Is Insufficiently Stamped Document Admissible in Evidence?

When it comes to legal drafts, they are usually not valid unless duly stamped and signed by necessary parties. While people do remember to get the documents signed, some often forget to put ample stamps on the document.

Insufficient stamping or a completely unstamped instrument is usually deemed inadmissible in evidence, even if both parties consent to it. However, to understand if this is a legal necessity or simply an avoidable deed, let us familiarize you with the various Sections under different Acts that are relevant to the act of insufficient stamping.

Provisions of the Indian Stamp Act

Provisions related to stamping are mentioned under the Indian Stamp Act, 1899 (“Act”). As per Section 2 (11) of the Act, ‘duly stamped’ is defined as an instrument that bears an adhesive or impressed stamp of not less than the apt amount and that the stamp has been affixed or used in accordance with the law for the time being in force in India.

As per Section 17, all instruments chargeable with duty and executed by any person in India shall be stamped before or at the time of execution.

Section 18 additionally states that the documents executed outside India may be stamped within three months after they were first received in India.

Section 35 states that in case an instrument that is chargeable with stamp duty is going to be produced as evidence, it shall be inadmissible as evidence unless it is duly stamped.

Furthermore, Section 33 empowers any individual authorized by law to receive evidence to confiscate the same if it has not been duly stamped.

Provisions of Insolvency & Bankruptcy Code (IBC), 2016

As per Section 7 of the Insolvency and Bankruptcy Code, 2016, an application that is filed by a financial creditor against the corporate debtor for initiation of corporate insolvency resolution process (“CIRP”) has to be reviewed by the NCLT by considering whether there was a debt and a default has occurred and that all aspects of the application are complete.

Section 8 of the Code pertains to applications filed by an operational creditor against the corporate debtor for initiation of CIRP.

It must be noted that the effect of an unstamped or insufficiently stamped document on an application filed for initiation of CIRP is not mentioned anywhere in the IBC.

As per Section 35 of the Indian Stamp Act, insufficiently stamped documents are deemed inadmissible in evidence. However, Courts have often deviated from this and ruled otherwise.

Some Judicial Decisions Related to Insufficient Stamping

Manglam Vanijya Pvt Ltd. vs. Reward Business Solutions Pvt. Ltd- NCLT Mumbai

• A section 7 application was filed by the financial creditor for initiation of CIRP pursuant to non-payment of a loan extended by the creditor to the company. A loan agreement and a mortgage deed were executed. There were other documents executed as well. The debtor raised the contention that the loan agreement was insufficiently stamped and hence cannot be taken into evidence and the Section 7 application be dismissed.
• NCLT held that it was not sufficient ground for dismissal of the application. However, while admitting the application, the NCLT observed that non-payment of stamp duty cannot stall the proceedings since the defect is a curable one. In this case NCLT though admitted the application but impounded the loan agreement and sent it to the appropriate authority for due adjudication of the stamp duty payable.

Praful Nanji Satra vs. Vistra ITCL – NCLAT Delhi

• A section 7 application was filed by the financial creditor which came to be admitted by the NCLT. However, since the Secured Redeemable Non-Convertible Debentures Subscription Agreement and Debenture Trust Deed were insufficiently stamped, the NCLT bench differed on the issue of impounding the documents. The matter ultimately travelled to the NCLAT
• Despite noting that the above documents were insufficiently stamped, the NCLAT came to the conclusion that the Section 7 application was correctly admitted by the NCLT.

Sandeep Kasare vs. IL&FS Financial Services

• In this case, an application under Section 7 was admitted despite the fact that the letter of guarantee was insufficiently stamped.
• When the matter reached NCLAT in appeal, the NCLAT while relying on the other documents which established that the loan was granted and remained unpaid, held that the corporate debtor cannot escape from its liability from repayment of the loan sanctioned to the principal borrower on the ground that the letter of guarantee was insufficiently stamped.

Standard Chartered Bank Singapore vs. RCI Industries & Technologies- NCLT Delhi

• In this case, the NCLT was considering an application under Section 9 of the Code for initiation of CIRP.
• The debtor contended that the Receivable Purchase Facility and the Factoring Agreement were not duly stamped and therefore could not be acted upon by the Creditor.
• The NCLT held that even if the documents in question were not sufficiently stamped, the same would not render the application under Section 9 of the IBC as non-maintainable. The NCLT relied on the other documents produced on record which established that the debtor had committed default in payment of the debt and hence the application was held to be maintainable and was ultimately admitted.

Koncentric Investments Ltd vs. Standard Chartered Bank London – NCLAT Delhi

• An appeal was filed before the NCLAT impugning the order passed by NCLT admitting a section 7 application against the debtor.
• One of the contentions raised by the debtor was that the Facility Agreement as well as the Supplemental Agreement were insufficiently stamped documents and hence could not be looked at for any purpose.
• NCLAT held that while adjudicating an application under Section 7, the authority has to only see the records of the information and other evidence produced by the creditor to satisfy itself that a default has occurred. The NCLAT noted that though the above-mentioned documents were not sufficiently stamped but there were other documents including the registered mortgaged deed which could be relied upon for coming to the conclusion that default has been committed by the corporate debtor in paying the debt.  The NCLAT ultimately upheld the order of the NCLT which admitted Section 7 application.

Conclusion

After going through the above-mentioned judgements, we can assume that simply because certain insufficiently stamped documents have been used in an application for initiation of CIRP, the same will not by itself cause any impediment in the admission of the application. However, it is strongly advised to do the needful as it is a vital part of legal documents, especially when it comes to something that is supposed to be submitted in evidence.