2018 (1) TMI 443 - AT - Insolvency and Bankruptcy

Application under Sections 433 and 434 of the Companies Act, 1956 for winding been treated as an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 - Held that - In the present case, the respondent has failed to show that the amount of loan treated to have been given to the Corporate Debtor were disbursed against the consideration for the time value of money. In absence of any such evidence on record to suggest that the amount was disbursed against the consideration for the time value of money and was borrowed by the Corporate Debtor against the payment of interest, we hold that the respondent M/s. Visa Drugs and Pharmaceuticals do not come within the meaning of financial creditor . The Adjudicating Authority having failed to notice the facts, we have no other option but to set aside the impugned orders dated 4th September and 18th September, 2017. In effect, order(s) passed by the Adjudicating Authority appointing Resolution Professional declaring moratorium, freezing of account and all other order(s) passed by the Adjudicating Authority pursuant to impugned order and action taken by the Resolution Professional , including the advertisement published in the newspaper calling for applications all such orders and actions are declared illegal and are set aside. The application preferred by Respondent under Section 433 and 434 stands abated. The Adjudicating Authority will now close the proceeding. The Corporate Debtor is released from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect.

Issues Involved:
1. Validity of treating a winding-up application under Sections 433 and 434 of the Companies Act, 1956 as an application under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Determination of whether the respondent qualifies as a "Financial Creditor" under the Insolvency and Bankruptcy Code, 2016.
3. Legality of the orders passed by the Adjudicating Authority appointing the Interim Resolution Professional and declaring a moratorium.

Issue-wise Detailed Analysis:

1. Validity of treating a winding-up application under Sections 433 and 434 of the Companies Act, 1956 as an application under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The appellant contested the orders dated 4th September, 2017 and 18th September, 2017 passed by the Adjudicating Authority (National Company Law Tribunal), Chandigarh Bench, which treated the winding-up application under Sections 433 and 434 of the Companies Act, 1956 as an application under Section 7 of the Insolvency and Bankruptcy Code, 2016. The Tribunal admitted the application, passed a moratorium order, and appointed an Interim Resolution Professional. The Tribunal referenced the Central Government notification dated 7th December, 2016, which mandated the transfer of pending winding-up proceedings from High Courts to the Tribunal, to be treated as applications under Sections 7, 8, or 9 of the I&B Code.

2. Determination of whether the respondent qualifies as a "Financial Creditor" under the Insolvency and Bankruptcy Code, 2016:
The appellant argued that the respondent, M/s. Visa Drugs & Pharmaceuticals Pvt. Ltd., was a shareholder and did not qualify as a "Financial Creditor" under Section 5(7) read with Section 5(8) of the I&B Code. The appellant pointed out that the balance-sheet of M/s. Swan Aluminiums Pvt. Ltd. listed the respondent as an unsecured loan/advance without interest, which does not meet the definition of "financial debt" under Section 5(8) of the I&B Code. The Tribunal examined the definition of "Financial Creditor" and "financial debt," which requires the debt to be disbursed against the consideration for the time value of money. The Tribunal found no evidence that the loan was disbursed against the consideration for the time value of money or that it was borrowed against the payment of interest. Hence, the respondent did not qualify as a "financial creditor."

3. Legality of the orders passed by the Adjudicating Authority appointing the Interim Resolution Professional and declaring a moratorium:
The Tribunal concluded that the Adjudicating Authority failed to notice that the respondent did not qualify as a "financial creditor." Consequently, the orders dated 4th September and 18th September, 2017, appointing the Interim Resolution Professional, declaring a moratorium, freezing accounts, and all subsequent actions taken by the Resolution Professional were declared illegal and set aside. The application under Sections 433 and 434 was deemed abated, and the Corporate Debtor was released from all legal rigours, allowing it to function independently through its Board of Directors. The Tribunal directed the Adjudicating Authority to fix the fee of the Resolution Professional, which the Corporate Debtor was to pay for the period he functioned.

Conclusion:
The appeal was allowed, setting aside the impugned orders and actions taken by the Resolution Professional. The Corporate Debtor was permitted to resume operations independently, and the proceedings under Sections 433 and 434 were closed. No order as to costs was made.

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