Arbitration Clauses In Unstamped Or Inadequately Stamped Agreements Enforceable: Insufficiency Of Stamping Does Not Make The Agreement Void Or Unenforceable But Makes It Inadmissible In Evidence

Maneesh Pharmaceuticals Ltd. v. Export Import Bank of India and Ors.

Civil Appeal No 8135 of 2023

Decided on 15^th December 2023

Summary:

 The Supreme Court in the case of Maneesh Pharmaceuticals Ltd vs. Export Import Bank of India and Others provided insights into the dynamic relationship between the National Company Law Tribunal (NCLT), National Company Law Appellate Tribunal (NCLAT), and Section 7 petitions under the Insolvency and Bankruptcy Code (IBC). This appeal arose from a NCLAT order, prompting significant inquiries into the assessment of conflicting arguments on their merits prior to the acceptance of petitions under Section 7 of the IBC.

Facts of the Case:

The first respondent filed a Section 7 application under the Insolvency and Bankruptcy Code (IBC) which was rejected by the National Company Law Tribunal (NCLT) on March 25, 2022, citing the debt’s limitation. The NCLAT overturned this decision on May 9, 2023, deeming the limitation finding “patently illegal” and affirming the undisputed liability of the Corporate Debtor to the Financial Creditors. An appeal to this ruling was dismissed on July 4, 2023. Subsequently, the respondents moved the NCLT to reinstate the Section 7 application for Corporate Insolvency Resolution Process initiation, granted on July 5, 2023. A review petition challenging the July 4, 2023 order is pending. Despite a request for adjournment due to the review petition, the NCLT proceeded on October 25, 2023. This prompted an appeal to the NCLAT, resulting in a December 6, 2023 order directing the NCLT to admit the Section 7 application. The present appeal before the Supreme Court stems from this sequence of events.

Issue:

Whether the NCLT is bound to admit the Section 7 application as provided by the orders of the NCLAT?

Judgement:

The NCLT initially dismissed the Section 7 application, citing the debt’s limitation. Upon appeal, the NCLAT declared the NCLT’s order “patently illegal,” leading to its annulment. With the NCLT order set aside, any observations about the debt’s existence and disputability ceased to exist. The NCLAT’s order, properly interpreted, specifically addressed the issue of the debt being time-barred, with any reference to a disputed debt considered in the context of the original appeal’s nature. Consequently, it would be improper to interpret the NCLAT’s order as conclusively determining whether the Section 7 application should be admitted. Despite a passing mention of a debt dispute, it cannot be considered a definitive judgment on the application’s merits.

Furthermore, the NCLAT’s directive to the NCLT to immediately admit the Section 7 application without evaluating rival contentions on merits was deemed inappropriate. The NCLAT’s action was criticized as premature, especially given the complete overturning of the NCLT order, which included the observation that the debt was not in dispute. Thus, the Supreme Court viewed the NCLAT’s direction as lacking a thorough assessment of competing arguments and premature in ordering the admission of the Section 7 application.

Analysis:

In summary, the Supreme Court, in its verdict, overturns the NCLAT’s decision and instructs the NCLT to assess, with a hearing involving the concerned parties, the admissibility of the Section 7 application. The Court preserves the rights and contentions of all parties while stressing the need for a prompt resolution by January 31, 2024. Notably, the Supreme Court refrains from expressing any stance on the substantive aspects of the conflicting arguments, deferring their determination to the NCLT proceedings.

This ruling underscores the significance of a comprehensive examination of opposing claims in insolvency cases and reinforces the principle that incidental remarks in an order should not be misconstrued as conclusive judgments on the merits. The judgment emphasizes the importance of due process and thorough consideration of legal issues, promoting a fair and just resolution within the framework of insolvency law.