2022 (4) TMI 1593 - AT - Insolvency and Bankruptcy

Share Application Money Not a Financial Debt: Tribunal Affirms Dismissal, Clarifies Insolvency Proceedings Criteria.

Pramod Sharma Versus Karanaya HeartCare Pvt. Ltd.

The Tribunal dismissed the appeal, affirming the Adjudicating Authority's decision that the Share Application Money did not constitute a financial debt ... Dismissal of Application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 - amount given as Share Application Money - Financial Debt or not - HELD THAT:- 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 - 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. 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. 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. Issues:- Appeal against the dismissal of an Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 regarding Share Application Money.Analysis:1. Issue of Share Application Money: The Appellant claimed to have given Rs. 1,03,00,000/- as Share Application Money to the Respondent, which was not allotted as shares. The principal amount was later refunded, but no interest was paid. The Appellant argued that since no shares were allotted and no amount was returned, it became a deposit, justifying the Application under Section 7.2. Observations of the Adjudicating Authority: The Adjudicating Authority noted that there was an amicable settlement between the parties previously. It was observed that the money given as Share Application Money did not qualify as a financial debt under Section 5(8) of the Code. The Authority ruled that since no debt was disbursed and no time value was attached to the money, the claim did not meet the criteria for a financial debt, leading to the dismissal of the Application under Section 7.3. Judicial Decision: The Tribunal upheld the Adjudicating Authority's decision, stating that the Share Application Money could not be considered a financial debt, preventing the initiation of the insolvency process under Section 7. The Tribunal agreed that the amount given by the Appellant did not meet the requirements for triggering insolvency proceedings. Additionally, the Tribunal highlighted that the dishonored cheque issue raised by the Appellant should be pursued through appropriate legal channels.4. Conclusion: The Tribunal found no error in the Adjudicating Authority's rejection of the Application under Section 7. The Appeal was dismissed, affirming that the Share Application Money did not qualify as a financial debt, thus not warranting insolvency proceedings under the Code. The decision emphasized the importance of meeting the legal criteria for defining a financial debt under the insolvency laws.