2019 (1) TMI 194 - AT - Companies Law

NCLT deems loan, not share application money, orders repayment with interest

M/s. Vestal Educational Services Pvt. Ltd. Versus Shri Lanka Venkata Naga Muralidhar, Ms. K.V.V.L. Kumari, Mr. Koruprolu Veera Venkata Subba Rao, Mr. Nitin Sharma And Mr. Dhirendra Kumar Asri

M/s. Vestal Educational Services Pvt. Ltd. Versus Shri Lanka Venkata Naga Muralidhar, Ms. K.V.V.L. Kumari, Mr. Koruprolu Veera Venkata Subba Rao, Mr. ... Issues Involved:1. Maintainability of the Company Petition under Sections 59 and 62 of the Companies Act, 2013.2. Nature of the payment of Rs. 1.54 crores by the Petitioner – whether it was a loan or share application money.3. Legality of the issuance of shares by the Company.4. Reliefs entitled to the Petitioner.Issue-wise Detailed Analysis:1. Maintainability of the Company Petition under Sections 59 and 62 of the Companies Act, 2013:The NCLT examined whether the petition was maintainable under Sections 59 and 62 of the Companies Act, 2013. It concluded that the main issue was the repayment of the loan provided by the Petitioner to the Company for repaying its banker, rather than the unpaid share capital. The Tribunal found that the Company failed to provide proper notices or evidence of acceptance of the shares by the Petitioner, thus holding the petition maintainable.2. Nature of the Payment of Rs. 1.54 Crores by the Petitioner:The Petitioner claimed that the amount deposited was a loan to save mortgaged properties, not for the allotment of shares. The Company argued that the amount was for share subscription. However, the NCLT found no evidence of the Petitioner’s consent to convert the loan into equity. The Tribunal noted the lack of proper documentation and acceptance of the offer by the Petitioner, rejecting the Company’s claim of implied consent. The NCLT held that the amount was indeed a loan and not share application money.3. Legality of the Issuance of Shares by the Company:The NCLT scrutinized the procedures followed for the issuance of shares under Section 62 of the Companies Act, 2013. It found that the Company failed to provide evidence of sending the offer letter to the Petitioner or obtaining his consent. The Tribunal emphasized that the Company did not follow the statutory requirements for issuing shares, including the lack of proper notices and acceptance. Consequently, the NCLT declared the allotment of shares to the Petitioner as illegal and void.4. Reliefs Entitled to the Petitioner:The NCLT directed the Company to repay the amount of Rs. 1.54 crores to the Petitioner with interest. The Tribunal also noted a typographical error in the judgment regarding the amount, which was rectified to reflect the correct figure of Rs. 1.54 crores. The Appellate Tribunal upheld the NCLT’s decision, dismissing the appeal and ordering the Company to pay costs of Rs. 1,50,000 to the Petitioner.Conclusion:The Appellate Tribunal affirmed the NCLT’s judgment, concluding that the Petitioner’s deposit was a loan and not for share subscription. The Company failed to comply with the statutory requirements for issuing shares, and the allotment was declared illegal. The Tribunal ordered the repayment of the loan amount with interest and imposed costs on the Company.