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2024 Supreme(Online)(NCLAT) 1173

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
ASHOK BHUSHAN, J
PAWAN KUMAR MANGUTURAM BAIRAGRA – Appellant
Versus
ENCORE ASSET RECONSTRUCTION COMPANY LTD. – Respondent
Company Appeal (AT) (Insolvency) No. 701 of 2023 | CP (IB) No.1225/MB-IV/2021

Advocates:
For the Appellants/Petitioners:Mr. Krishnendu Datta, Sr. Advocate, Mr. Avi Tandon, Rahul
For the Respondents:Mr. Sudhir Makkar, Sr. Advocate, Mr. Tushar John, Ms. Saumya Gupta, Mr. Arjun Maheshwari, Mr. P. Nagesh, Sr. Advocate, Mr. Gaurav Mitra, Mr. Anupam Kishore Sinha, Mr. Apoorv Jha

The Assignment Deed was deemed valid despite the Appellant's objections, confirming the debt and default necessary for admitting the Financial Creditor's Section 7 application.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Section 7 - Appeal filed by Suspended Director against order admitting Financial Creditor's application - Validity of Assignment Deed and Corporate Guarantee - Corporate Debtor executed mortgage deeds securing loans from KAIJS Bank, later assigned to Respondent - Court upheld Adjudicating Authority's finding of debt and default, confirming grounds for Section 7 application - Court emphasized that registration of documents provides presumption of valid stamping, and corporate guarantees create financial debts. (Paras 1, 28, 44, and 47)

(B) Assignment and Corporate Guarantee - The Assignment Deed, though challenged for being insufficiently stamped, was a registered document presumed to be valid and was treated as financial debt according to the provisions of the SARFAESI Act. (Paras 10, 36, 39)

(C) Conduct of Appellant - Appellant made statements indicating readiness to settle but failed to comply with commitments, indicating the necessity for insolvency resolution. (Para 11)

Facts of the case:
The Appellant challenged an order admitting the Financial Creditor's application for Corporate Debtor's insolvency. Corporate Debtor executed mortgages for loans from KAIJS Bank, later assigned to Encore Asset Reconstruction Co. The Adjudicating Authority found debts and defaults sufficient for admitting the application.

Findings of Court:
The Court found no error in the Adjudicating Authority's decision, supporting the validity of the documents and confirming financial obligations of the Corporate Debtor—dismissed the appeal.

Issues: The main questions addressed included the validity of the Assignment Deed regarding necessary stamping and the existence of debt and default by the Corporate Debtor.

Ratio Decidendi: The Court concluded that on the basis of the Registration Act and stamping regulations, the Assignment Deed was valid, confirming the applicability of obligations under the Corporate Guarantee, allowing the Financial Creditor to pursue Section 7 application.

Result: Appeal dismissed.

Table of Content
1. overview of appeal and background (Para 1)
2. details of loan agreements and mortgages (Para 2)
3. interim orders and proposal for settlement (Para 3 , 4)
4. settlement discussions and extensions (Para 5 , 6 , 7 , 8)
5. continued discussions regarding settlement terms (Para 9 , 10)
6. conduct of the appellant in relation to payments (Para 11 , 12 , 13)
7. appellants' arguments against assignment validity (Para 14 , 15 , 16)
8. respondents' defense regarding assignment validity (Para 17 , 18 , 19 , 20)
9. legal effect of registration and stamping of documents (Para 21 , 22 , 23 , 24)
10. conclusion on deed sufficiency and authority (Para 25 , 26 , 27 , 28)
11. implications of the appellant’s complaint on proceedings (Para 29 , 30 , 31)
12. analysis of legal interpretations by the supreme court (Para 32 , 33 , 34 , 35)
13. final considerations and judgment conclusions (Para 36 , 37 , 38)
14. final judgment on merits of appeal against admission (Para 39 , 40 , 41 , 42)
15. conclusion affirming the lower court's decisions (Para 43 , 44 , 45 , 46 , 47)

JUDGMENT

ASHOK BHUSHAN, J.

This Appeal by a Suspended Director of the Corporate Debtor has been filed challenging the order dated 16.05.2023 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench-IV admitting Section 7 application filed by the Financial Creditor. Appellant aggrieved by the admission of Section 7 application has come up in 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 including the Borrowers loan accounts were assigned by KAIJS Bank in favour of Encore Asset Reconstruction Company Pvt. Ltd. (Respondent No.1 herein)

(ix) On 16.06.2020 and 18.06.2020, KAIJS Bank intimated the Corporate Debtor, Borrower-1 and Borrower-2 that both loans have been declared NPA and has been assigned to Respondent No.1.

(x) On 10.07.2020, Respondent No.1 gave a notice of assignment to the Corporate Debtor and Borrowers.

(xi) Corporate Debtor, on 16.10.2020, wrote to Respondent No.1 that they were unaware of Borrowers default of their respective loans.

(xii) Respondent No.1 on 04.05.2021 sent notices under Section 13(2) of SARFAESI Act 2002 to the Borrowers and Corporate Debtor demanding repayment of outstanding amount under the loan accounts.

(xiii) On 20.05.2021, Respondent No.1 issued demand notices to Corporate Debtor for payment as per Deeds of Guarantee, failing which Respondent No.1 would initiate CIRP under Section 7 of the Code.

(xiv) Corporate Debtor replied notices under Section 13(2) as well as demand notices dated 20.05.2021. Corporate Debtor requested for copy of the Assignment Agreement dated 21.03.2020 with details of the accounts.

(xv) Respondent No.1 sent reply dated 01.06.2021 to the Corporate Debtor that assignment has been done pursuant to a registered deed dated 07.08.2020 under Section 5 of the SARFAESI Act .

(xvi) On 08.09.2021, Respondent No.1 filed Section 7 application claiming an outstanding amount

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2024 Supreme(Online)(NCLAT) 1173

NATIONAL COMPANY LAW APPELLATE TRIBUNALASHOK BHUSHAN, JPAWAN KUMAR MANGUTURAM BAIRAGRA – AppellantVersusENCORE ASSET RECONSTRUCTION COMPANY LTD. – RespondentCompany Appeal (AT) (Insolvency) No. 701 of 2023 | CP (IB) No.1225/MB-IV/2021

The Assignment Deed was deemed valid despite the Appellant's objections, confirming the debt and default necessary for admitting the Financial Creditor's Section 7 application.

Cases Referred (2)

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
ASHOK BHUSHAN, J
PAWAN KUMAR MANGUTURAM BAIRAGRA – Appellant
Versus
ENCORE ASSET RECONSTRUCTION COMPANY LTD. – Respondent
Company Appeal (AT) (Insolvency) No. 701 of 2023 | CP (IB) No.1225/MB-IV/2021