Dismissal of Insolvency Petition due to Lack of Authorization & Fraudulent Transactions

The petition under Section 7 of the Insolvency and Bankruptcy Code was dismissed by the tribunal due to lack of proper authorization and fraudulent transactions that did not meet the criteria of a financial debt. The petitioner's inconsistent claims regarding the nature of the transactions played a significant role in the dismissal of the petition. The tribunal emphasized the importance of maintaining consistency in legal proceedings and highlighted that unauthorized filings by power of attorney holders are not permissible post-insolvency proceedings.

---

---

Issues Involved:
1. Whether the present petition has been filed by a duly authorized officer of DHFL and if he is entitled to pursue the same on behalf of PCHFL.
2. Whether the petitioner bank actually extended the loan facility to the respondent corporate debtor.
3. Whether the petitioner bank is entitled to trigger the CIR proceedings based on default in repayment of the amount involved.
4. Relief.

Detailed Analysis:

Issue 1: Authorization of the Petition
The tribunal examined whether the petition was filed by a duly authorized officer or power of attorney holder. The Financial Creditor, Dewan Housing Finance Corporation Ltd. (DHFL), appointed Mr. Vivek Jaigadkar as an attorney who further appointed Mr. Amit Kumar Dubey. However, DHFL underwent insolvency proceedings, and an Administrator was appointed. According to Section 201 of the Indian Contract Act, an agency is terminated if the principal becomes insolvent. Thus, the power of attorney dated 31st October 2017 stood terminated upon the initiation of CIR proceedings against DHFL on 3rd December 2019. The tribunal cited the case of "Palogix Infrastructure Private Limited Vs. ICICI Bank Limited" where it was held that a power of attorney holder is not competent to file an application under Section 7 of the Code. The tribunal concluded that the authorization letter and power of attorney were invalid post-insolvency proceedings, and the petition was not maintainable as it was not filed by a duly authorized officer.

Issue 2 & 3: Loan Facility and Default
These issues were discussed together. The tribunal noted that the insolvency proceedings against DHFL were initiated on 3rd December 2019, and an Administrator was appointed. The petitioner filed an application alleging that the transactions with the corporate debtor were fraudulent and collusive, based on a forensic audit report. The tribunal observed that the petitioner took contradictory stands by alleging fraud in one application and claiming a valid loan in another. The tribunal referred to the case of "Phoenix Arc Private Limited v. Spade Financial Services Limited & Ors." where it was held that sham transactions do not constitute a financial debt. The tribunal found that the transactions were fraudulent and collusive, and thus, did not satisfy the conditions of a financial debt under Section 5(8) of the Code. The tribunal emphasized that the petitioner cannot approbate and reprobate by taking inconsistent stands in different applications.

Issue 4: Relief
The tribunal concluded that the petition under Section 7 of the Code was not filed by a duly authorized officer and that the amount involved was not a financial debt. Consequently, the petition was dismissed with no orders to costs. The tribunal also declared that the related interim applications became infructuous and consigned the file to records.

Conclusion:
The tribunal dismissed the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016, due to the lack of proper authorization and the fraudulent nature of the transactions, which did not qualify as a financial debt.

---