Share application money is not financial debt where funds were invested for equity allotment, defeating Section 7 insolvency action.

Share application money advanced in exchange for proposed equity allotment was not a financial debt under the Insolvency and Bankruptcy Code, because the contemporaneous record showed the amount was invested for 50% shareholding and there was no loan agreement. As the foundational requirement for a Section 7 proceeding was absent, the insolvency petition was not maintainable. The issue of limitation was unnecessary once the debt characterization failed.

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Issues: Whether the amount advanced by the appellant to the corporate debtor was a financial debt within the meaning of the Insolvency and Bankruptcy Code, 2016 so as to sustain an under Section 7.

Analysis: The record showed an admitted contemporaneous stand taken by the appellant in a pending complaint under Section 138 of the Negotiable Instruments Act, 1881 that the amount of Rs. 10 crores was invested in the corporate debtor in exchange for allotment of 50% equity shares. There was no loan agreement between the parties. On that basis, the Tribunal held that the amount was share application money and not a financial debt under Section 5(8) of the Insolvency and Bankruptcy Code, 2016. Once the foundational requirement for a Section 7 proceeding failed, the question of limitation became unnecessary for decision.

Conclusion: The amount could not be treated as financial debt and the Section 7 insolvency petition was not maintainable; the appeal failed.

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