The Appellate Tribunal dismissed the Section 7 application filed ...

Share application money doesn't qualify as 'financial debt' for insolvency proceedings.

Case Laws     IBC

November 28, 2024

The Appellate Tribunal dismissed the Section 7 application filed by the Appellant, ruling that the share application money deposited by the Appellant with the Corporate Debtor did not constitute a 'financial debt' u/s 5(8) of the Insolvency and Bankruptcy Code (IBC). The key points are: 1) For a debt to qualify as 'financial debt', there must be a disbursal against consideration for time value of money, and the transaction must fall within the ambit of sub-clauses (a) to (i) of Section 5(8). 2) Share application money is not expressly covered u/s 5(8). 3) The Companies (Acceptance of Deposits) Rules, 2014 apply only if the share application money was received pursuant to a private placement offer made in accordance with the Companies Act, 2013. 4) In the present case, there was no evidence of a valid concluded agreement between the parties regarding allotment of shares, nor any proof of a private placement offer made as per the Companies Act. 5) Therefore, the share application money advanced by the Appellant could not be treated as a deposit under the Rules, and consequently, did not qualify as a 'financial debt' under the IBC. The Appellate Tribunal found no infirmity in the Adjudicating Authority's order rejecting.

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