Fund raised by issuing Subsidiary’s Compulsorily Convertible Preference Shares indemnified by Corporate Debtor to construct flats over land owned by Corporate Debtor under the Construction Contract entered into between Subsidiary Company and Corporate Debtor is Financial Debt under IBC – IIRF India Realty XII Ltd. and Anr. Vs. Srigopal Choudhary, RP of Shree Ram Urban Infrastructure Ltd. and Ors. – NCLT Mumbai Bench
September 23, 2024
In this case, Applicants invested in the shares of Subsidiary based on assurances provided by the Corporate Debtor as well as Subsidiary and these funds were ultimately used for the benefit of the Corporate Debtor.
Hon’ble NCLT Mumbai Bench held that:
(i) Adjudicating Authority has no hesitation to say that the amount paid under the transaction of subscription to CCPS had the commercial effect of borrowing.
(ii) Contravention, if any taken place, or bar under FEMA cannot be a ground to characterize a transaction to hold it not be in nature of a debt, if it otherwise qualifies to be so under the definition(s) of Financial Debt contained in the Code.
(iii) The duty to verify claim in terms of CIRP Regulation 13 requires the IRP/RP to verify each claim received form the proof of claim in order to ascertain the claim amount and the class under which such claim is admissible because if the verification does not encompass the determination of class of a creditor, this will disable the IRP/RP to decide the class of claimant which may render the exercise of verification of claim futile.
