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2020 (9) TMI 123 - AT - Insolvency and BankruptcyScope of the I B Code - initiation of CIRP - Financial Debt - Converion of Debt into Capital - Corporate Debtor failed to make repayment of its debt - Financial Creditor or not - existence of debt and dispute or not - HELD THAT - As seen from the impugned order of the Adjudicating Authority had observed that the investment is not a Financial Debt . The Adjudicating Authority had also touched upon the subject of violation of Advocates Act, 1961 and the Bar Council of India Rules for professional conduct and ethics for Lawyers and is not happy with the Advocate becoming the Power of Attorney Holder and affirming Affidavit on behalf of the Appellant - This Tribunal has noticed the submissions advanced on both the sides meticulously and is of the view that the Application under Section 7 of the I B Code, 2016 cannot be rejected on the ground that the same set was filed by the Power of Attorney Holder . The delay has also been condoned by this Appellant Tribunal vide its order dated 24.01.2020. The Appellant case is that she and her late husband has invested huge amount in the Corporate Debtor, and she is a senior citizen. The Corporate Debtor has failed to provide audited profit loss account for the years 2013-14 till date to the Appellant, it seems that the Corporate Debtor is suffering from several irregularities. However, the provisions of Section 7 of the I B Code, 2016 provides for initiation of the CIRP by Financial Creditor; only and that too, if there is a Debt and Default . Once the Debt is converted into Capital it cannot be termed as Financial Debt and the Appellant cannot be described as Financial Creditor . The grievance of the Appellant does not fall under the provision of Insolvency and Bankruptcy Code, 2016 - Appeal dismissed.
Issues Involved:
1. Rejection of Petition under Section 7 of the I&B Code, 2016. 2. Status of the Appellant as a Financial Creditor. 3. Conversion of Loan into Equity. 4. Filing of Petition by Power of Attorney Holder. 5. Allegations of Fraud and Misrepresentation. 6. Period of Limitation in Filing the Appeal. Detailed Analysis: 1. Rejection of Petition under Section 7 of the I&B Code, 2016: The Appellant filed an appeal under Section 61 read with Section 7 of the Insolvency and Bankruptcy Code, 2016, against the order dated 26.11.2019 by the Adjudicating Authority (NCLT, New Delhi Bench VI), which rejected her petition under Section 7(5) of the I&B Code, 2016. 2. Status of the Appellant as a Financial Creditor: The Appellant claimed to be a Financial Creditor, having given a loan of ?40 Lakhs to the Respondent No.1, which was to be repaid in four installments. However, the Adjudicating Authority concluded that the investment was not a 'Financial Debt' and thus, the Appellant could not be considered a 'Financial Creditor'. The Tribunal emphasized that once a debt is converted into capital, it cannot be categorized as 'Financial Debt' under Section 5(8) of the I&B Code, 2016. 3. Conversion of Loan into Equity: The Appellant disputed the conversion of her loan into equity, alleging it was against the terms of the 'Loan Agreement' dated 09.07.2013. She provided a certified copy of a resolution signed by two 'Designated Partners' and not by other partners, arguing it was a pre-planned act to deceive and defraud. The Respondents, however, provided evidence of an 'Amended Agreement' dated 01.12.2013 and a 'Supplementary Agreement' dated 25.03.2014, signed by all partners, including the Appellant, which were recorded with ROC NCLT Delhi and Haryana. 4. Filing of Petition by Power of Attorney Holder: The Respondents raised issues regarding the filing of the petition by the Power of Attorney holder of the Financial Creditor, citing irregularities in the signing of the Power of Attorney/Authority Letter. The Tribunal noted that the application under Section 7 of the I&B Code, 2016, cannot be rejected solely on the ground that it was filed by a Power of Attorney holder. 5. Allegations of Fraud and Misrepresentation: The Appellant alleged fraud and misrepresentation by the Respondents, claiming irregularities in the purchase of Non-judicial e-Stamp paper and the conversion of the loan into equity. She cited several judgments to support her claims, including the principle that dishonesty should not be permitted to bear fruit and benefit those who played fraud or made misrepresentations. 6. Period of Limitation in Filing the Appeal: The Respondents also raised the issue of the period of limitation in filing the present appeal. However, the Tribunal had already condoned the delay in its order dated 24.01.2020. Conclusion: The Tribunal concluded that the Appellant's grievance does not fall under the provisions of the Insolvency and Bankruptcy Code, 2016, as the debt had been converted into capital and could not be termed as 'Financial Debt'. Therefore, the appeal was dismissed, and the Appellant was advised to approach an appropriate forum for redressal of her grievances in accordance with the law. All interim orders and pending applications were vacated and closed, with no order as to costs.
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