Can't blow hot and cold: NCLT dismisses Piramal Capital's Section 7 IBC petition for lack of authorisation

The National Company Law Tribunal (NCLT) at Delhi on Tuesday, while applying the rule of estoppel, rejected a petition under Section 7 of the Insolvency and Bankruptcy Code (IBC) filed by Piramal Capital, which took over Dewan Housing Finance Limited (DHFL) in 2021 (Dewan Housing Finance Limited v. Nayati Healthcare and Research NCR Pvt Limited)..A Bench of Judicial Member Dharminder Singh and Technical Member Sumita Purkayastha said that an earlier transaction deemed fraudulent can now not be termed as a valid loan that has been defaulted upon. "Thus, now, by virtue of this petition under section 7 of code, it cannot be allowed to say that the said transaction was valid being loan in nature. The petitioner cannot be allowed to blow hot & cold by taking contradictory and inconsistent stands with a malafide intention to take undue advantage to secure an order of initiation of CIR proceedings against the corporate debtor herein," the NCLT order stated. .The NCLT was hearing a plea filed under the name of DHFL, which was taken over by Piramal Capital and Housing Finance Limited in 2021, seeking to trigger the Corporate Insolvency Resolution Process (CIRP) against the present respondent, claiming default of ₹250 crore on a loan granted for constructing a hospital. At the same time, the respondent submitted, DHFL had filed an interlocutory application (IA) in a matter before the NCLT at Mumbai, where it claimed that the transaction of the loan in question was fraudulent. Further, in view of an avoidance application filed before the NCLT Mumbai, the petitioner cannot take a contradictory stance and term the present transaction financial debt, it was argued. The petitioner submitted that the twin criteria of debt and and default as laid down by the Supreme Court in Innoventive Industries was fulfilled in this case.It said that the purpose of the avoidance application was different from the present reliefs sought, and that the allegations of its erstwhile administrator (when under DHFL) on the transaction do not make the present proceedings malicious. Since the respondent-corporate debtor is unable to pay its debt, the present plea should be admitted, it was argued. .The Tribunal framed the following questions of law:Whether the present petition has been filed by duly Authorised officer of DHFL and he is entitled to pursue the same on behalf of PHCFL as well?Whether the petitioner bank actually extended the loan facility to the respondent corporate debtor?Whether the petitioner bank is entitled to trigger CIR proceedings on the basis of default in repayment of the amount involved herein?.On the first point, the NCLT at the outset observed that as per Section 201 of the Indian Contract Act, the moment a principal becomes insolvent, the power of attorney is terminated. "In the matter in hand, the power of attorney stood terminated on initiation of CIR proceedings, hence, the Power of Attorney also stand terminated on triggering of CIR proceedings," the order noted. Taking note of the ongoing proceedings at NCLT Mumbai regarding the alleged fraudulent and collusive nature of the loan transaction, the Bench stated that once it is established that a party 'consciously elected' to take a certain plea, it cannot be permitted to say something contradictory to and inconsistent with the same, as was done in the present case. "The expression 'debt due' would obviously refer to debts that are 'due and payable' under law and not the amount, which was disbursed fraudulently and collusively with ulterior motive," the order stated.Towards this, the Bench held that if an amount is not payable or due in law, then a petition regarding its defaulting cannot be entertained. Accordingly, the NCLT in the present case deemed that petition has not been filed by a duly authorised officer and also does not establish the loan as being a financial debt. .The Tribunal further held that the said transaction amount, which was being claimed as a loan was nothing but a sham transaction and did not satisfy the conditions laid down under Section 5(8) of the IBC. Section 5(8) enlists the types of debt that will qualify as "financial debt" for the purpose of initiating CIRP..Advocates Giriraj Subramanium, Simarpal Singh Sawhney and Abhishek Choudhary appeared for the respondent-corporate debtor.Yes Bank, being a secured creditor, had sought to implead itself and was represented by Senior Advocate Gopal Jain with Advocates Raunak Dhillon, Dhananjay Kumar, Surbhi Pareek, Isha Malik, Nihaad Dewan, and Shashank Agrawal. DHFL was represented by Senior Advocate Ramji Srinivasan and Advocates Pooja Mahajan, Savar Mahajan, Srishti Kapoor, and Rajshree Chaudhary..[Read order]