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Showing contexts for: debt defined in Kushan Mitra vs Amit Goel on 16 December, 2021Matching Fragments
7. Assessment Whether 'Share Application Money' in the event of non-allotment of shares, be treated as 'Loan/Debt' and whether such an amount falls under the definition of 'Financial Debt' as defined under Section 5(8) of the Code. Whether Statutory accrual of interest under Section 42(6) of the Companies Act, 2013, be construed as 'consideration for time value of money', to qualify the requirement of ''Financial Debt'' as defined under the Code.
For better understanding of the case, we find it relevant to reproduce the definition of 'Debt' as defined under Section 3(11) of the Code, the definition of 'Financial Creditor' as defined under Section 5(7) of the Code and also the definition of 'Financial Debt' as defined under Section 5(8) of the Code which read as hereunder:-
"Section 3 (11) Debt means a liability or obligation in respect of a claim which is due from any person and includes a 'Financial Debt' and operational debt;"
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 of the Companies Act, 2013 and the Deposit Rules that if the Shares are not allotted Company Appeal (AT) Ins. No. 128 of 2021 & I.A. No. 2340 of 2021 and 2413 of 2021 within 60 days of receiving the Share Application Money, and if the refund does not take place within 15 days form the expiry of 60 days time limit, then this amount will be treated as a 'Deposit', advanced to the Company, which has to be returned by the Company at the rate of 12 percent per annum from the expiry of the 60th day. Thus the concerned person would get compensation for the time value of money given by him to the Company which changes the nature and character of the money so given. Although the amount was initially paid towards Shares, since the allotment was revoked, the equity did not materialise. Thereafter, by operation of law, Section 42(6) of the Companies Act, 2013, the amount has statutorily been given the character of loan with interest. Same is the case of amounts paid as optionally convertible debentures. They may initially be seen as Debt and later, upon conversion the same amount becomes equity. Hence, when under law, the amount has been treated as a loan, we hold that refund of Share Application Money, in the event of non-allotment of shares attracts interest as provided for under Section 42(6) of the Act and therefore qualifies the essential ingredients of Section 5(8) of the Code in terms of consideration paid for time value of money and therefore falls within definition of the ambit of 'Financial Debt' as defined under Section 5(8) of the Code. Therefore, we hold that the Debt is a 'Financial Debt' and hence we are of the considered view that the ratio of "Radha Exports India Private Limited" (supra) and "Sesa Goa Limited and Ors. (Supra) is not applicable to the facts of this case. Further, a three Judge Bench of this Tribunal in Uniexcel Developers Pvt. Ltd. Vs. Uniexcel Ltd., Company Appeal (AT) Ins. No. 962 of 2019 has concurred with the finding of the Adjudicating Authority and held that in case of non-refund of Share Application Money Company Appeal (AT) Ins. No. 128 of 2021 & I.A. No. 2340 of 2021 and 2413 of 2021 within 60 days of receipt of the money, the money will be treated as Deposit and would change its character to fall within the definition of 'Financial Debt'.
20. For all the aforenoted reasons, we are of the considered view that Share Application Money in the event of non-allotment of shares, attracts interest under Section 42(6) of the Companies Act, 2013 and therefore falls within the Company Appeal (AT) Ins. No. 128 of 2021 & I.A. No. 2340 of 2021 and 2413 of 2021 ambit of definition of 'Financial Debt' as defined under Section 5(8) of the Code.
21. For all the aforenoted reasons, this Appeal is dismissed accordingly. The Intervention Applications are also dismissed as non-maintainable. No order as to Costs.