2020 (10) TMI 960 - Tri - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its debt - existence of debt and dispute - Share application money - HELD THAT - The Respondent's first contention that he has already paid the full and final amount of ₹ 1.03 Crore pursuant to amicable settlement of dispute as recorded in order dated 11th October, 2017 of the Hon'ble National Company Law Tribunal passed in CP No. 205(ND)/2017, the Applicant has accepted the fact that the said amount has been duly received by him but argued that the interest on that amount has not been paid. On our perusal of provisions of section 42 of Companies Act, 2013 and Companies (Acceptance of Deposit) Rules, 2014 as well as of the definition of financial debt under the Code - The Applicant's contention that while returning the principal amount the cheque bearing No. 070259 dated 26.06.2018 for ₹ 1,52,37,000/- was given as interest which was dishonoured whereas, the Respondent argued that the respondent company had lodged a police complaint for lost cheque No. 070259 and the Applicant misused that cheque. The Tribunal is of the view that National Company Law Tribunal is not the correct authority to adjudicate in the matters related to the negotiable Instruments. The matter between both the parties was amicably settled as recorded in order dated 11th October, 2017 of the Hon'ble National Company Law Tribunal passed in CP No. 205(ND)/2017, between the parties along with that the Respondent failed to show any agreement to substantiate the fact that money was paid as a financial debt or that the money was paid against the payment of interest - the share application money does not fall under any of the clauses of Section 5(8) of the Code and it cannot be said to fall under the definition a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money since no debt was disbursed by the Applicant to the Respondent and no time value has been attached with the share application money. Thus, since the claim is not a financial debt the present application under Section 7 of the Code is not maintainable and is dismissed with no costs. Application dismissed.

Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016.
2. Determination of whether the applicant is a financial creditor.
3. Validity of the share application money as a financial debt.
4. Compliance with the Companies Act, 2013 and Companies (Acceptance of Deposit) Rules, 2014.
5. Allegations of fraudulent management and misuse of cheque.
6. Limitation period for filing the petition.

Detailed Analysis:

1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016:
The applicant sought to initiate CIRP against the respondent for an alleged default in clearing a debt of ?1,52,37,000/-. The applicant claimed that this amount was due as interest on the share application money invested in the respondent company. The respondent argued that no financial debt was due and payable, and the petition should be dismissed as the applicant failed to establish himself as a financial creditor.

2. Determination of whether the applicant is a financial creditor:
The applicant claimed that the amount invested was acknowledged as share application money pending allotment and later demanded interest on it. The respondent contended that the applicant was not a financial creditor as the money was invested in share capital, not as a loan or deposit. The Tribunal found that the share application money does not qualify as a financial debt under Section 5(8) of the Code, as it was not disbursed against the consideration for the time value of money.

3. Validity of the share application money as a financial debt:
The applicant argued that the share application money should be treated as a deposit under the Companies (Acceptance of Deposit) Rules, 2014, and thus, the respondent was liable to repay it with interest. The Tribunal noted that the definition of "deposit" under the Companies (Acceptance of Deposit) Rules, 2014, excludes share application money pending allotment. Therefore, the share application money does not fall under the definition of financial debt.

4. Compliance with the Companies Act, 2013 and Companies (Acceptance of Deposit) Rules, 2014:
The applicant claimed that the respondent violated the Companies Act, 2013, by not allotting shares or refunding the share application money within the stipulated period. The Tribunal observed that the respondent's balance sheets showed the amount as share application money pending allotment. However, the Tribunal concluded that the share application money does not constitute a financial debt, and thus, the application under Section 7 of the Code is not maintainable.

5. Allegations of fraudulent management and misuse of cheque:
The applicant alleged that the respondent's directors conspired to defraud him by not returning the share application money with interest and misusing a cheque issued for the interest amount. The respondent countered that the cheque was reported lost, and the applicant misused it. The Tribunal stated that it is not the appropriate authority to adjudicate matters related to negotiable instruments and did not delve into the allegations of fraud.

6. Limitation period for filing the petition:
The respondent argued that the petition was barred by limitation, as the right to apply accrued on 16.03.2013, and the petition was filed beyond the three-year limitation period. The Tribunal did not explicitly address the limitation issue in its final decision, focusing instead on the nature of the financial debt.

Conclusion:
The Tribunal concluded that the share application money does not fall under the definition of financial debt under the Insolvency and Bankruptcy Code, 2016. Consequently, the applicant is not a financial creditor, and the application under Section 7 of the Code is dismissed with no costs.

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