TaxTMI 
TaxTMI 
2024 (5) TMI 138
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....n this appeal. Brief facts of the case giving rise to this appeal are: (i) Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd. (KAIJS Bank), a cooperative bank sanctioned a term loan of Rs.10 Crore to Shri Tradco Deesan Pvt. Ltd. (Borrower No.1) and Rs.15 Crore term loan was sanctioned to Shri Tradco India Pvt. Ltd. (Borrower No.2) on 27.03.2019. (ii) On 28.03.2019, Bairagra Builder Pvt. Ltd. (Corporate Debtor) executed two registered simple mortgage deeds in favour of KAIJS Bank for securing the above mentioned two loans. (iii) On 29.03.2019, two loan agreements for Rs.10 Crore and Rs.15 Crore each were executed by KAIJS Bank with both the Borrowers. (iv) On 29.03.2019, two guarantee bonds were executed by the Corporate Debtor guaranteeing the repayment of both the loans. (v) On 29.04.2019, Deeds of Mortgage was registered by Corporate Debtor with the ROC. (vi) On 27.04.2019 and 03.05.2019, Deeds of Guarantee were registered by the Corporate Debtor with ROC. (vii) On 27.01.2020, Borrower-1 and Borrower-2 loan accounts were declared non-performing assets. (viii) On 21.03.2020, several loan accounts includi....
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....istence of debt and default which is more than the threshold of Rs.1 crore. The Adjudicating Authority after returning finding of debt and default has admitted Section 7 application and issued consequential orders. 2. This appeal was immediately filed by the Appellant after passing of the impugned order. When appeal came for consideration before this Tribunal on 26.05.2023, a statement was made by the Appellant that Appellant has approached the Financial Creditor and given a proposal for settlement and the Appellant is still ready and willing to enhance the offer. This Tribunal passed following order on 26.05.2023: "ORDER 26.05.2023: Learned Counsel for the Appellant submits that after the impugned order was passed, the Appellant approached the Financial Creditor and given a proposal for settlement. It is submitted that Appellant is still ready and willing to enhance the offer which offer shall be made within 48 hours. Let this Appeal be taken on 31st May, 2023. In the event CoC has not been constituted, the same shall not be constituted till 31.05.2023." 3. On 02.06.2023, following statement was recorded on behalf of the Respondent: "ORDER....
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....0% amount shall be paid upfront, 10% shall be paid in 30 days of signing the agreement of amount already settled. Learned counsel submit that the Settlement Agreement shall be filed by 31.07.2023. List this Appeal on 01.08.2023. Interim order to continue." 7. Appellant again reiterated that they are ready to pay Rs.24.10 Crore and Court noticing that issue between the parties is time of payment, by order dated 16.08.2023, allowed three months' further time. Order dated 16.08.2023 is as follows: "ORDER 16.08.2023: Learned Counsel for the Appellant submits that it is already recorded in the order of the Court that the Appellant is ready to pay the amount of Rs. 24.10 crores as also agreed by the Respondent. The issue between the parties was regarding the time of payment. In the order of this Tribunal dated 05.07.2023 and 28.07.2023 the following was noticed:- "05.07.2023: Learned Counsel for the appellant referring to the affidavit submits that appellant is still ready to pay the amount of Rs. 24.10 crores, however, they require six months time. It is further submitted that the appellant has also given an offer to the Bank to sell the m....
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....sel for the Appellant submits that after the order dated 16.08.2023, the property which was to be sold could not be sold and now the Appellant has approached the new investor who has already filed an Intervention Application in this Appeal and is ready to deposit the entire amount. 2. Learned Counsel for the Financial Creditor has opposed the submission made by Learned Counsel for the Appellant and submits that several opportunities have been granted to the Appellant but the Appellant has not yet deposited the amount and no further opportunity be granted and the matter be heard. 3. Considering the submission of the Appellant that a last opportunity be granted to deposit the amount as per the order dated 16.08.2023, we permit the Appellant or proposed investors to deposit the amount by 04.12.2023. 4. Let the amount be deposited as directed earlier. We make it clear that in event the amount is not deposited, the matter shall be heard. All Intervention Applications filed be also considered on the next date. 5. Learned Counsel for the interveners seeks liberty to file hardcopy of the applications. He may do so during the course of the day. 6....
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....he Assignment Deed shows that it is an assignment of more than 50 unrelated assignments of loan and as per Section 5 of the Maharashtra Stamp Act, aggregate stamp duty in relation to each assignment is required to be paid. It is submitted that Appellant filed a complaint before Collector of stamps, where the Collector has directed for proceedings under Stamps Act with regard to the Assignment Deed which is insufficiently stamped. It is submitted that the Assignment Deed being insufficiently stamped cannot be relied and acted upon which is inadmissible. Learned counsel for the Appellant has relied on judgment of Hon'ble Supreme Court in "In Re: Interplay, 2023 SCC Online SC 1666". It is submitted that exemption to stamping under Section 5(1A) of SARFAESI Act, is not applicable, in view of the Maharashtra Stamp Act which has repealed the Indian Stamp Act in the State of Maharashtra. It is submitted that the Mortgage Documents cannot create any financial debt as mortgage cannot amount to a financial claim against the Corporate Debtor. Appellant has relied on judgment of Hon'ble Supreme Court in "Anuj Jain vs. Axis Bank Limited, (2020) 8 SCC 401". There being no valid Assignment Agreem....
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....ws its malafide act. Challenge to the Assignment Agreement by the Corporate Debtor in Suit filed before Bombay High Court does not in any manner inhibit the Adjudicating Authority from taking into consideration the Assignment Agreement. Suit was filed on 03.03.2023, whereas the Corporate Debtor was served with the Assignment Agreement on 20.10.2021 followed by filing of Section 7 application. It is submitted that in proceeding under Section 7 Appellant cannot be allowed to challenge the correctness of a registered Assignment Deed by which debt has been assigned to Respondent No.1 by the Financial Creditor. 16. Learned counsel for the Intervener, who is none other than wife of the Appellant claiming to be holding 49.50% share of the Corporate Debtor, submits that the Intervener was not aware of the mortgage and further inspection of minute book of Corporate Debtor revealed that it has passed two resolutions dated 28.03.2019 giving Corporate Guarantee of Rs.10 Crore and Rs.15 Crore in favor of the Cooperative Bank. Reference has been made to the Company Petition filed by the Intervener under Section 241-244 of the Companies Act before NCLT, Mumbai highlighting the acts of oppressi....
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....ee to execute necessary. promissory notes, debit balance confirmations and other agreements, accordingly from time to time THE MORTGAGOR/BORROWER further agrees to pay interest tax (if any) whenever becomes applicable and charged by THE BANK. THE MORTGAGOR ALSO DECLARES that they shall pay the Interest charged by THE BANK, monthly/quarterly / half yearly payments as may be stipulated by THE BANK. 9. THE MORTGAGOR ALSO DECLARES that this mortgage shall be, continuing security for the ultimate sum of money not exceeding Rs.10,00,00,000/- (RUPEES TEN CRORES ONLY) under Mortgage Term Loan at any one time and interest thereon as also the costs, charges and expenses that may become payable by the mortgagors/borrowers to the mortgagee upon any account/s opened or to be opened in or credit facilities the name of the mortgagors/borrowers from time to time for granting credit or other financial facilities to the mortgagors and such account/s is/are to be considered to be closed for the purpose of this security and this security shall be considered to be closed for the purpose of this security and this security shall not be considered as exhausted or discharged or released m....
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....has claimed that the assignment is referable to Section 5. Section 5 Sub-section (1A) and Sub-section (2) are as follows: "(1A) Any document executed by any bank or financial institution under sub-section (1) in favour of the asset reconstruction company acquiring financial assets for the purposes of asset reconstruction or securitisation shall be exempted from stamp duty in accordance with the provisions of section 8F of the Indian Stamp Act, 1899 (2 of 1899): Provided that the provisions of this sub-section shall not apply where the acquisition of the financial assets by the asset reconstruction company is for the purposes other than asset reconstruction or securitisation.] (2) If the bank or financial institution is a lender in relation to any financial assets acquired under sub-section (1) by the 1[asset reconstruction company], such 1[asset reconstruction company] shall, on such acquisition, be deemed to be the lender and all the rights of such bank or financial institution shall vest in such company in relation to such financial assets." 24. Learned counsel for the Appellant referring to Section 5 Sub-section (1A) submits that although by virtue ....
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....hall vest in such company. When the legislature uses the deeming fiction it is always for purpose and object. 8. Hon'ble Supreme Court had occasion to consider provision of Section 43 of the Indian Contract Act, 1872 which contains the deeming provision and on fulfilling the ingredients as provided in the statute, legal fiction will come into play, irrespective whether the transaction was in fact intended or even anticipated to be so. We may refer to Para 22.2.1, 22.2.2 and 22.3 of the judgment of the Hon'ble Supreme Court in "Anuj Jain, Interim Resolution Professional for Jaypee Infratech Limited vs. Axis Bank Ltd. & Ors., MANU/SC/0228/2020: (2020) 8 SCC 401", which is to the following effect: "22.2.1. As regards construction of a deeming fiction, this Court pointed out the basic and settled principles in the following: "88. In every case in which a deeming fiction is to be construed, the observations of Lord Asquith in a concurring judgment in East End Dwellings Co. Ltd. v. Finsbury Borough Council: 1952 AC 109 (HL) are cited. These observations read as follows: (AC pp. 132-133) "If you are bidden to treat an imaginary state of affairs ....
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....d or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes it is used to give a comprehensive description that includes what is obvious, what is uncertain and what is, in the ordinary sense, impossible.' (Per Lord Radcliffe in St. Aubyn v. Attorney General:1952 AC 15 (HL), AC p. 53) 14. 'Deemed', as used in statutory definitions [is meant] 'to extend the denotation of the defined term to things it would not in ordinary parlance denote, is often a convenient devise for reducing the verbiage of an enactment, but that does not mean that wherever it is used it has that effect; to deem means simply to judge or reach a conclusion about something, and the words "deem" and "deemed" when used in a statute thus simply state the effect or meaning which some matter or thing has the way in which it is to be adjudged; this need not import artificiality or fiction; it may simply be the statement of an undisputable conclusion.' (Per Windener, J. in Hunter Douglas Australia Pty. v. Perma Blinds: MANU/AUSH/0055/1970: (1970) 44 Aust LJ R 257) ....
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....hen acquisition of assets by Asset Reconstruction Company is made as per Section 5(1), deeming provision contained in Sub-section (2) of Section 5 shall come into play and the Asset Reconstruction Company shall be deemed to be Lender for all purposes. As a Lender, the Respondent No.1 was fully entitled to exercise its right to initiate proceeding under Section 7." 27. We, thus, are of the view that on the strength of Sub-section (2) of Section 5 of SARFAESI Act when Respondent No.1 has acquired the assets of the Cooperative Bank, the Respondent No.1 shall be deemed to be lender and shall be entitled to file Section 7 application against the Corporate Debtor who has mortgaged its immovable property as well as executed Deed of Guarantee to secure the loan facility. The above provision is sufficient to hold that Respondent No.1 was fully competent to file Section 7 application as a lender to the facilities extended to Borrower-1 and Borrower-2 of which Corporate Debtor was Guarantor and Mortgagor. 28. Learned counsel for the Respondent has submitted that the stamp duty paid on the Assignment Agreement was in accordance with the Maharashtra Stamp Act, 1958. Learned counsel for th....
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....d for appropriate action. Subsequent letter dated 12.12.2023 has also been brought on record which is letter written by Joint District Registrar, Class 2 and Stamp Collector, Pune City to the Appellant in reference to Deed of Assignment dated 07.08.2020 informing that proceedings are ongoing and the Appellant shall be intimated as soon as proceedings are completed. 31. The notice dated 04.12.2023, as brought by the Appellant on the record in no manner affect the proceedings of Section 7 which was initiated by the Financial Creditor on 08.09.2021. As noticed above, the Application under Section 7 has already been admitted by the Adjudicating Authority by order dated 16.05.2023. Any complaint filed by the Appellant before the Collector, Stamps with regard to deficiency in the Assignment Agreement or Guarantee Deed shall have no bearing on the proceedings which have already admitted on 16.05.2023. 32. As noted above, it is also relevant to note that in this appeal, Appellant has made a statement that he is ready to pay amount of Rs.24.10 Crores to the Financial Creditor as settlement of his dues and after recording this statement he filed complaints in August, 2023, which indica....
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.... as to stamping does not fall for determination under Sections 8 or 11 of the Arbitration Act. The concerned court must examine whether the arbitration agreement prima facie exists; d. Any objections in relation to the stamping of the agreement fall within the ambit of the arbitral tribunal; and e. The decision in NN Global 2 (supra) and SMS Tea Estates (supra) are overruled. Paragraphs 22 and 29 of Garware Wall Ropes (supra) are overruled to that extent." 34. Learned counsel for the Appellant has placed reliance on concurring judgment of Justice Sanjiv Khanna wherein in Para 1 of the judgment following has been observed: "I respectfully agree with the view expressed by the Hon'ble the Chief Justice of India Dr. D.Y. Chandrachud in his elaborate exposition of the different contours which arise for consideration in the present reference. Complementing the same, I would like to provide additional justifications for the final conclusion, viz., unstamped or insufficiently stamped instruments inadmissible in evidence in terms of Section 35 of the Indian Stamp Act, 18991, are not rendered void and void ab initio; an objection as to the under-stamping or non-....
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....ne or impound an instrument coming before him, and can admit an insufficiently stamped instrument in evidence, other than in the proceeding under Chapter XII or Chapter XXXVI of the Code of Criminal Procedure, 1898 (Chapter X(D) and Chapter IX of the Code of Criminal Procedure, 1973). Thus, the same instrument may be admissible and acted upon before a criminal court, while being inadmissible before a civil court, public officer etc. 11. The negative stipulations in Sections 33 and 35 are specific, albeit not so absolute as to make the instrument invalid in law. A "void ab initio" instrument, which is stillborn, has no corporeality in the eyes of law. It cannot confer or give rights, or create obligations. However, an instrument which is "inadmissible" exists in law, albeit cannot be admitted in evidence by such person, or be registered, authenticated or be acted upon by such person or a public officer till it is duly stamped. As rightly observed by Hon'ble the Chief Justice, Section 35 deals with admissibility etc. of an instrument and not invalidity." 36. Admittedly, Justice Sanjiv Khanna has recorded his concurrence with the judgment delivered by the larger bench. In ....
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.... the Corporate Debtor no financial debt shall come into existence. 41. In Anuj Jain's Case the assets of Jaypee Infratech Ltd. (JIL) were mortgaged to secure the loans advanced by lenders banks in favour of Jaiprakash Associates Ltd. (JAL). The facts of the case are noticed in Para 1 of the judgment, which is as follows: "1. These appeals are essentially directed against the common order dated 1-8-2019 as passed by the National Company Law Appellate Tribunal, New Delhi (hereinafter also referred to as "the Appellate Tribunal" or "NCLAT") in a batch of appeals preferred by various banks and financial institutions whereby, the Appellate Tribunal set aside the order dated 16-5-2018, passed by the adjudicating authority, the National Company Law Tribunal, Allahabad Bench (hereinafter also referred to as "the Tribunal" or "NCLT" or "the adjudicating authority") on the application moved by the interim resolution professional ("IRP" for short) in the corporate insolvency resolution process ("CIRP" for short) concerning the corporate debtor company viz. Jaypee Infratech Ltd. ("JIL" for short; also referred to as "the corporate debtor") seeking avoidance of certain transactions,....
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....s in the principal clause. In yet other words, the essential element of disbursal, and that too against the consideration for time value of money, needs to be found in the genesis of any debt before it may be treated as "financial debt" within the meaning of Section 5(8) of the Code. This debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money." 43. Hon'ble Supreme Court ultimately in Para 57 recorded its summation on the second issue, which is as follows: "57. For what has been discussed hereinabove, on the issue as to whether lenders of JAL could be treated as financial creditors, we hold that such lenders of JAL, on the strength of the mortgages in question, may fall in the category of secured creditors, but such mortgages being neither towards any loan, facility or advance to the corporate debtor nor towards protecting any facility or security of the corporate debtor, it cannot be said that the corporate debtor owes them any "financial debt" within the meaning of Section 5(8) of the Code; and hence, such lenders of JAL do not fall ....