NCLT Hyderabad Admits Insolvency Plea Against Personal Guarantor, Says Stamp Duty Defect On Guarantee No Bar

The National Company Law Tribunal (NCLT) at Hyderabad has recently reiterated that an objection based on insufficient stamp duty on a guarantee deed cannot defeat proceedings under Section 95 of the Insolvency and Bankruptcy Code, admitting a personal insolvency petition filed by Bank of Maharashtra against Nukala Savithri, personal guarantor to SVSVS Projects Private Limited.

A coram of Judicial Member Rajeev Bhardwaj and Technical Member Sanjay Puri heard the petition filed for initiation of insolvency resolution against the personal guarantor, arising from default in repayment of credit facilities granted to the corporate debtor.

In support of the plea, the Bank referred to the sanction letters dated March 24, 2014 and April 9, 2016, the Deed of Guarantee executed on March 25, 2014, the statement of accounts, and the demand notice issued on July 31, 2021. It also placed reliance on a SARFAESI notice dated January 8, 2019 invoking the guarantee. 

The guarantor resisted the proceedings, contending that the Deed of Guarantee and the balance and security confirmation letter were not duly stamped and therefore could not be admitted in evidence. It was also argued that the loan facilities were revised in 2016 without execution of a fresh guarantee, which, according to her, resulted in discharge of the earlier guarantee.

In addition, the guarantor claimed that payment of Rs 1.10 crore made for release of mortgaged properties constituted accord and satisfaction and brought her liability to an end.

Dealing with the objection on stamp duty, the Tribunal reiterated that non-payment or deficit payment of stamp duty does not make an instrument void. The Bench relied on the Supreme Court's ruling in Re: Interplay Between Arbitration Agreements Under the Arbitration and Conciliation Act, 1996 and the Stamp Act, 1899 while rejecting the contention.

The bench observed:

“The law laid down in the above judgement in the Hon'ble Supreme Court in Re: Interplay Between Arbitration Agreements (supra) clarifies that an unstamped or insufficiently stamped instrument is not void. Further, proceedings under Section 95 of Code are summary in nature and are not proceedings for enforcement of the guarantee. Therefore, the objection raised by the Respondent on the issue of stamp duty is misconceived and does not affect the maintainability of the present application.”

The tribunal also rejected the argument that revision of the loan facilities discharged the guarantee, noting that the deed itself recorded that the guarantee was continuing, irrevocable and co-extensive, and that variation of credit facilities would not release the guarantor.

On the plea of accord and satisfaction, the tribunal examined the letter permitting release of mortgaged properties and found that the payment of Rs 1.10 crore was accepted only for release of specific securities.

Referring to the terms of release, the tribunal quoted

“All other remaining securities in the account including our Bank's claim against borrower and personal guarantees shall continue as per existing terms.”

Holding that the liability under the guarantee continued, the tribunal admitted the petition under Section 100 of the Code and initiated the personal insolvency resolution process against the personal guarantor.