Share application money not allotted does not qualify as financial debt under the IBC, as it fails to meet statutory definitions and requirements.

J U D G M E N T

(Hybrid Mode)

Per: Barun Mitra, Member (Technical)

The present appeal filed under Section 61 of Insolvency and Bankruptcy Code 2016 (‘IBC’ in short) by the Appellant arises out of the Order dated 22.03.2024 (hereinafter referred to as (‘Impugned Order’) passed by the Adjudicating Authority (National Company Law Tribunal, New Delhi, Bench-VI)

in CP (IB) No. 554 of 2023. By the impugned order, the Adjudicating Authority has dismissed the Section 7 application filed by the Appellant for admitting M/s Skoda (India) Pvt Ltd-Corporate Debtor into the rigours of Corporate Insolvency Resolution Process (“CIRP” in short). Aggrieved by the impugned order, the present appeal has been preferred by the Appellant.

2. Outlining the facts of the case, Shri Abhishek Arora, Ld. Counsel for the Appellant submitted that on the request of the Corporate Debtor, funds were infused by the Appellant-M/s Murlidhar Vincom Pvt Ltd as share application money in the Corporate Debtor during FY-2009-10. In return, the Corporate Debtor had allotted 3000 equity shares for an amount of Rs 6.97 lakhs in the share capital of the Corporate Debtor to the Appellant. Subsequently, during the next two financial years i.e. 2010-11 & 2011-12, another sum of Rs 1.32 Cr. was paid as share application money by the Appellant for allotment of equity shares as share application money. No shares were however allotted by the Corporate Debtor but Rs 40 lakhs was refunded by the Corporate Debtor from the said share application money. The Corporate Debtor was not able to refund the balance amount of Rs 92 lakhs. The Corporate Debtor not being in a position to refund the balance amount of share application money purportedly on account of liquidity crunch, instead agreed to allot shares for the balance amount subject to the Appellant providing additional funds to the Respondent. The Appellant thereafter provided additional funds of Rs 79.60 lakhs which were paid in several instalments from 2012-14. Since neither the shares were allotted nor the share application money was refunded, the Appellant sent a Demand Notice on 07.07.2023 to the Corporate Debtor for repayment of the share application money with statutory interest of 12% in terms of Section 42(6) of the Companies Act , 2013. Since the Corporate Debtor failed to repay the amount, the Appellant filed a Section 7 application before the Adjudicating Authority on 30.08.2023. The Adjudicating Authorityhowever heldthat share application moneyin respect of the shares not allotted cannot be deemed to be a financial debt. The impugned order dated 22.03.2024 further held that the requirements of Section 7 application under the IBC were not fulfilled and therefore rejected the Section 7 application. Assailing the impugned order, the present appeal has been preferred by the Appellant.

3. Making his submissions, the Ld. Counsel of the Appellant adverted attention to Section 42(6) of the Companies Act , 2013 and emphatically asserted that in terms of the Companies Act , shares are to be allotted within 60 days of receipt of share application money and that if shares are not allotted within such period, money is to be refunded within 15 days from the expiry of 60 days. It was also submitted that any delay in the refund of share application money beyond the period of 15 days attracts interest at the rate of 12% per annum. Furthermore, it was pointed out that under Rule 2 of the Companies (Acceptance of deposit) Rules (herein after referred to as “ CA DR Rules”) provides that if shares are not allotted within 60 days of receipt of share application money, the same amount is deemed to be treated as deposit money. Making further submissions, the Ld. Counsel for the Appellant stated that since in the present factual matrix, shares were not allotted within the time-period as prescribed by the Companies Act , 2013 against the share application money provided by the Appellant, the share application money provided by a Financial Creditor