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 – Mr. Kushan Mitra Vs. Mr. Amit Goel – NCLAT New Delhi
December 22, 2021
In the instant case, allotment of equity shares on preferential basis by Private Placement Offer was done and subsequently revoked. NCLAT held that the money given by the First Respondent indeed falls within the definition of Share Application Money. On issues of Financial Debt under IBC, NCLAT held that if the Shares are not allotted 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 Although the amount was initially paid towards Shares, since the allotment was revoked, the equity did not materialise.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. It held 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 ambit of definition of Financial Debt as defined under Section 5(8) of the Code.