Authorisation, Stamping, and IU Defects Cannot Block Insolvency Petition: NCLAT Delhi

On 6 February, the National Company Law Appellate Tribunal (NCLAT) at Delhi held that defects in authorisation, stamping, and Information Utility records cannot invalidate a Section 7 insolvency petition when the debt and default are acknowledged by the corporate debtor.

A Bench of Judicial Member Justice N. Seshasayee and Technical Members Arun Baroka and Indevar Pandey dismissed the appeal of Vinodkumar Nihalchand Parmar, which challenged an NCLT Mumbai Bench order admitting the petition filed by Pegasus Assets Reconstruction Pvt. Ltd. against Dee Plone Polyster Pvt Ltd.

The Tribunal observed:

“The Corporate Debtor never disputed the quantum or existence of default. It had acknowledged the debt in its audited financial statements up to financial year 2021-21. The liability is also admitted in its email dated 16.02.2024 which expresses its financial distress. Under these conditions there are sufficient acknowledgements which conclusively establish the default under Section 3(12) of the Code.”

Parmar, the suspended director of Dee Plone Polyster, had challenged the admission of the insolvency petition on grounds of violation of natural justice and procedural lapses, including defects in authorisation, failure to serve the petition on the Insolvency and Bankruptcy Board of India, absence of a Section 65B certificate for electronic records, non-filing of default with an Information Utility, and reliance on unstamped loan agreements.

Pegasus Assets submitted that Dee Plone had availed loan facilities between 2014 and 2017, secured by hypothecation and mortgage deeds, and later defaulted. The account was classified as a non-performing asset in 2018, with an outstanding default of Rs. 37.35 crore. The corporate debtor had also acknowledged the debt in its audited financial statements and in an email dated 16 February 2024.

The Tribunal agreed with Pegasus Assets, noting that the defect was subsequently cured by placing board resolutions on record and held:

“On some technical objections relating to authorization defect, it is brought to our notice that initial defect in authorization defect which is curable was cured once the board resolutions were placed on record during the proceeding. Such a procedural defect cannot defeat substantive justice especially when debt and default are undisputed.”

Regarding non-filing of Information Utility records, the Tribunal observed that such filing is directory and not mandatory, and its absence cannot defeat a Section 7 application.

On the objection relating to unstamped documents, it relied on the Supreme Court's ruling in N.N. Global Mercantile Pvt Ltd v Indo Unique Flame Ltd, holding that stamp defects are curable.

The Tribunal further noted:

“Moreover, at the Section 7 admission stage the Tribunal is not adjudicating the enforceability of contracts but merely verifying the debt and default.”

Accordingly, the NCLAT dismissed the appeal filed by Vinodkumar Nihalchand Parmar and upheld the admission of the Section 7 petition against Dee Plone Polyster Pvt Ltd.

For Appellant: Puneet Singh Bindra, Charu Modi, Rishabh Gupta, Kirti Dang, Shannya Shukla, Sukriti Seth, Chandra Raj Singh