Preference Shares Not Debt: NCLAT Blocks Insolvency Proceedings for Undeclared Dividends and Unredeemed Capital

NCLAT dismissed the appeal, holding that Cumulative Redeemable Preference Shares (CRPS) do not constitute a debt under Section 7 of the Insolvency Code. The Tribunal found no default as the company neither declared dividends nor earned profits to redeem the preferential shares. The CRPS were determined to be part of preferential share capital, precluding the initiation of insolvency proceedings. The Appellant was barred from presenting additional evidence beyond the share allotment, and the absence of redemption mechanisms or fresh share issue proceeds further negated the claim of an existing debt, resulting in the comprehensive rejection of the Section 7 application. .....

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