2020 (3) TMI 1212 - AT - Insolvency and Bankruptcy

Maintainability of application - initiation of CIRP - Financial Debt or not - whether there was a default on behalf of corporate debtor in payment of the amount claimed? - time limitation - HELD THAT - What can be seen is that the offer made by the corporate debtor was conditional in the sense that it stated that it was willing to refund money provided the procedure prescribed by RBI is followed. Now, before us learned counsel for both the parties are trying to make submissions against each other. While learned counsel for the financial creditor states that they made a demand and learned counsel for the corporate debtor is submitting that the demand is improper and the Rules applicable under the FEMA and the RBI Act are required to be followed. Once the Adjudicating Authority came to the conclusion that default has not been proved, the only option it had was to reject the application and the conditional offer could not have been gone into. We find that the underlined portion of the impugned order (referred to supra) where it gives directions to fulfil requirements and liberty to revive cannot be maintained. This appeal disposed off with liberty to the respondent-financial creditor to take necessary steps (which were found wanting in paragraph 11 of the impugned order) and it may file fresh application under section 7 of the IBC, if so advised - the question of limitation is kept open for consideration when such application is moved.

Summary

Issues Involved:
Appeal challenging the order under section 7 of the Insolvency and Bankruptcy Code, 2016, regarding the categorization of share application money as a financial debt, the establishment of default in payment, and the direction for refund.

Analysis:

1. Categorization of Share Application Money as Financial Debt:
The Adjudicating Authority considered the Companies Act and Companies (Acceptance of Deposits) Rules, 2014 to determine whether the share application money could be classified as a financial debt. It was concluded that if shares are not allotted within 60 days of receiving the money, the share application money must be refunded. Failure to refund within 15 days after the 60-day limit results in the money being treated as a deposit, constituting a financial debt. The Adjudicating Authority found that since shares were not allotted despite the money being transmitted in 2008, the money was considered a deposit and thus a financial debt.

2. Establishment of Default in Payment:
The Adjudicating Authority observed that although the financial creditor was ready to refund the money upon receiving the required letter, the actual delivery of the letter requesting the refund was not proven. It was emphasized that without evidence of delivery and fulfillment of formalities, it could not be attributed to the respondent's fault for the non-refund. The Adjudicating Authority dismissed the application but granted liberty to the financial creditor to revive the application if the refund was not made after complying with the required formalities.

3. Direction for Refund and Conditional Offer:
The corporate debtor had made a conditional offer to refund the money subject to following the procedure prescribed by the Reserve Bank of India (RBI). The appellate tribunal noted that once the Adjudicating Authority determined that default had not been proven, the only option was to reject the application. The tribunal set aside the direction in the impugned order requiring the fulfillment of formalities for refund and the liberty to revive the application, as the conditional offer should not have been considered once default was not established.

4. Disposition and Future Steps:
The appellate tribunal disposed of the appeal, maintaining the finding that the share application money constituted a financial debt. It granted liberty to the financial creditor to rectify the deficiencies identified in the impugned order and file a fresh application under section 7 of the IBC. The question of limitation was kept open for consideration in any future application.

In conclusion, the appellate tribunal upheld the categorization of share application money as a financial debt but set aside the direction for refund and revival of the application due to the lack of established default. The tribunal provided an opportunity for the financial creditor to address the deficiencies and file a new application, keeping the question of limitation open for future consideration.