NCLT Mumbai Rejects Stamp Duty Insufficiency Claim, Affirms IBC Proceedings Focus On Insolvency Resolution

NCLT Mumbai Rejects Stamp Duty Insufficiency Claim, Affirms IBC Proceedings Focus On Insolvency Resolution

The National Company Law Tribunal (NCLT) Mumbai bench, comprising Justice V. G. Bisht (Judicial Member) and Prabhat Kumar (Technical Member), has dismissed the argument regarding the insufficiency of stamp duty on a guarantee agreement. The bench clarified that insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) focus on resolving insolvency issues rather than enforcing the guarantee itself.

The case involved a petition filed under Section 95 of the IBC, 2016 by Bank of Baroda, seeking to initiate insolvency proceedings against Jitendra V. Kikavat, a personal guarantor, for recovering a sum of ₹66,35,16,757.11. The petitioner claimed that Kikavat had guaranteed a loan for M/s Mahavir Roads and Infrastructure Private Limited, whose account was declared a Non-Performing Asset (NPA) by the Bank of India in 2016. The Bank of India had subsequently filed an application under Section 7 of the IBC, leading to the initiation of the Corporate Insolvency Resolution Process (CIRP) against the corporate debtor and the suspension of Kikavat from managing the company.

The petitioner provided documents, including a sanction letter, a deed of guarantee, and a demand notice invoking the guarantee for unpaid debt. According to the guarantee deed, Kikavat was liable for ₹30,00,00,000 plus interest and costs. The demand notice sought payment of ₹66,35,16,757.11, but Kikavat did not respond or make any payments.

Kikavat argued that the Guarantee Letter was insufficiently stamped according to the Maharashtra Stamp Act, 1958, which requires stamp duty of ₹6,00,000 for a guarantee of ₹30,00,00,000. He also contended that the CIRP initiation and the petition were affecting ongoing settlement efforts with the Bank of India and that the claimed amount was inflated.

The NCLT observed that the corporate debtor defaulted on the loan repayment, implicating Kikavat as the personal guarantor. The tribunal noted that the default by the guarantor was evident from the demand notice issued under Rule 7(1) of the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process of Personal Guarantors to Corporate Debtors) Rules, 2019. The petitioner provided a Commercial Credit Information Report confirming the debt's existence, and the petition was within the prescribed limitation period.

Addressing the challenge to the Guarantee Agreement's validity based on stamp duty insufficiency, the NCLT referred to the Supreme Court's decision in N.N. Global Mercantile v. Indo Unique Flame & Ors., which clarified that an instrument with insufficient stamp duty is not void but inadmissible in evidence. The Stamp Act allows for curing such defects.

The NCLT held that despite the stamp duty issue, the guarantee agreement was validly invoked, creating an obligation for Kikavat to pay the demanded amount. The bench confirmed that the IBC proceedings are intended for insolvency resolution, not guarantee enforcement.

Consequently, the Insolvency Resolution Process against Jitendra V. Kikavat was upheld.