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M/s. ACPC Enterprises Versus Affinity beauty Salon Pvt. Ltd.

2017 (12) TMI 290 - NATIONAL COMPANY LAW TRIBUNAL, NEW DELHI

Corporate Insolvency Resolution Process - 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? - Held that:- We have thoughtfully considered aforesaid submissions of the learned counsel for the petitioner-Financial Creditor and are of the view that the same .....

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d in sub-sections (7) and (8) of section 5. The expressions used are 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 .....

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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. Petition fails. - IB-352 (PB)/2017 - Dated:- 10-11-2017 - MR. M.M. KUMAR AND MS DEEPA KRISHAN, JJ. For The Petitioner : K. Datta and Ms. Prachi Johri, Advs. Fo .....

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efore we embark upon the legal controversy raised in this petition few facts may be noticed. The case of the petitioner is that the parties have entered into a Share Subscription Agreement (for brevity SSA ) on 4.6,2016 envisaging transfer of 2,50,000 shares which are known as Cumulative Convertible Redeemable Preference shares ((for brevity CCRPS ) in favour of the petitioner against the payment of sum of ₹ 2,50,00,000/-. The amount of consideration was duly received by the Corporate Debt .....

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te Debtor for subscription expired on 14.8.2016. It is alleged that discussion between the parties concerning the issuance of CCRPS to the Corporate Debtor -respondent have failed as Corporate Debtor did not honour his promise to issue the CCRPS. Eventually on 26.4.2017 Financial Creditor issued a letter cum-notice to the Corporate Debtor that if the CCRPS were not dully issued and registered with the ROC within seven days then the money paid by the Financial Creditor under the SSA and the Corpo .....

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oney 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 CCRP .....

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om the date of the SSA i.e. 4.6.2016. The pleaded case of the respondent is that before the expiry of 30 months as per clause 5.8 of the SSA, the petitioner - Financial Creditor cannot seek redemption of CCRPS and the only remedy is to seek refund of the money paid in lieu of allotment of shares. It is further pleaded that the amount paid for the purposes of allotment of shares cannot be considered as an amount paid by way of loan or it involved any kind of borrowing. The amount was paid for spe .....

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s in favour of petitioner- Financial Creditor on the ground that it was an unregistered partnership firm. The terms of SSA did not provide that share certificate were to be allotted by the Corporate Debtor in favour of the individual partners of the petitioner firm and nor the partnership firm has to exist on the date of issuance of share certificate dated 7.6.2016. There are details of various emails depicted in paras 7 to 11 which are not necessary to be referred in details. The pleaded case o .....

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s from the receipt of the application money it becomes liable to repay the application money to the subscribers within 15 days from the date of expiry of 60 days along with interest of 12%. The averment made in 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 allotm .....

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tion 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 debt is owed and includes a person to whom such debt has been legally assigned or transferre .....

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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; (g) any derivative transaction entered into in connection with protection against or b .....

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clause; 7. A perusal of the above provisions would show that Financial Creditor would be any person to whom financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. The expression Financial debt used in sub-section 7 of 5.5 has been defined to mean a debt along with interest which is disbursed against the consideration for time value of money and includes money borrowed against the payment of interest etc. It is obvious that the subscription mo .....

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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 t .....

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h was to be the tenure of the investors share. According to clause 5 learned counsel has highlighted the provision of clause 5.2 which provides that after the period of five years the petitioner- Financial Creditor was compulsorily bound to choose whether to exit the investment made or to continue to hold equity shareholding of the Financial Creditor. There was no exit possible before the period of 30 months from the date of the agreement i.e from 4.6.2016 which is apparently the lock in period. .....

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5 further clarifies that in part II the various expression have been defined unless the context otherwise required. The expression debt has not been used in sub-sections (7) and (8) of section 5. The expressions used are 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. 11. The other argument that there is a buy back clause and the guaranteed return .....

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December 2018. 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 .....

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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 .....

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r ₹ 100 crores). The parties agree that the share warrants were not issued; nor were the preference shares. The appellants say that this situation came about because of lack of statutory approval by the SEBI and the lack of permission by BSE. The appellants also did not discharge the statutory tax liabilities, but applied for waiver, after prosecution through complaint was launched. Their defence to non- refund or payment is that the petitioners have to establish their claims (including th .....

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hat the share prices have increased (from the agreed price of ₹ 16.30/- per share to of ₹ 125/- per share at the time of hearing of the appeal)- a fact not denied. In these circumstances, the petitioners, in the opinion of the court, established prima facie a strong case on the merits of their application, with respect to the amounts they paid towards shares that were not allotted. There is also a statutory basis for this- Section 42 of the Companies Act and Section 65 of the Contrac .....

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