Technical Defects In Authorisation, Stamping Or IU Filing Cannot Defeat Section 7 Petition When Debt & Default Are Admitted: NCLAT

Technical Defects In Authorisation, Stamping Or IU Filing Cannot Defeat Section 7 Petition When Debt & Default Are Admitted: NCLAT

Introduction

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that procedural defects relating to authorisation, stamping of documents and non-filing of Information Utility (IU) records cannot invalidate a Section 7 insolvency petition when the existence of debt and default is acknowledged by the corporate debtor. The Bench comprising Judicial Member Justice N. Seshasayee and Technical Members Arun Baroka and Indevar Pandey dismissed the appeal challenging admission of insolvency proceedings against Dee Plone Polyster Pvt Ltd.

Factual Background

Pegasus Assets Reconstruction Pvt. Ltd. had extended loan facilities to Dee Plone Polyster Pvt Ltd between 2014 and 2017, secured by hypothecation and mortgage deeds. The account was classified as a Non-Performing Asset (NPA) in 2018, with an outstanding default of ₹37.35 crore.

The corporate debtor had acknowledged the debt in its audited financial statements up to the financial year 2021–22 and in an email dated February 16, 2024, wherein it expressed financial distress.

Procedural Background

The NCLT Mumbai Bench admitted the Section 7 petition filed by Pegasus Assets. Aggrieved, Vinodkumar Nihalchand Parmar, suspended director of the corporate debtor, filed an appeal before the NCLAT challenging the admission order on various procedural grounds.

Issues

1. Whether defects in authorisation of the applicant invalidate a Section 7 petition.

2. Whether non-filing of default records with an Information Utility renders the petition defective.

3. Whether reliance on unstamped loan agreements defeats the insolvency application.

4. Whether procedural irregularities can override admitted debt and default.

Contentions of the Parties

The appellant contended that the petition suffered from multiple procedural defects, including lack of proper authorisation, failure to serve notice to the Insolvency and Bankruptcy Board of India, absence of a Section 65B certificate for electronic records, non-filing of Information Utility records and reliance on unstamped loan agreements. It was argued that these defects violated principles of natural justice and rendered the petition unsustainable.

Pegasus Assets countered that the debt and default were never disputed. It submitted that any initial authorisation defect was cured by placing board resolutions on record during the proceedings. It further contended that filing with Information Utility is directory, not mandatory, and that stamping defects are curable under settled law.

Reasoning and Analysis

The NCLAT observed that the corporate debtor had unequivocally acknowledged the debt in audited financial statements and in email correspondence. It held that these acknowledgments conclusively established default under Section 3(12) of the Insolvency and Bankruptcy Code.

On the issue of authorisation, the Tribunal held that such defects are curable and, once rectified by placing board resolutions on record, cannot defeat substantive justice. It emphasized that technical objections cannot override admitted debt and default.

Regarding non-filing with an Information Utility, the Tribunal clarified that such filing is directory and not mandatory, and absence thereof does not invalidate a Section 7 application. On unstamped documents, the Tribunal relied on the Supreme Court’s decision in N.N. Global Mercantile Pvt Ltd v Indo Unique Flame Ltd, holding that stamp defects are curable and do not render the petition non-maintainable at the admission stage. The Tribunal reiterated that at the stage of admission under Section 7, the adjudicating authority is only required to verify the existence of debt and default, not adjudicate enforceability of underlying contracts.

Decision

The NCLAT dismissed the appeal and upheld the NCLT Mumbai Bench’s order admitting the Section 7 petition against Dee Plone Polyster Pvt Ltd, holding that procedural defects cannot defeat insolvency proceedings when debt and default are undisputed.

In this case the appellant was represented by Mr. Puneet Singh Bindra, Ms. Charu Modi, Mr. Rishabh Gupta, Ms. Kirti Dang, Ms. Shannya Shukla, Ms. Sukriti Seth, Mr. Chandra Raj Singh, Advocates.