Sudhansu Jyoti Mukhopadhaya, J.:— The 1 Respondent- ‘Mr. Sunil Paramanand Kewalramani’ filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “I&B Code’) for initiation of ‘Corporate Insolvency Resolution Process’ against ‘Medilux Laboratories Pvt. Ltd.’- (‘Corporate Debtor’). The Adjudicating Authority (National Company Law Tribunal), Ahmedabad Bench, Ahmedabad, by impugned order dated 2 February, 2018 admitted the application, passed order of ‘Moratorium’ and appointed ‘Interim Resolution Professional’ with certain directions.
2. Respondents 1 to 3 claimed to be a ‘Financial Creditors’; their application under Section 7 of the ‘I&B Code’ was signed by the 1 Respondent, Mr. Sunil Parmanand Kewalramani. The Adjudicating Authority while held that the application at the instance of 1 Respondent Mr. Sunil Parmanand Kewalramani was not maintainable, further held that the 2 and 3 Respondents being not party to the guarantee agreement, the application for initiation of ‘Corporate Insolvency Resolution Process’ at the instance of 2 and 3 Respondents is maintainable.
3. The questions arise for consideration in this appeal are:
i. Whether in absence of authorization letter given by 2 or 3 Respondents, after rejection of the application preferred by the 1 Respondent, the joint application under Section 7 at the instance of the 2 and 3 Respondent (2 and 3 Petitioner before the Adjudicating Authority) is maintainable? and;
ii. Whether the 2 and 3 Respondents are ‘Financial Creditors’, within the meaning of sub-section (7) read with sub-section (8) of Section 5 of the ‘I&B Code’?
4. Learned counsel for the Appellant submitted that the 1 Respondent was not competent to file the petition under section 7 of the ‘I&B Code’ having held that he was not a ‘Financial Creditor’.
5. He further contended that in absence of any signature by 2 and 3 Respondents, the joint application under Section 7 of the ‘I&B Code’ was not maintainable.
6. It was further submitted that in absence of any agreement and written terms and conditions filed with the Form No-1, the 2 and 3 Respondents cannot be treated to be a ‘Financial Creditors’ as mere grant of unsecured loan does not amount to ‘Financial Debt’ within the meaning of Section 5(8).
7. Referring to Form No-1, it was submitted that unsecured loan of 2 and 3 Respondents clearly reflected that there was no term of payment of interest provided therein and the amount cannot be treated to be investment by the Respondents in consideration for the time value of money. It was submitted that Mr. Sunil Parmanand Kewalramani was one of the Directors and 2 and 3 Respondents are relatives i.e. father and sister respectively.
8. The 1 Respondent being Director of the ‘Corporate Debtor’, he managed to get interest free unsecured loan from his father and sister i.e. 1 and 2 Respondents respectively.
9. The Respondents have taken plea that 1 and 3 Respondents are ‘Financial Creditors’ within the meaning of Section 5(8)(a) and 5(8)(f), but such submission cannot be accepted, as the Adjudicating Authority already having held that 1 Respondent is not a ‘Financial Creditor’ and the impugned order having not being challenged by the 1 Respondent.
10. It is true that as per explanation below Section 7, a ‘Financial Creditor’ in whose case no default has taken place may also file a petition under Section 7 for default in regard to other creditors joined with him, but the 1 Respondent being not a ‘Financial Creditor’ as held by the Adjudicating Authority, in absence of any default in respect to the 2 and 3 Respondents, the joint petition was not maintainable.
11. Learned counsel appearing on behalf of the Respondents submitted that the default regarding debt of 2 and 3 Respondents was more than Rs. 1 lakh and therefore, they were qualified to file a petition under Section 7. However, the date of default and other details of the 2 and 3 Respondents having not mentioned, and as no such record was enclosed it cannot be accepted that there was default of debt in regard to 2 or 3 Respondent. This apart, in absence of any authorization letter given by either 2 or 3 Respondent to file a joint petition on behalf of 2 and 3 Respondents, we hold that the application under Section 7 of the ‘I&B Code’ at the instance of 2 and 3 Respondents was not maintainable.
12. There is nothing on the record to suggest that 2 and 3 Respondents had given the loan in favour of the ‘Corporate Debtor’ which can be termed to be ‘disbursement of an amount for consideration for the time value of money’ as required under Section 5(8). Merely grant of loan and admission of taking loan will ipso facto not treat the 2 and 3 Respondents as ‘Financial Creditors’, till they show that it complies with the substantive definition or any one or other clause of Section 5(8).
13. Mere fact that the company paid interest @ 12% per annum, during certain period cannot be the ground to hold that the ‘debt’ comes within the meaning of ‘Financial Debt’ to treat the 2 and 3 Respondents as ‘Financial Creditors’. As we find that 1 Respondent who signed and filed the application under Section 7 of the ‘I&B Code’ was not eligible to file the application not being a ‘Financial Creditor’, as held by the Adjudicating Authority, we hold that the petition at the instance of 2 and 3 Respondents were also not maintainable.
14. The Adjudicating Authority having failed to notice the aforesaid facts, we have no other option but to set aside the impugned order dated 2 February, 2018 passed in CP No. (IB) 130/7/NCLT/AHM/2017, which is set aside.
15. In effect, order(s), passed by the Adjudicating Authority appointing any ‘Interim Resolution Professional’, declaring moratorium, freezing of account, and all other order(s) passed by the Adjudicating Authority pursuant to impugned order and action, if any, taken by the ‘Interim Resolution Professional’, including the advertisement, if any, 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 7 of the ‘I&B Code’ is dismissed. Learned Adjudicating Authority will now close the proceeding. The appellant ‘Corporate Debtor’ (company) is released from all the rigour of law and is allowed to function independently through its Board of Directors from immediate effect.
16. The Adjudicating Authority will fix the fee of ‘Interim Resolution Professional’, if appointed, and the ‘Corporate Debtor’ will pay the fees of the ‘Interim Resolution Professional’, for the period he has functioned. The appeal is allowed with aforesaid observation. However, in the facts and circumstances of the case, there shall be no order as to cost.