Invalid authorisation and conversion of debt into capital contribution defeated maintainability under insolvency law.

An insolvency petition under the IBC was found not maintainable because the filing lacked valid authorisation: the vakalatnama was not duly signed by the applicant, the pleadings and affidavit were signed by the advocate, and the Tribunal treated such defective authorisation as incapable of later cure once pleadings were complete. The claim also lost its character as a financial debt because the advance had been converted into capital contribution, with the applicant becoming a general partner in the LLP. On that basis, the applicant was not a financial creditor entitled to initiate CIRP.

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Issues: (i) Whether the application under section 7 was maintainable in the absence of valid authorisation and where the pleadings were signed and verified by the advocate; (ii) Whether the amount advanced continued to constitute a financial debt, or had been converted into equity contribution so as to take the applicant outside the ambit of a financial creditor.

Issue (i): Whether the application under section 7 was maintainable in the absence of valid authorisation and where the pleadings were signed and verified by the advocate?

Analysis: The application was not supported by a validly executed authorisation. The vakalatnama was not duly signed by the applicant, the advocate acted as authorised representative, and the supporting affidavit was also signed by the advocate rather than the applicant. The order also relied on the statutory framework and the notification issued under section 7 of the Insolvency and Bankruptcy Code, 2016, which permits filing through specified authorised persons, and held that a defective authorisation cannot be cured after the pleadings are complete.

Conclusion: The application was not maintainable for want of valid authorisation.

Issue (ii): Whether the amount advanced continued to constitute a financial debt, or had been converted into equity contribution so as to take the applicant outside the ambit of a financial creditor?

Analysis: On the record, the loan was treated as having been converted into capital contribution and the applicant was made a general partner in the LLP. In that situation, the claim no longer retained the character of a financial debt recoverable under the Code. The Tribunal therefore found that the applicant could not be treated as a financial creditor for initiating the corporate insolvency resolution process.

Conclusion: The amount ceased to be a financial debt and the applicant was not entitled to maintain the petition as a financial creditor.

Final Conclusion: The insolvency petition was rejected because the filing was not properly authorised and the underlying claim had lost the character of financial debt under the insolvency law.

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