Share application money as financial debt, direction set aside, liberty to file fresh application

The Appellate Tribunal upheld that the share application money constituted a financial debt. However, it set aside the direction to fulfill requirements for refund and revive the application. The Respondent was granted liberty to file a fresh application under Section 7 of the Insolvency and Bankruptcy Code, with the question of limitation left open for future consideration.

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Issues Involved:
1. Challenge to the impugned order in paragraph-11.
2. Categorization of share application money as financial debt.
3. Determination of default in payment of the claimed amount.

Analysis:

Issue 1: Challenge to the Impugned Order in Paragraph-11
The appeal was filed by the Corporate Debtor against the dismissal of the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) by the Adjudicating Authority. The main challenge was against the last part of the impugned order in paragraph-11. The Adjudicating Authority directed the Corporate Debtor to refund the money subject to fulfilling formalities, and if the refund was not made, the Applicant had the liberty to revive the application.

Issue 2: Categorization of Share Application Money as Financial Debt
The Financial Creditor claimed that the money sent for shares should be treated as a financial debt as per the Companies Act and Companies (Acceptance of Deposits) Rules, 2014. The Adjudicating Authority concluded that if shares are not allotted within a specified time frame, the share application money would be treated as a deposit, making it a financial debt. The Adjudicating Authority held that the money transmitted in 2008, without share allotment, constituted a deposit and could be treated as a financial debt.

Issue 3: Determination of Default in Payment of the Claimed Amount
The Adjudicating Authority found that although the Corporate Debtor was willing to refund the money, the delivery of the refund request letter was not established. Therefore, the default in payment was considered to be proved. The Adjudicating Authority directed the Corporate Debtor to fulfill formalities for refund within a specified time frame, failing which the Applicant had the liberty to revive the application. The Appellate Tribunal set aside this direction, stating that once default was not proved, the conditional offer for refund could not be considered, and the direction to fulfill requirements and revive the application was not maintainable.

In conclusion, the Appellate Tribunal upheld the finding that the share application money constituted a financial debt but set aside the direction to fulfill requirements for refund and revive the application. The Respondent was given liberty to file a fresh application under Section 7 of the IBC, keeping the question of limitation open for consideration in the future application.

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