9911796707
TMI Blog2024 (11) TMI 1234X X X X Extracts X X X X X X X X Extracts X X X X ..... g at Rule 2(c)(vii) of the CADR Rules, 2014 and the explanatory clause appended thereto, it becomes clear that it refers to any amount received and held pursuant to an offer made in accordance with the provisions of the Companies Act, 2013 towards subscription to any securities, including share application money. It flows therefrom that for the aforementioned CADR Rules to be attracted in respect of share application money, there has to be a clear nexus to show that the share application money amount was advanced in conformity with the relevant provisions of the Companies Act, 2013 - There is no evidence of any valid concluded agreement between the two parties with respect to allotment of shares. Hence, the amount which was advanced by the Appellant cannot be treated to be amount in response to the private placement offer. Rule 2 of CADR Rules envisages that only if any amount is received pursuant to any private placement offer made in accordance with the provisions of the Companies Act, 2013 and no shares are allotted qua that amount, only then the sum becomes a deposit. When no proof of any private placement offer made in accordance with the provisions of the Companies Act, 2013 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed to allot shares for the balance amount subject to the Appellant providing additional funds to the Respondent. The Appellant thereafter provided additional funds of Rs 79.60 lakhs which were paid in several instalments from 2012-14. Since neither the shares were allotted nor the share application money was refunded, the Appellant sent a Demand Notice on 07.07.2023 to the Corporate Debtor for repayment of the share application money with statutory interest of 12% in terms of Section 42(6) of the Companies Act, 2013. Since the Corporate Debtor failed to repay the amount, the Appellant filed a Section 7 application before the Adjudicating Authority on 30.08.2023. The Adjudicating Authority however held that share application money in respect of the shares not allotted cannot be deemed to be a financial debt. The impugned order dated 22.03.2024 further held that the requirements of Section 7 application under the IBC were not fulfilled and therefore rejected the Section 7 application. Assailing the impugned order, the present appeal has been preferred by the Appellant. 3. Making his submissions, the Ld. Counsel of the Appellant adverted attention to Section 42(6) of the Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions under the IBC which defines financial debt and for this purpose refer to Section 5(8) of the IBC which is as reproduced under : Section 5(8) financial debt means a debt alongwith interest, if any, which is disbursed against the consideration for the time value of money and includes (a) money borrowed against the payment of interest; (b) any amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; (e) receivables sold or discounted other than any receivables sold on non-recourse basis; (f) any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing; [Explanation. -For the purposes of this sub-clause,- (i) any amount raised from an allottee under a real estate project shall be deemed to be an amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26, a company may, subject to the provisions of this section, make private placement through issue of a private placement offer letter. (2) Subject to sub-section (1), the offer of securities or invitation to subscribe securities, shall be made to such number of persons not exceeding fifty or such higher number as may be prescribed, excluding qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option as per provisions of clause (b) of sub-section (1) of section 62, in a financial year and on such conditions (including the form and manner of private placement) as may be prescribed. Explanation I. If a company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than the prescribed number of persons, whether the payment for the securities has been received or not or whether the company intends to list its securities or not on any recognised stock exchange in or outside India, the same shall be deemed to be an offer to the public and shall accordingly be governed by the provisions of Part I of this Chapter. Explanation II. For the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm, by a company, but does not include (i) any amount received from the Central Government or a State Government, or any amount received from any other source whose repayment is guaranteed by the Central Government or a State Government, or any amount received from a local authority, or any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature ; (ii) any amount received from foreign Governments, foreign or international banks, multilateral financial institutions (including, but not limited to, International Finance Corporation, Asian Development Bank, Commonwealth Development Corporation and International Bank for Industrial and Financial Reconstruction), foreign Governments owned development financial institutions, foreign export credit agencies, foreign collaborators, foreign bodies corporate and foreign citizens, foreign authorities or persons resident outside India subject to the provisions of Foreign Exchange Management Act, 1999 (42 of 1999) and rules and regulations made there under; (iii) any amount received as a loan or facility from any banking company or from the State Bank of India or any of its subsidiary banks or fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the balance sheet for the financial year ending on or before the 31st March, 2014 against which the allotment is pending on the 31 March, 2015, the company shall, by the 1st June 2015, either return such amounts to the persons from whom these were received or allot shares, stock, bonds or debentures or comply with these rules.] (b) any adjustment of the amount for any other purpose shall not be treated as refund. 8. Now that we have noted the relevant statutory provisions of the IBC, the Companies Act and CADR Rules, we now proceed to examine the tenability of the contention of the Appellant that on a conjoint reading of Section 5(8) of the IBC and Section 42(6) of the Companies Act, 2013 read with Rule 2 of the CADR Rules, the share application money in the instant case had become a deposit as shares were not allotted within 60 days of receipt of money and that such deposit fell within the meaning and scope of financial debt as defined under Section 5(8) of the IBC. 9. When we peruse the impugned order, we find that the Adjudicating Authority has noted that the Appellant had sought refund of the share application money issued to the Corporate Debtor with interest in terms of Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clear that it refers to any amount received and held pursuant to an offer made in accordance with the provisions of the Companies Act, 2013 towards subscription to any securities, including share application money. It flows therefrom that for the aforementioned CADR Rules to be attracted in respect of share application money, there has to be a clear nexus to show that the share application money amount was advanced in conformity with the relevant provisions of the Companies Act, 2013. When we look at Section 42 of the Companies Act, 2013 it is clear that several statutory compliances are required to be met prior to issue of shares on private placement basis. Section 42(2) of the Companies Act stipulates the requirement of issue of private placement offer letter in such cases. From the records available on file, we do not find that the Corporate Debtor had issued any such private placement offer letter to the Appellant. There is no evidence of any valid concluded agreement between the two parties with respect to allotment of shares. Hence, the amount which was advanced by the Appellant cannot be treated to be amount in response to the private placement offer. Rule 2 of CADR Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
