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TMI Blog2021 (12) TMI 739X X X X Extracts X X X X X X X X Extracts X X X X ..... e National Company Law Tribunal, New Delhi, Bench - III in the matter of Mr. Amit Goel Vs. CMYK Printech Limited in IB-1018/ND/2020. Mr. Kushan Mitra, Suspended Shareholder of the 2nd Respondent Company-CMYK Printech Limited (Hereinafter referred as ''Corporate Debtor'') preferred this Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred as the 'Code'). By the Impugned Order, the Adjudicating Authority has admitted the Application by Mr. Amit Goel (hereinafter referred as 'the first Respondent'), filed under Section 7 of the Code, observing as follows: "5. The contention of the Applicant/Financial Creditor is also supported by the report of the Independent Auditor as is recorded under para 7 & 8 of the Reply filed by the 'Corporate Debtor' i.e., Clause XIV of Annexure-I of the Independent Auditor's Report provides that during the year 2018 the 'Corporate Debtor' has made preferential allotment of 26,00,566 Shares to its Director, Mr. Amit Goel/Financial Creditor. Further, it is stated that the 'Corporate Debtor' has allotted those shares in lieu of the outstanding loan of Rs. 79.68 lakhs and after booking and reversal entry in the name of "Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. It is worthwhile to note that the Board Resolution that came to be passed on 11.09.2018 by which the allotment of shares was revoked, is still in existence and has not been superseded by any of the Board Resolutions. Therefore, the submissions of the Ld. Counsel for the 'Corporate Debtor' are contrary to the record maintained by the 'Corporate Debtor' and cannot be relied upon. However, the documents placed on record by the applicant clearly demonstrate that an amount of Rs. 79.35 Lakhs is outstanding as loan against the CD, which the 'Corporate Debtor' failed to pay. In the circumstances, the defence that has been projected by the Ld. Counsel for the 'Corporate Debtor' is noting but moonshine and a mere bluster. Therefore, the arguments of the CD stand rejected." 2. Submissions of the Learned Sr. Counsel appearing on behalf of the Appellant: Learned Sr. Counsel appearing for the Appellant submitted that the Adjudicating Authority has wrongly admitted the Section 7 Petition despite recording its satisfaction only to the extent of Rs. 79.35 Lakhs as the claim amount due to the first Respondent. Even if the amount and an interest of 12% due is calculated from 10.11.2018, the cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tinues to be the shareholder of the 'Corporate Debtor', holding 26,00566/- shares in the Balance Sheet and the Auditors Report relied on by the first Respondent before the Adjudicating Authority. Admittedly, the first Respondent did not disburse the said amount for time value of money and hence does not fall within the definition of 'Financial Debt' under Section 5(8) of the Code. For a debt to become 'Financial Debt', the basic elements are that it ought to be disbursed against 'consideration for time value of money'. Admittedly, the first Respondent made a Private Placement dated 08.09.2018 for the allotment of 26,00,566 equity shares with the 2nd Respondent when the shares were allotted to him vide Board Resolutions dated 01.08.2018, 25.08.2018 and 11.09.2018. The first Respondent pledged the entire shareholding with one M/s. Vipin Malik Associates even before the same could be resolved. Hence the shareholder of the Company does not fall within the meaning of 'Financial Creditor' as the amount invested for purchasing shares does not amount to disbursement against consideration for time value of money. The share application money was neither disbursed nor invested for conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature. However, we direct NCLAT to decide the Appeal i.e. Company Appeal (AT) Ins. No. 128 of 2021 finally on 05.10.2021 when the matter is listed for hearing". The Adjudicating Authority has not addressed or returned any finding on the disputes which were raised prior to the filing of Section 7 Petition. The forensic report relied on by the Interveners established that the alleged amount due was fraudulent one. Learned Counsel for the Appellant placed reliance on the following Judgments to support his case: "Radha Exports India Private Limited Vs. K.P. Jayaram, 2020 10 SCC 538". "Sesa Goa Limited and Ors. Vs. State of Maharashtra & Ors., [2009] 151 Comp Cas 358 (Bom)". 3. Submissions of Learned Sr. Counsel appearing on behalf of the first Respondent: Learned Sr. Counsel appearing for the first Respondent submitted that as per Section 42(6) of the Companies Act, 2013, and the Companies Acceptance of Deposit Rules, 2014 (Rule 2 and Rule 17), share money pending allotment carries statutory interest and it is 'Financial Debt' for time value of the money. The amount of Rs. 1,56,03,396/- was treated as share application money in the books of account of the 'Corporate De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bearing loan could also be treated as 'Financial Debt' under Section 5(8) of the Code relied on ratio of the Judgement of the Hon'ble Supreme Court of India in "M/s. Orator Marketing Pvt. Ltd. Vs. M/s. Samtex Disinz Pvt. Ltd., Civil Appeal No. 2231/2021". The Resolution Professional-2nd Respondent filed a status report that Committee of Creditors was constituted on 22.02.2021 and the IRP has verified the claims received from the Creditors of the 'Corporate Debtor' and is ensuring that the 'Corporate Debtor' remains a Going Concern as per Order of this Tribunal dated 22.02.2021. 4. I.A. No. 2413 of 2021: Mr. Narendra Kumar Printer and Publisher of the 'Corporate Debtor' Company preferred this Application. Learned Counsel appearing for the Applicant submitted that the Applicant came to know about the forensic audit report and then filed this instant Application to bring to the notice of this Tribunal that there has been a fraud of almost 800 Crores and misappropriation. The first Respondent is not a 'Financial Creditor' as shareholder of the Company does not come within the meaning of Financial Creditor. The amount invested for purchasing shares does not amount to disbursement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf of the Interim Resolution Professional that the Committee of Creditors ('CoC') has not been constituted, the NCLAT kept the constitution of CoC on hold. The interim order was vacated on 03.08.2021, when the NCLAT came to know that the CoC was already constituted. Mr. P.S. Patwalia, learned senior counsel submitted that the appeal is listed on 05.10.2021 under the heading "After Notice". He submitted that the proceedings before the CoC require to be stayed as the Corporate Debtor is a renowned newspaper in business for a long period of time. We see no reason to interfere with the order dated 03.08.2021, which is interlocutory in nature. However, we direct the NCLAT to decide the appeal, i.e. Company Appeal (AT) (Insolvency) No.128 of 2021 finally on 05.10.2021 when the matter is listed for hearing. The appeal is disposed of accordingly. Pending application(s), if any, shall stand disposed of." As the Learned Counsel for the Appellant was not present on 05.10.2021, Learned Proxy Counsel informed that some efforts are being made to settle the matter between the parties which was denied by the Learned Counsel for the Respondent and the matter was adjourned to 08.10.2021 dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecourse 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 having the commercial effect of a borrowing; and (ii) the expressions, allottee and real estate project shall have the meanings respectively assigned to them in clauses (d) and (zn) of section 2 of the Real Estate (Regulation and Development) Act, 2016 (16 of 2016); (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price and for calculating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause;" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are apparently illustrative and not exhaustive. Legislature has the power to define a word in a statute. Such definition may either be restrictive or be extensive. Where the word is defined to include something, the definition is prima facie extensive." 'Financial Debt' means outstanding principal due in respect of Loan and would also include interest thereon, if any interest were payable thereon. If there is no interest payable on the loan, only outstanding principal would qualify as 'Financial Debt'. Furthermore, sub-clause (a) (i) of sub-Section 8 of Section 5 of the IBC are apparently illustrative and not exhaustive. 10. Share Application Money is the amount of advance received from a prospective shareholder which is later transferred to share capital account on the issue of shares or refunded in case the issue falls to take place. 11. Refund of Application money for private companies: For private placements, invitation to subscribe should be given to less than 50 people (excluding Qualified Institutional Buyers and employers under ESOP) Fresh allotments should not be made until allotments under earlier offers are completed or withdrawn. Subscriptions should be collec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include the persons referred to in clause (a) or clause (b) of sub-section (1) of section 62 and such issue on preferential basis should also comply with conditions laid down in section 42 of the Act:" Rule 13 makes it clear that all provisions of Section 42 (Private Placement) are also applicable to issue of shares under Section 62(1)(c) (Preferential Allotment). 14. Rule 2(1)(c) of Companies (Acceptance of Deposit) Rules 2014 reads as follows: (c) "deposit" includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include (vii) any amount received and held pursuant to an offer made in accordance with the provisions of the Act towards subscription to any securities, including share application money or advance towards allotment of securities pending allotment, so long as such amount is appropriated only against the amount due on allotment of the securities applied for; Explanation.- For the purposes of this sub-clause, it is hereby clarified that - (a) Without prejudice to any other liability or action, if the securities for which application money or advance for such securities was received cannot be allotted within sixty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that too against the consideration for time value of money, needs to be found in the genesis of any debt before it may be treated as 'financial debt' within the meaning of Section 5(8) of the Code. This debt may be of any nature but a part of it is always required to be carrying, or corresponding to, or at least having some traces of disbursal against consideration for the time value of money 50. A conjoint reading of the statutory provisions with the enunciation of this Court in Swiss Ribbons (supra), leaves nothing to doubt that in the scheme of the IBC, what is intended by the expression 'financial creditor' is a person who has direct engagement in the functioning of the corporate debtor; who is involved right from the beginning while assessing the viability of the corporate debtor; who would engage in restructuring of the loan as well as in reorganisation of the corporate debtor's business when there is financial stress. In other words, the financial creditor, by its own direct involvement in a functional existence of corporate debtor, acquires unique position, who could be entrusted with the task of ensuring the sustenance and growth of the corporate debtor, akin to that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Black's Law Dictionary the expression 'Time Value' has been defined 'as the price associated with the length of time that an investor must wait until an investment matures or the related income is earned'. 17. In the instant case, allotment of equity shares on preferential basis by Private Placement Offer was done and subsequently revoked. The allotment of shares is evident under Form PAS-5, Form PAS-4, the Board Resolution dated 01.08.2018, the Special Resolution dated 25.08.2018 and the Board Resolution dated 11.09.2018. Subsequently vide a Board Resolution dated 10.05.2019, the allotment made in favour of First Respondent was declared as invalid and void ab initio. Therefore, we are of the considered view that the money given by the First Respondent indeed falls within the definition of Share Application Money. 18. To understand the nature of transaction involving a Share Application Money it is necessary to see how Section 42(6) of the Act and the Companies (Acceptance of Deposits) Rules, 2014 treat the Share Application Money. The relevant parts of the Act and the Deposit Rules have been reproduced in Paragraphs 12 to 15 above. It is clear from the reading of Section 42 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 7 Application which the Adjudicating Authority has erroneously not addressed to these issues, is untenable, especially keeping in view the ratio of the Hon'ble Supreme Court of India in 'M/s. Innoventive Industries Ltd.' Vs. 'ICICI Bank & Anr.', reported in 2018(1) SCC 407 wherein the Hon'ble Supreme Court of India has observed as follows:- "28. When it comes to a financial creditor triggering the process, Section 7 becomes relevant. Under the explanation to Section 7(1), a default is in respect of a financial debt owed to any financial creditor of the corporate debtor - it need not be a debt owed to the applicant financial creditor. Under Section 7(2), an application is to be made under sub-section (1) in such form and manner as is prescribed, which takes us to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. Under Rule 4, the application is made by a financial creditor in Form 1 accompanied by documents and records required therein. Form 1 is a detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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