Share application money deemed 'Financial Debt' under Insolvency Code. Statutory interest considered 'time value of money'.

The court held that share application money, in the event of non-allotment of shares, qualifies as a 'Financial Debt' under the Insolvency and Bankruptcy Code. The statutory interest accrued under the Companies Act, 2013, was deemed as 'consideration for time value of money', transforming the nature of the money from share application to a loan. The court's decision affirmed that such amounts fall within the definition of 'Financial Debt', dismissing the appeal and intervention applications.

---

---

Issues Involved:
1. Whether 'Share Application Money' in the event of non-allotment of shares can be treated as 'Loan/Debt' and whether such an amount falls under the definition of 'Financial Debt' as defined under Section 5(8) of the Insolvency and Bankruptcy Code (IBC).
2. Whether statutory accrual of interest under Section 42(6) of the Companies Act, 2013 can be construed as 'consideration for time value of money' to qualify the requirement of 'Financial Debt' under the IBC.

Issue-wise Detailed Analysis:

1. Treatment of Share Application Money as Loan/Debt:
The core issue is whether the share application money, in the event of non-allotment of shares, can be treated as a loan or debt. The judgment clarifies that if shares are not allotted within 60 days of receiving the share application money and if the refund does not occur within 15 days from the expiry of this period, the amount will be treated as a 'Deposit' under the Companies (Acceptance of Deposits) Rules, 2014. This deposit must be returned by the company along with interest at the rate of 12% per annum from the expiry of the 60th day. This statutory interest transforms the nature and character of the money from share application money to a loan, thereby falling within the ambit of 'Financial Debt' as defined under Section 5(8) of the IBC.

2. Statutory Accrual of Interest as Consideration for Time Value of Money:
The judgment emphasizes that the statutory accrual of interest under Section 42(6) of the Companies Act, 2013, constitutes 'consideration for time value of money'. This interest is a form of compensation for the time value of money given by the applicant to the company. Therefore, the share application money, which attracts interest due to non-allotment of shares, qualifies as 'Financial Debt' under Section 5(8) of the IBC. The court referenced the case "M/s. Orator Marketing Pvt. Ltd. Vs. M/s. Samtex Desinz Pvt. Ltd." to support the argument that financial debt includes any amount raised under any transaction having the commercial effect of a borrowing.

Assessment:
The judgment reiterates that the key feature of a financial transaction under Section 5(8) of the IBC is the 'consideration for time value of money'. The court held that the amount given by the first respondent indeed falls within the definition of share application money and, due to the statutory interest imposed by Section 42(6) of the Companies Act, 2013, the amount qualifies as a 'Financial Debt'. The court dismissed the appeal and the intervention applications, affirming that the share application money, in the event of non-allotment of shares, falls under the definition of 'Financial Debt' and attracts statutory interest, thus fulfilling the criteria for 'consideration for time value of money'.

---