2026 (2) TMI 290 - AT - IBC

Share application money treated as financial debt: Section 7 petition admitted, appeal dismissed and refund ordered to proceed with CIRP remedies

Res judicata bars reopening an earlier finding that the corporate debtor had agreed to refund share application money; the tribunal held that repeated ... Financial debt - share application money treated as deposit and financial debt - finality of judgment - principle of res judicata - admission of application u/s 7 - limitation extended by written acknowledgement in balance sheet - HELD THAT:- When issue between the parties has become final and has been decided, the parties to reopen the issue is clearly impermissible by principle of res judicata and further permitting agitation of such issues is akin to abuse of process of a court as has been held by the Hon’ble Supreme Court in paragraph 35 of the judgment in ‘Neelima Srivastava’ [2021 (9) TMI 483 - SUPREME COURT] In the earlier proceeding initiated by financial creditor under Section 7 decided on 25.07.2019 application was rejected by adjudicating authority, relying on the case set up by R-2 that R-2 was ready to refund the amount, but the relevant letter 03.07.2015, which is claimed by financial creditor to be sent to the R-2 company has never been delivered. 03.07.2015 was a letter, by which request was sent by financial creditor to refund of the amount and due to only on the said ground the application was rejected with a liberty to revive. Order of the adjudicating authority granted liberty to revive was set aside and substituted by Appellate Court judgment dated 26.07.2019, giving liberty to file a fresh application under Section 7 and the application under Section 7 being C.P. IB 21/2021 was filed as a fresh petition. After the judgment of this Tribunal dated 26.11.2019, the financial creditor claimed to have been send again the request at 06.12.2019 for remitting the amount in favour of the financial creditor, which letter was also filed along with Section 7 application as Annexure P-18. Thus, request was again sent by financial creditor to the corporate debtor for refund of the amount which was pleaded in Section 7 application C.P. IB 21/2021. Earlier proceedings were concluded on 26.11.2019 by decision of this Appellate Tribunal and thereafter more than after a year amount was not refunded, the financial creditor had to file Section 7 application being C.P. IB 21/2021 on 12.01.2021, which could be decided on 12.12.2023, admitting Section 7 application. The amount which was remitted by financial creditor to corporate debtor having not been refunded, there is clear default on the part of corporate debtor and adjudicating authority has not committed any error in admitting Section 7 application. The statement of the corporate debtor that he was ready to refund the amount as recorded in the earlier Section 7 proceeding is clearly a statement without any intention to refund. The fact is that even after closure of the earlier proceeding in the year 2019 R-1 did not refund the amount leading to filing of Section 7 application 21/2021. Thus, we are of the view that no grounds have been made out to interfere with the order of the adjudicating authority dated 12.12.2023, admitting Section 7 application against the corporate debtor. There is no merit in the appeal. The appeal is dismissed. The interim order stands discharged. The amount deposited under the interim order dated 21.12.2023 be refunded to the appellant. By dismissing the appeal, we leave it open for the appellant to remit the amount of US $ 1,24,000/- and US $ 1,42,000/- totalling to US $ 2,66,000/- to the financial creditor and financial creditor after having received the amount can take recourse to the proceeding under Section 12-A read with Regulation 30A of the CIRP Regulations, 2016. The period from 23.12.2023, till date is excluded from the CIRP. The RP may proceed with the CIRP in accordance with the law. The appeal is dismissed subject to the above. Issues: (i) Whether the Section 7 application admitting insolvency proceedings against the corporate debtor was rightly admitted, including whether the amounts remitted as share application money by the financial creditor constitute a financial debt and whether that issue is open to challenge in view of earlier final orders between the parties.Analysis: The earlier adjudicating authority had held in its 25.07.2019 order that the amounts remitted as share application money qualify as financial debt; the Appellate Tribunal on 26.11.2019 did not disturb that finding and granted liberty to file a fresh Section 7 application. Principles of finality and res judicata prevent reopening issues decided between the parties by final orders. Relevant statutory framework includes Section 5(8) and Section 7 of the IBC concerning financial debt and initiation of insolvency proceedings, and Section 42(6) of the Companies Act and Deposit Rules governing recategorisation of unrefunded share application money as deposit and compensation for time value. The adjudicating authority on 12.12.2023 found a continued failure to refund the amounts after post-2019 communications and correctly treated the claim as a financial debt and admitted the Section 7 petition. The Tribunal concluded that the prior finding of financial debt had attained finality and that factual default occurred because the corporate debtor did not refund the amounts despite the liberty and opportunity afforded earlier.Conclusion: The Section 7 application was rightly admitted; the amounts remitted as share application money constitute financial debt and the issue is final between the parties, accordingly the appeal is dismissed in favour of the respondent.