TaxTMI 
TaxTMI 
TaxTMI 
2017 (12) TMI 290
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....edeemable Preference shares ((for brevity 'CCRPS') in favour of the petitioner against the payment of sum of Rs. 2,50,00,000/-. The amount of consideration was duly received by the 'Corporate Debtor' on 13.6.2016 and share certificate with distinctive share Nos.500001 to 750000 being 8% CCRPS were issued in favour of the petitioner- 'Financial Creditor'. The 'Corporate Debtor' later alleged that the CCRPS issued were not registered with the ROC in favour of petitioner- Financial Creditor on the ground it was an unregistered partnership firm. The petitioner later on got itself registered with the Registrar of Firms, Noida. The period of 60 days from the date of receipt of money by the Corporate Debtor for subscription expired on 14.8.2016. It is alleged that discussion between the parties concerning the issuance of CCRPS to the Corporate Debtor -respondent have failed as 'Corporate Debtor' did not honour his promise to issue the CCRPS. Eventually on 26.4.2017 Financial Creditor issued a letter cum-notice to the Corporate Debtor that if the CCRPS were not dully issued and registered with the ROC within seven days then the money paid by the Financial Creditor under the SSA and the 'Co....
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....dent on the terms and conditions stipulated in the SSA. The ROC refused to accept the transfer of shares in favour of petitioner-'Financial Creditor' on the ground that it was an unregistered partnership firm. The terms of SSA did not provide that share certificate were to be allotted by the 'Corporate Debtor' in favour of the individual partners of the petitioner firm and nor the partnership firm has to exist on the date of issuance of share certificate dated 7.6.2016. There are details of various emails depicted in paras 7 to 11 which are not necessary to be referred in details. The pleaded case of the Corporate Debtor is that the money paid by the petitioner 'Financial Creditor' to the respondent 'Corporate Debtor' for allotment of shares in no manner would amount to a loan or deposit and reliance has been placed on various judgments decided under the Income Tax Act. 4. Even a rejoinder to the reply has been filed by the petitioner -Financial Creditor and it is stated that under section 42(6) of the Companies Act, 2013 when the company is unable to allot securities within a period of 60 days from the receipt of the application money it becomes liable to repay the application mo....
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....protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;' 7. A perusal of the above provisions would show that 'Financial Creditor' would be any person to whom financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. The expression 'Financial debt' used in sub-section 7 of 5.5 has been defined to mean a debt along with interest which is disbursed against the consideration for time value of money and includes money borrowed against the payment of interest etc. It is obvious that the subscription money advanced for purchase of shares would not fall within the definition of expression 'Financial Debt' and therefore the petitioner cannot be regarded as a Financial ....
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.... have been defined unless the context otherwise required. The expression debt has not been used in sub-sections (7) and (8) of section 5. The expressions used are financial creditor and financial debt. Every 'debt' is not essentially a financial debt. Therefore the definition of expression debt cannot be imported to part II and the argument is hereby rejected. 11. The other argument that there is a buy back clause and the guaranteed return provided by clauses 5.1, 52 and 5.8 of the SSA would also lack substance because the share has been allotted to unregistered firm and the ROC refused to transfer the same. In the absence of any valid transfer of share to the petitioner - Financial Creditor the SSA could not be regarded to have come into operation and triggering the various clauses 5.1, 5.2 and 5.8 of the SSA. Even if it is presumed that there is valid allotment a minimum locking period of 30 months from 4.6.2016 is to expire on December 2018. The guaranteed returns as per the provisions of clause (5.2.a) of SSA would start only after the period of five years has lapsed. The period of five years is to expire in June 2021. There could not be any default. Likewise we find no substa....
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....ble (on account of lack of regulatory approval). Niceties apart, the appellants' pleadings as to the justification for their retaining the amounts, when they clearly cannot deliver their part of the bargain, is feeble and ineffective. So also as to their inability to issue preference shares. On the other hand, the petitioners point out that the share prices have increased (from the agreed price of Rs. 16.30/- per share to of Rs. 125/- per share at the time of hearing of the appeal)- a fact not denied. In these circumstances, the petitioners, in the opinion of the court, established prima facie a strong case on the merits of their application, with respect to the amounts they paid towards shares that were not allotted. There is also a statutory basis for this- Section 42 of the Companies Act and Section 65 of the Contract Act" 13. According to the learned counsel the aforesaid observations would show that amount paid for share subscription money became payable in view of section 42 of the Companies Act, 2013 read with section 65 of the Contract Act. The aforesaid observation cannot be accepted to have satisfied the definition of 'Financial Creditor' as given in sections 5(7) and 5(....