The Overlooked Stamp(ede) of N.N. Global on initiation of Corporate Insolvency Resolution Process – Priyanshu Mukesh Shrivastava

The Overlooked Stamp(ede) of N.N. Global on initiation of Corporate Insolvency Resolution Process

Priyanshu Shrivastava
(Author is a 4th Year law student at National Law University, Jodhpur pursuing B.A. LL.B. (Hons.)


Corporate Insolvency Resolution Process (CIRP) can be initiated by a Financial Creditor, an Operational Creditor, or the Corporate Debtor (CD) itself under the Insolvency and Bankruptcy Code, 2016 (IBC). The process for the same is via an application under Section 7 (for financial creditors), Section 9 (for operational creditors), or Section 10 (for CD) under the IBC. This application is filed before the Adjudicating Authority (AA), which is the National Company Law Tribunal (NCLT). The AA admits these applications once a ‘default’ is established. It is clarified that the discussion on such an admittance being discretionary or mandatory is outside the scope of this piece [See M. Suresh Kumar Reddy v. Canara Bank (2023) 67 SC; Vidarbha Industries v. Axis Bank (2022) 91 SC; Innoventive Industries v. ICICI Bank [2017] 02 SC; E.S. Krishnamurthy v. Bharath Hi-Tecch Builders (2021) 173 SC].

The Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 provide guidance on these applications by listing out the relevant documents that are required for the purpose of establishing a ‘debt’ and ‘default’. For instance, in the context of an application by a financial creditor, “Form-1” lists down eight types of documents under the head of “Particulars of Financial Debt [Documents, Records and Evidence of Default]”. Other than information utility, these eight types of documents are the sources of evidence that are to be used by the financial creditor to prove a default, as also stated by the Supreme Court (SC) in Swiss Ribbons v. Union of India (2019) 03 SC.

In this regard, it is common practice for creditors to submit their relevant agreements (e.g., loan agreement, debenture trust deed, share purchase agreement, and investment agreement) to showcase a ‘default’ in relation to the ‘debt’ arising out of such agreements. As a result, these documents form a crucial part of proving a ‘default’ for the purposes of initiating CIRP.

What happens if these agreements are insufficiently stamped or not stamped at all? This piece intends to delve into this very question.

Approach by Insolvency Tribunals

Decisions delivered by insolvency tribunals give us an idea of how this issue has been approached so far. In Praful Nanji Satra v. Vistra ITCL (India) Limited (2022) 550 NCLAT, the financial creditor (Vistra) had initiated insolvency on the basis of a Secured Redeemable Non-Convertible Debentures Subscription Agreement and a Debenture Trust Deed. The promoter of the CD had raised the issue that initiation of CIRP cannot be allowed on the basis of these documents as they remain insufficiently stamped under the Maharashtra Stamp Act, 1958. The NCLAT labelled this issue as a “technical deficiency of insufficiency […] which can be cured” and decided that this does not impact the establishment of debt being due and payable. This decision shrugs off the legal implications of insufficient stamping by merely labelling it as ‘technical’. The superficial approach by the NCLAT is conspicuous as it did not even fit to delve into the relevant provisions of the Maharashtra Stamp Act, 1958. Consequently, this decision provides little guidance on how to tackle the issue under consideration.

The NCLAT has taken a more nuanced approach while addressing this issue in Standard Chartered Bank Singapore v. RCI Industries and Technologies (2022) 334 NCLT. In this case, CIRP was sought to be initiated by an operational creditor through an application under Section 9 of IBC. An objection of the relevant documents being unstamped was brought via an interlocutory application after the matter was partly heard on its merits. The Applicant’s contention was that two documents — a Receivable Purchase Facility and a Factoring Agreement — were not stamped. The NCLAT was of the view that,

even if the documents in question i.e., the assignment/agreements have not been stamped under the provisions of Indian Stamp Act, such non-stamping of the said documents shall not render the instant application filed under Section 9 of the Insolvency and Bankruptcy Code, 2016 as nonmaintainable, in view of other material on record which can be relied upon to come to the conclusion that the Corporate Debtor has committed default in payment of debt.” (emphasis supplied)

Interestingly, the NCLAT did not directly decide if such non-stamping would lead to rejection of an application for CIRP. Rather, it based its decision by relying on materials other than these unstamped documents as they were, in the opinion of the tribunal, sufficient to establish a default. A similar line of thought has been adopted by the NCLAT in both Koncentric Investments v. Standard Chartered Bank, London (2022) 90 NCLAT and Ashique Ponnamparambath v. Federal Bank (2021) 336 NCLAT.

However, these decisions do not address what exact implications non-stamping/insufficient stamping would entail. Rather, the tribunals seemed to have avoided this issue; relying directly on other documents that remain unaffected by such non-stamping/insufficient stamping. The question on the legal ramifications of such non-stamping/insufficient stamping remains open.

Impact of Supreme Court judgment in N.N. Global 

Recently, in N.N. Global Mercantile v. Indo Unique Flame (2023) 56 SC (N.N. Global), a constitutional bench of the SC delved into the effect of insufficient stamping on an arbitration agreement. While the decision was delivered in the factual context of an arbitration agreement, the ratio of this decision in relation to the Indian Stamp Act, 1899 (Stamp Act) has far reaching implications beyond the sphere of arbitration law.

Section 35 of Stamp Act states that if an instrument, which includes an agreement, is not duly stamped, then it cannot be “admitted in evidence for any purpose by any person having by law or consent of parties authority to receive evidence, or shall be acted upon”. After taking a note of this provision, the SC observed how only those agreements, which are enforceable, are treated as contracts as given under Section 2(h) of Indian Contract Act, 1872. As a result, the SC stated that,

[u]nder Section 35, the Law-Giver has disabled the admission in evidence of an instrument not stamped or insufficiently stamped, for any purpose. […] Section 33 does not give a choice to the person, who has authority by law, or with consent, to take evidence, or to any Public Officer, but to impound the agreement. The unstamped or insufficiently stamped document cannot be used as evidence for any purpose. It would be inconceivable, as to how, it could be in the same breath, be found that an unstamped document is yet enforceable in law or that it is not enforceable in law.” (emphasis supplied)

This means that a document cannot be used as evidence if the same is non-stamped/insufficiently stamped. As a result, it is not possible for the AA to rely on documents filed by the creditors that are non-stamped or insufficiently stamped. The creditors or the CD is supposed to prove a ‘default’ through a variety of documents (as seen in the previous part). The SC’s decision showcases and settles that reliance on such non-stamped/insufficiently stamped documents is not possible.

Recently, NCLT (Mumbai Bench) analysed the implications of the N.N. Global decision in Bank of Baroda v. BD & P Hotels (2023) 286 NCLT. Although NCLT (Mumbai Bench) acknowledged the findings of N.N. Global, it ultimately decided in favour of initiation by stating that existence of debt need not be proved by the primary agreements (e.g., loan agreement) as “it can be proved by other means, as provided in Section 7(3) of the IBC prescribing record of default recorded with the information utility or such other records or evidence such may be specified.” However, as it has been pointed out in the first part of this article, these ‘other records’ include the primary agreements. This brings us to a practical issue. Ordinarily, a default is showcased by the applicant by pointing out specific clauses of their agreement, which is then complemented by financial records and correspondences between the parties. If the applicant is unable to rely on the clauses in the primary agreement, which is the starting point of proving a default, would this position of relying on other documents still be tenable?

Certain opinions have supported the position of accepting an application for CIRP despite certain unstamped/insufficient documents on record. These opinions propound that this position is in consonance with the intent of IBC. However, although the IBC is a special legislation and has a non-obstante clause over “any other law” [Sec. 238, IBC], it cannot be read in a way that defeats the most fundamental principles of law. Presently, the relevant principle concerns the aspect of admissibility of a document based on the Stamp Act, which is a “fiscal enactment intended to raise revenue, it is a law, which is meant to have teeth” [N.N. Global Mercantile v. Indo Unique Flame]. At the same time, the author acknowledges that practical issues are bound to crop up due to this decision. It can even be unfair for some creditors who may have initiated CIRP, if not for the non-stamped/insufficiently stamped documents.

In conclusion, it is crucial to acknowledge the overlooked impact of N.N. Global decision on the initiation of CIRP. The legal and practical challenges arising from non-stamped or insufficiently stamped documents necessitate careful consideration and potential reforms to ensure a fine balance is struck. It will be interesting to see how insolvency tribunals apply this decision while adjudicating on similar issues in the future.


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