TaxTMI 
TaxTMI 
2024 (11) TMI 1234
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Insolvency Resolution Process ("CIRP" in short). Aggrieved by the impugned order, the present appeal has been preferred by the Appellant. 2. Outlining the facts of the case, Shri Abhishek Arora, Ld. Counsel for the Appellant submitted that on the request of the Corporate Debtor, funds were infused by the Appellant-M/s Murlidhar Vincom Pvt Ltd as share application money in the Corporate Debtor during FY-2009-10. In return, the Corporate Debtor had allotted 3000 equity shares for an amount of Rs 6.97 lakhs in the share capital of the Corporate Debtor to the Appellant. Subsequently, during the next two financial years i.e. 2010-11 & 2011-12, another sum of Rs 1.32 Cr. was paid as share application money by the Appellant for allotment of equity shares as share application money. No shares were however allotted by the Corporate Debtor but Rs 40 lakhs was refunded by the Corporate Debtor from the said share application money. The Corporate Debtor was not able to refund the balance amount of Rs 92 lakhs. The Corporate Debtor not being in a position to refund the balance amount of share application money purportedly on account of liquidity crunch, instead agreed to allot shares for the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the IBC. Placing reliance on the judgment of this Tribunal in the case of Kushan Mitra Vs Amit Goel and Ors. in CA(AT)(Ins) No. 128 of 2021, it was submitted by the Ld. Counsel for the Appellant that this Tribunal in the Kushan Mitra judgment supra clearly held that share application money in the event of non-allotment of share attracts interest under Section 42(6) of the Companies Act, 2013 and therefore falls within the ambit of financial debt under Section 5(8) of the IBC. Hence, the Adjudicating Authority ought to have admitted the Section 7 application filed by the Appellant against the Corporate Debtor. It was, therefore, strenuously contended that the impugned order has been passed contrary to law and was liable to be set aside. 4. Having heard the Ld. Counsel for the Appellant and perused the materials on record carefully, we find that the short point which requires our consideration is whether in the facts of the present case, the share application money which was deposited with the Corporate Debtor by the Appellant fell in the category of Section 5(8) of the IBC. 5. Before we dwell into the facts of the case, we may first note the statutory provisions under the IBC....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion for time value of money. Further sub clauses (a) to (i) of Section 5(8) delineates the various transactions which are included in the ambit of 'financial debt'. Prima-facie, amounts raised by way of share application money is not expressly covered in the transactions covered by sub clauses (a) to (i) of Section 5(8) of the IBC. 6. It is however the contention of the Appellant that in the present case when share application money was advanced by the Appellant but shares were neither allotted nor the share application money refunded, basis the statutory provisions of the Companies Act, 2013 and CADR Rules, 2014, the share application money had assumed the colour of deposit money and acquired the character of financial debt under Section 5(8) of IBC. 7. At this juncture, it may therefore be useful to run through the relevant provisions of the Companies Act, 2013 and the CADR Rules for a holistic appreciation of raising of share application money for subscription of securities on private placement and modalities of repayment of the application money to the subscribers on non-allotment of shares which are as extracted hereunder: Section 42 of The Companies Act, 2013 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall be required to be complied with. (5) All monies payable towards subscription of securities under this section shall be paid through cheque or demand draft or other banking channels but not by cash. (6) A company making an offer or invitation under this section shall allot its securities within sixty days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within fifteen days from the date of completion of sixty days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of twelve per cent. Per annum from the expiry of the sixtieth day: Provided that monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than- (a) For adjustment against allotment of securities; or (b) For the repayment of monies....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., 1934 (2 of 1934); (v) any amount received against issue of commercial paper or any other instruments issued in accordance with the guidelines or notification issued by the Reserve Bank of India; (vi) any amount received by a company from any other company; (vii) any amount received and held pursuant to an offer made in accordance with the provisions of the Act towards subscription to any securities, including share application money or advance towards allotment of securities pending allotment, so long as such amount is appropriated only against the amount due on allotment of the securities applied for; Explanation.- For the purposes of this sub-clause, it is hereby clarified that - (a) Without prejudice to any other liability or action, if the securities for which application money or advance for such securities was received cannot be allotted within sixty days from the date of receipt of the application money or advance for such securities and such application money or advance is not refunded to the subscribers within fifteen days from the date of completion of sixty days, such amount shall be treated as a deposit under these rules. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re Application Money cannot be treated to be a financial debt so as to enable the Appellant to trigger the Insolvency Process under Section 7 of the Code." It was observed in the aforesaid precedent that Share Application Money does not come under the ambit of a Financial Debt in accordance with Section 7 of the IBC 2016. .... 8. It can be concluded that the requirements of section 7 of the Code are not fulfilled. Therefore, this Adjudicating Authority dismisses the Petition filed by the Petitioner." 10. Assailing the impugned order, the Appellant has contended that the Adjudicating Authority had erred by relying upon the judgment of this Tribunal in the case of Promod Sharma Vs M/s Karanaya Heart Care Pvt. Ltd. in CA(AT)(Ins) No. 426 of 2022 as it was based on distinguishable facts as in that case the principal amount had already been refunded and Section 7 application was filed only on the outstanding interest amount. The Ld. Counsel for the Appellant has also contended that since neither any share was allotted nor the share application money was returned, the sum advanced became a deposit. This deposit therefore assumed the character of financial de....