Contesting respondents not 'Financial Creditors.' Application under Insolvency Code not maintainable. Corporate Debtor freed.

The Tribunal held that the contesting respondents did not qualify as 'Financial Creditors' under the Insolvency and Bankruptcy Code. Consequently, the application filed by the respondents under Section 7 of the Code was deemed not maintainable. The Tribunal set aside the previous order, declared subsequent actions illegal, released the 'Corporate Debtor' from legal constraints, and allowed it to operate independently. The Adjudicating Authority was directed to determine the fee of the 'Resolution Professional' to be paid by the 'Corporate Debtor.' The appeal was allowed without costs.

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Issues Involved:
1. Whether the contesting respondents qualify as 'Financial Creditors' under Section 5(7) and 5(8) of the Insolvency and Bankruptcy Code, 2016 (I&B Code).
2. Whether the debt claimed by the contesting respondents was disbursed against the consideration for the time value of money.
3. Whether the application under Section 7 of the I&B Code by the contesting respondents was maintainable.

Issue-Wise Detailed Analysis:

1. Whether the contesting respondents qualify as 'Financial Creditors' under Section 5(7) and 5(8) of the I&B Code:
The appellant challenged the impugned order on the grounds that the contesting respondents do not come within the meaning of 'Financial Creditor' as defined under sub-section (7) of Section 5. The appellant argued that the amount claimed to have been deposited does not constitute 'Financial Debt' as defined under sub-section (8) of Section 5 of the I&B Code. The Tribunal referred to the definitions of 'debt' and 'default' under sub-sections (11) and (12) of Section 3, respectively, and the definitions of 'Financial Creditor' and 'Financial Debt' under sub-sections (7) and (8) of Section 5. The Tribunal also cited the case of "Nikhil Mehta and Sons (HUF) Vs. AMR Infrastructure Ltd." and "Dr. B.V.S. Lakshmi vs. Geometrix Laser Solutions Private Limited" to elucidate the requirements for qualifying as a 'Financial Creditor'.

2. Whether the debt claimed by the contesting respondents was disbursed against the consideration for the time value of money:
The appellant argued that the contesting respondents did not disburse any amount against the consideration for the time value of money and that the transactions were not covered by sub-section (8) of Section 5 of the I&B Code. The Tribunal noted that for a debt to qualify as a 'financial debt', it must be disbursed against the consideration for the time value of money. The Tribunal observed that the amount of Rs. 1.05 Crores paid by the contesting respondents was paid to the bank as 'personal guarantors' and not against the consideration for the time value of money. The Tribunal further noted that there was no evidence to suggest that the amount of Rs. 29,97,000/- was disbursed in favor of the 'Corporate Debtor' against the consideration for the time value of money.

3. Whether the application under Section 7 of the I&B Code by the contesting respondents was maintainable:
The Tribunal held that the contesting respondents do not come within the meaning of 'Financial Creditor' and, therefore, the application under Section 7 at their instance was not maintainable. The Adjudicating Authority had failed to notice this and admitted the application without determining its maintainability. Consequently, the Tribunal set aside the impugned order dated 1st August 2017, passed by the Adjudicating Authority.

Conclusion:
The Tribunal concluded that the contesting respondents do not qualify as 'Financial Creditors' under the I&B Code, and the application under Section 7 was not maintainable. The Tribunal set aside the impugned order and declared all subsequent orders and actions, including the appointment of the 'Interim Resolution Professional' and the freezing of accounts, as illegal. The 'Corporate Debtor' was released from all the rigour of law and allowed to function independently through its Board of Directors. The Adjudicating Authority was directed to fix the fee of the 'Resolution Professional,' which the 'Corporate Debtor' was to pay for the period he functioned. The appeal was allowed without any order as to cost.

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