. An application under Section 7 can be filed on any default that is within three years of the date of filing, and the Code does not require a financial creditor to rush to the tribunal at the first default. The claim in the application was computed from defaults occurring within the limitation period.
Conclusion: The application was not barred by limitation and this issue was decided against the appellant.
Issue (ii): whether the financial creditor's application could be rejected because the facility documents were insufficiently stamped
Analysis: In a Section 7 proceeding, the adjudicating authority must be satisfied from the records and other evidence that default has occurred. Even if the facility agreement and supplemental agreement were unstamped or insufficiently stamped, there was other material, including the registered mortgage deed, admitted disbursements, and correspondence concerning acceleration, showing the existence of financial debt and default. The stamping objection did not defeat the creditor's case on the material placed before the adjudicating authority.
Conclusion: The stamping objection did not warrant rejection of the application and this issue was decided against the appellant.
Final Conclusion: The insolvency admission order was upheld and the appeal failed in entirety.
Ratio Decidendi: In a Section 7 proceeding, limitation runs from the default relied upon in the application, and a financial creditor is not required to invoke insolvency at the first possible default; further, default may be established on the basis of overall material on record even where some relied-upon documents are insufficiently stamped.