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TMI Blog2017 (12) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 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 substance in the argument that in accordance with clause 5.3.1 read with clause 5.8 it could be regarded as default as no valid allotment of share has taken place and in any case period of three years and five years is yet to expire. We are further of the view that any default has not occurred in terms of section 7(5). The expression default has been defined by section 3(12) to mean non-payment of debt when whole or any part or instalment of the debt have become due and payable and the same is not repaid by the corporate debtor. In the present case the petitioner financial creditor has pleaded that no allotment of CCRPL in accordance with law has been made. As a matter of fact allotment made was to an unregistered firm and the ROC refused to register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid letter cum-notice the Corporate Debtor -respondent sold off his profit making business of Affinity Express Franchise on 30.5.2017. Vide letter dated 1.8.2017 address to LLP Incorporated by the partners of the Corporate Debtor -respondent offer to issue CCRPS which now stand drastically devalued. It is thus claimed that shares have not been issued and share subscription money become a debt and payable with interest therefore Corporate Insolvency resolution process deserved to be initiated. 3. Respondent have opposed the claim made by the petitioner -Financial Creditor asserting that the petition u/s 7 of the Code read with rule 4 of the Insolvency Bankruptcy (Application to Adjudicating Authority) Rules, 2016 the petition is not maintainable. The execution of the SSA dated 4.6.2016 has been admitted which provide for issuance and allotment of 2,50,000 CCRPS. It is also conceded that clause 5.1 of the SSA provides for refund of the entire subscription and guaranteed return in accordance with the provisions of clause 5.2(a) to the investors like the petitioner within a period of five years and which has to be regarded as tenure of the investor shares. After five years the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the affidavit to the contrary have been controverted by submitting that the debts have become due u/s 42(6) of the Companies Act, 2013. It is also asserted that there is a default on account of non-payment on the expiry of 15 days from the date of completion of 60 days provided for allotment of shares and hence there is default. The averment made in the petition has been reiterated in the rejoinder. 5. We have heard learned counsel for the parties. 6. The question which arises for consideration before us is whether the petition satisfies the requirements of section 7 which provide that corporate insolvency resolution process can be initiated against a corporate debtor by attaching record of the default and proposing name of the resolution professional to act as an interim resolution professional . The first requirement is that a petitioner u/s 7 of the Code shall be a Financial Creditor. The expression Financial Creditor is defined in section 5(7) and it needs to be read with section 5(8) of the Code which read thus:- 5. In this Part, unless the context otherwise requires,- (l) to (6) .. (7) financial creditor means any person to whom a financial deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for time value of money nor this is money borrowed against payment of interest. 8. Therefore we are unable to persuade ourselves to accept that the petitioner could be regarded as a Financial Creditor. The reason for the aforesaid view is that it lack necessary ingredient of consideration for the time value of money and it is not money borrowed against the payment of interest. Moreover the shares as per the SSA were allotted to the petitioner- Financial Creditor which was unregistered partnership firm which altogether a different controversy. It was later on found that allotment could not be made to an unregistered partnership firm. Therefore there is no trapping of a financial loan or a financial debt in terms of sections 5(7) and 5 (8) of the Code in the transaction of SSA. 9. The arguments of Mr. K. Datta learned counsel for the petitioner-Financial Creditor is that it is debt within the meaning of section 3(11) and subsequently under clause 5.1 of the SSA, the Corporate Debtor has guaranteed that at the option of the petitioner- Financial Creditor it would pay back entire subscription consideration along with guaranteed returns as stipulated in clause 5.2.a to the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .8 it could be regarded as default as no valid allotment of share has taken place and in any case period of three years and five years is yet to expire. We are further of the view that any default has not occurred in terms of section 7(5). The expression default has been defined by section 3(12) to mean non-payment of debt when whole or any part or instalment of the debt have become due and payable and the same is not repaid by the corporate debtor. In the present case the petitioner financial creditor has pleaded that no allotment of CCRPL in accordance with law has been made. As a matter of fact allotment made was to an unregistered firm and the ROC refused to register the transfer. Therefore there is no question of any default occurring. 12. Mr. Datta has also placed reliance on a Division Bench of Delhi High Court in the case of Ajay Singh v. Kal Airways (P.) Ltd. CM. APPL28195/2016 decided on 3.7.2017 and specific reliance was placed on the observation made in para 28 which read as under:- 28. The question then is was the discretion exercised appropriately by the learned single judge, in the facts of this case? The facts are fairly straightforward, in the opinion of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot dealing with the case of Insolvency and Bankruptcy Code. Moreover, it is one thing to show that the amount become payable but it is quite another to conclude that the financial debt was advanced for time value of money whereas the share subscription amount was paid for allotment of share. The allotment in fact was made to unregistered partnership firm at that time which remains a matter of dispute on account of refusal of the ROC to register the transfer. The e-mail exchange between the parties suggests that the deadlock with regard to transfer to the petitioner after registration, or their LLP remained pending. It has not been mutually decided. We have at hand a situation whereas CCRPS were allotted to unregistered partnership firm and the petitioner did not succeed to persuade the ROC as it was an unregistered partnership firm. Thereafter it got itself registered and also floated an LLP. The respondent Corporate Debtor offered for allotment but the petitioner refused as the price of CCRPS has decreased. Therefore no reliance could be placed on those observations of Delhi High Court which do not have any relevance to the issue raised before us under the Insolvency and Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X
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