2019 (11) TMI 1525 - Tri - Insolvency and Bankruptcy

Tribunal rejects petition due to lack of financial creditor status and invalid authorization.

The Tribunal rejected the petition under Section 7(5)(b) of the Insolvency and Bankruptcy Code, 2016, due to the applicant not being a financial creditor, ... Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - HELD THAT:- Invalid or defective authorisation letter cannot be rectified after reserving the order that should have been done prior to completion of the pleadings. In absence of valid authorisation in favour of the person filing the application the present application is not maintainable. Also, it can be seen that the loan was converted into equity by the acts of the applicant and for the reasons stated above the transaction can no longer be termed as 'financial debt' under the code, which is due and Payable - upon appreciation of the documents placed on record to substantiate the claim, the present petition is rejected in terms of Section 7(5)(b) of the Code. Petition dismissed. Issues Involved:1. Jurisdiction of the Tribunal.2. Status of the applicant as a financial creditor.3. Validity of the authorization letter and representation by the advocate.4. Conversion of loan into equity.5. Maintainability of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016.Issue-wise Detailed Analysis:1. Jurisdiction of the Tribunal:The Tribunal confirmed its territorial jurisdiction over the NCT of Delhi, as the registered office of the corporate debtor, Invest Care Real Estate LLP, is located in New Delhi. This is in accordance with subsection (1) of Section 60 of the Insolvency and Bankruptcy Code, 2016.2. Status of the Applicant as a Financial Creditor:The applicant, Ms. Rita Kapoor, claimed to be a financial creditor based on a loan agreement with the corporate debtor. However, the respondent contended that the loan was converted into capital contribution, making the applicant a general partner of the LLP, and thus, not a financial creditor. The Tribunal noted that the applicant had indeed signed documents converting the loan into equity and becoming a general partner of the LLP. Therefore, the applicant could not be termed a financial creditor under the Code.3. Validity of the Authorization Letter and Representation by the Advocate:The Tribunal found significant issues with the authorization letter and the representation by the advocate. The authorization letter was signed in London but witnessed in India on the same day, raising questions about its validity. The vakalatnama was not duly signed by the applicant but by the advocate, who also signed the affidavit in support of the application. This was against professional ethics, as an advocate should not step into the shoes of their client. The Tribunal cited Rule 13 of the Bar Council of India Rules, which prohibits a lawyer from appearing in a case where they are a witness on a material question of fact.4. Conversion of Loan into Equity:The Tribunal observed that the applicant had signed documents converting the loan into equity, thereby becoming a general partner of the LLP. The Tribunal held that the transaction could no longer be termed as 'financial debt' under the Code, as the loan had been converted into equity by the acts of the applicant.5. Maintainability of the Application under Section 7 of the Insolvency and Bankruptcy Code, 2016:The Tribunal noted that the application was filed by the advocate based on an invalid authorization letter. According to the Ministry of Corporate Affairs notification dated 27.02.2019, only specific persons (guardian, executor or administrator of an estate, trustee, or a person duly authorized by the Board of Directors) can file an application on behalf of a financial creditor. The Tribunal concluded that the application was not maintainable due to non-compliance with mandatory statutory requirements.Conclusion:The Tribunal rejected the petition under Section 7(5)(b) of the Insolvency and Bankruptcy Code, 2016, due to the applicant not being a financial creditor, the invalidity of the authorization letter, and the improper representation by the advocate. The Tribunal clarified that any observations made in the order should not prejudice the rights of the applicants before any other forum.