NCLAT (21.04.2022) in Pramod Sharma Vs. Karanaya HeartCare Pvt. Ltd. [Company Appeal (AT) (Insolvency) No. 426 of 2022] held that;
We are of the view that the Adjudicating Authority rightly took the view that the amount which was given by the Appellant as Share Application Money cannot be treated to be a financial debt so as to enable the Appellant to trigger the Insolvency Process under Section 7 of the Code.
Excerpts of the order;
21.04.2022: Heard Learned Counsel for the Appellant.
# 2. This Appeal has been filed against the order dated 02.03.2020 by which Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“Code”) filed by the Appellant has been dismissed.
# 3. The Appellant’s case is that he has given an amount of Rs.1,03,00,000/- in the share capital of Respondent and same was shown as Share Application Money but no share was allotted in lieu of such money. It is submitted that subsequently principal amount was paid of Rs. 1,03,00,000/- but no amount was paid towards interest. It is submitted that neither any share was allotted nor amount was returned, it became deposit. Hence, Application under Section 7 was maintainable.
# 4. We have considered the submissions of the Counsel for the Appellant and perused the record. The Adjudicating Authority in para 7 of the impugned order has made following observations:
“7. The matter between both the parties was amicably settled as recorded in order dated 11th October, 2017 of the Hon’ble National Company Law Tribunal passed in C.P. No. 205(ND)/2017, between the parties along with that the Respondent failed to show any agreement to substantiate the fact that money was paid as a financial debt or that the money was paid against the payment of interest. Therefore, we find that the share application money does not fall under any of the clauses of Section 5(8) of the Code and it cannot be said to fall under the definition “a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money” since no debt was disbursed by the Applicant to the Respondent and no time value has been attached with the share application money. Thus, since the claim is not a financial debt the present application under Section 7 of the Code is not maintainable and is dismissed with no costs.”
# 5. Admittedly, the amount was given, as per the case of the Appellant, as a Share Application Money on which no share was allotted. Under some settlement, the principal amount was refunded and thereafter, the Application under Section 7 was filed by the Appellant. We are of the view that the Adjudicating Authority rightly took the view that the amount which was given by the Appellant as Share Application Money cannot be treated to be a financial debt so as to enable the Appellant to trigger the Insolvency Process under Section 7 of the Code.
# 6. Learned Counsel for the Appellant submitted that a cheque was also issued which was dishonored. It is for the Appellant to take appropriate proceeding, if any, in accordance with the law.
# 7. We, however, are of the view that the Adjudicating Authority did not commit any error in rejecting the Application under Section 7. There is no merit in the Appeal. The Appeal is dismissed.
-------------------------------------------
NCLAT (16.12.2021) in Mr. Kushan Mitra Vs. Mr. Amit Goel [Company Appeal (AT) (Insolvency) No. 128 of 2021 & I.A. 2340 of 2021 and 2413 of 2021] held that;
ReplyDelete- Consideration for time value of money is an essential element for the amount to fall within the ambit of Financial Debt. The debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces for disbursal against consideration for time value of money.
- In case of non-refund of Share Application Money within 60 days of receipt of the money, the money will be treated as Deposit and would change its character to fall within the definition of ‘Financial Debt’.
The View Taken by NCLAT in Pramod Sharma Vs. Karanaya HeartCare Pvt. Ltd. is contrary to earlier Judgement in Mr. Kushan Mitra Vs. Mr. Amit Goel. In my opinion:
ReplyDelete1. Share Application Money is paid for allotment of Equity shares which carries value as per valuation arrived on the basis of profitability of the company if existing or on the basis of Projections.
2. Here Time Value of Money always involved where the investment is supposed to be made in Equity or Debt Instruments. Here Investor who gave money for allotment had assumption and expectation of return in form of dividend or wealth maximisation if company grow and earn good profits.
3. If Shares not allotted and Share application money not refunded then it is considered as deposit under section 42 read which Deposit rule 2.
4. Now come to point of time value of money, the essence of TVM already attached when money was paid in form of Share application money with expectation of allotment and assumption of healthy returns in future. (Money grow with length of time)
So earlier judgment Mr. Kushan Mitra Vs. Mr. Amit Goel should be followed.
Kindly Guide if i am not clear.