Share Subscription Money is not a deposit and therefore does not constitute financial debt for insolvency petition purposes.

Payments made as consideration for share allotment, though later labelled as deposits in corporate records, remain share subscription money in substance and are excluded from the statutory definition of deposit; consequently they do not qualify as financial debt under the Insolvency and Bankruptcy Code. Classification in the trial balance as a long term liability or deposit does not convert the substance of allotment consideration into a recoverable financial debt, and therefore an insolvency petition premised solely on such recharacterised entries cannot be sustained.

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Issues: Whether the amounts paid by the investor for purchase/allotment of shares, later shown as deposits in the corporate debtor's accounts, constitute a "financial debt" within the meaning of Section 5(8) of the Insolvency and Bankruptcy Code so as to permit filing a petition under Section 7 of the Insolvency and Bankruptcy Code.

Analysis: The payments were initially made as consideration for allotment/transfer of equity shares; subsequent management changes and communications evidenced an attempt to treat the amounts as deposits, and the corporate debtor's trial balance for the year ending 31.03.2018 described the amounts as long term liabilities/deposits. However, share subscription money is expressly excluded from the definition of deposit under Rule 2(c)(vii) of the Companies (Acceptance of Deposits) Rules, 2014. Where payments are in substance share-subscription money, they do not fall within the definition of "deposit" for the Companies (Acceptance of Deposits) Rules and, correspondingly, do not constitute "financial debt" under Section 5(8) of the Insolvency and Bankruptcy Code. The trial balance entry as "deposit" did not suffice to convert share-subscription money into a financial debt capable of sustaining a Section 7 petition.

Conclusion: The payments made for purchase/allotment of shares do not constitute a financial debt under Section 5(8) of the Insolvency and Bankruptcy Code; consequently, the petition under Section 7 cannot be maintained. The appeal is dismissed (in favour of the respondent).

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