Rahul Maroo vs Bruck Pharma Private Limited

Ashok Bhushan, J.

This Appeal has been filed against the order dated 06.07.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata, rejecting Section 7 application filed by the Appellant. The Adjudicating Authority has held that there being no concluded contract between the parties and there is no consideration for time value of money there is no financial debt, Section 7 Application cannot be admitted. Appellant aggrieved by the said order has come up in this Appeal.

Brief facts of the case to be noticed for deciding this Appeal are:-

We have heard Shri Naresh Jain, Learned Counsel for the Appellant and Shri Abhijeet Sinha, Learned Counsel for the Respondent.

Learned Counsel for the Appellant submits that an amount of Rs.2.6 Crores was given to the Respondent for allotment of share of Rs.2 Crore against the investment made by the Appellant and rest Rs.60 Lakhs was to be treated as unsecured loan. Respondent failed to allot shares to the Appellant. The amount, thus, was repayable as per Section 42(6) of the Companies Act, 2013 along with the statutory interest @12% per annum. It is submitted that the amount has not been repaid till date. It is submitted that the Adjudicating Authority committed error in making observations in paragraph 27 of the judgment that no debt is due on the Corporate Debtor. The said observations are without any basis and incorrect. Amount of Rs.2.6 Crores is still due. Before the Adjudicating Authority, it was contended that an amount of Rs.2.6 Crores is to be adjusted from sale of summit unit whereas the reply filed in this Appeal now the Corporate Debtor has changed his stand and stating that the amount was paid to the Financial Creditor through consolidated adjustment between the group entities. E-mail dated 08.04.2018 has been relied by the Financial Creditor. It is submitted that the share application money which is not refunded is a financial debt.

Learned Counsel for the Appellant has relied on judgments of this Appellate Tribunal in “Shakebuddin Irtebatuddin Khan vs. Qumruddin Faizi & Anr.- Company Appeal (AT) (Ins.) No.209 of 2019”, “Pramod Sharma vs. Karanaya HeartCare Pvt. Ltd.- Company Appeal (AT) (Ins.) No.426 of 2022”. He has also relied on the Judgments in “Mr. Kushan Mitra vs. Mr. Amit Goel, CMYK Printech Ltd.- 2021 (12) TMI 739” and “Uniexcel Developers Pvt. Ltd. vs. Uniexcel Ltd.- 2019 (11) TMI 1699”.

Learned Counsel for the Appellant has also placed reliance on Section 42(10) of the Companies Act, 2013 as well as the Companies (Acceptances of Deposit) Rules, 2014 to support his submission that amount advance by the Appellant is a financial debt within the meaning of Section 5(8) of the IBC.

Learned Counsel for the Respondent refuting the submissions of the Counsel for the Appellant submits that the amount as claimed by the Appellant was never advance against any share application money. It is submitted that Section 42 of the Companies Act, 2013 on which reliance has been placed is not attracted. There has to be several statutory compliances before issuance of shares on private placement basis. The issuance of private placement offer by the Corporate Debtor is essential to attract Section 42 and at no point of time, Corporate Debtor has issued any private placement offer. There has to be Board Resolution and Special Resolution of the Corporate Debtor for issuance and allotment of shares on preferential basis/private placement basis. Several statutory compliances including submission of relevant forms are necessary which having never done, Section 42 is not attracted. Appellant has failed to place on record any piece of evidence to prove that the sum of Rs.2.6 Crores were deposited as Share Deposit Money. Appellant has himself admitted in his application under Section 7 that there was no valid concluded agreement between the parties with respect to allotment of shares as the parties could not agree on valuation of shares to be allotted as has been pleaded in Section 7 application itself. Judgments relied by the Counsel for the Appellant are not relevant since present is not a case of payment of share allotment money as per Section 42. It is submitted that the money of Rs.2.6 Crores has been refunded and duly repaid to the Corporate Debtor, details of which has already been brought by the Corporate Debtor in Supplementary Affidavit filed on 10.04.2023. The amount has been adjusted by payment to several group companies which were owned by the Appellant’s brother and father.

We have considered the submissions of the Counsel for the parties and perused the record.

Between the parties, the payment of amount of Rs.2.6 Crores is not disputed. Appellant has made the aforesaid payment to the Corporate Debtor between the period as detailed in Section 7 Application. Appellant himself in the Appeal has annexed several correspondences between the parties sharing of draft MoU and revised draft MoU between the parties. Several e-mails were exchanged between the parties, however, ultimately no agreement could be executed between the parties. In Part-IV of Section 7 application filed by the Appellant, Appellant himself has made following statement:-

The above statement indicates that the parties could not mutually agree, however, the statement of the Appellant that entire investment of Rs.2.6 Crores was pleaded as financial assistance was never accepted by the Corporate Debtor.

When we look into the correspondences between the parties, which was part of the record of the Appeal, it is clear that several options was communicated to the Appellant including share in the profit or to pay the substantial amount to take the entire management. The principal submission of the Counsel for the Appellant is that the said amount was advanced by the Appellant as Share Application Money and by virtue of Section 42 of the Companies Act, 2013, the said amount was required to be refunded with interest and on failure of the said amount, the said amount will become deposit and a financial debt.

Counsel for the Appellant has relied on Section 42 of the Companies Act, which is to the following effect:-

Counsel for the Appellant has also relied on Companies (Acceptance of Deposit) Rules, 2014 where in Rule 2(c) ‘deposit’ has been defined as follows:-

Sub-rule (vii) of Rule 2 (c) has been relied along with the explanation. When we look into the Section 42 of the Companies Act, 2013 there are several statutory requirements by the Company for making a private placement of securities. Section 42 is enabling provision which empowers the company to make a private placement of securities. Under Section 42(3), Companies making private placement shall issue private placement offer and application in such form and manner as may be prescribed to identified persons. There is nothing on the record to indicate that the company at any time has issued a private placement offer. Appellant has not brought any material on record to indicate that company at any time has issued private placement offer and in pursuance of which Appellant has made any application of allotment of shares. There being no material brought on the record to indicate that the amount of Rs.2.6 Crore was advanced by the Appellant in pursuance of any offer of private placement invited by the company. Amount of Rs.2.6 Crores which was advanced by the Appellant cannot be treated to be amount in response to the private placement. When the amount advanced cannot be related to Section 42, the applicability of Section 42(6) cannot be pressed as is being sought by the Appellant in the present case. Similarly, Rule 2(vii) of the Companies (Acceptance of Deposit) Rules 2014 and its explanation are not attracted. Rule 2(vii) contemplates any amount received and held pursuant to an offer made in accordance with the provisions of the Companies Act, 2013. No proof of any offer made in accordance with the provisions of the Companies Act, 2013 by the Company having brought on record Rules itself cannot be held applicable.

Learned Counsel for the Appellant has placed reliance on the judgments as noted above to support his submission that the Share Application Money should be considered as disbursement against consideration for time value of money and be treated as financial debt within the meaning of Section 5(8). The above judgment cannot come to any aid of the Appellant since Appellant has failed to prove that an amount of Rs.2.6 Crores advanced by him to the Corporate Debtor was against any offer made by the company for private placement of shares. Counsel for the Appellant has also submitted that the judgment of this Tribunal in “Pramod Kumar Sharma” (supra) is not applicable. We need not enter into the above submission since we have already held that an amount of Rs.2.6 Crores was not towards any offer for private placement.

Counsel for the Appellant has contended that the finding returned by the Adjudicating Authority in paragraph 27 or the judgment that no financial debt is due is erroneous. In paragraph 27 of the judgment, Adjudicating Authority made following observations:-

In paragraph 27, the Adjudicating Authority has referred to the e-mail dated 09.04.2018. E-mail dated 09.04.2018 has been brought on the record as Annexure A-13 to the Appeal along with the e-mail attachment was there where under the heading ‘further course of action’, following was stated:-

Counsel for the Appellant is right in his submission that what was observed in the aforesaid e-mail and the attachment was that the amount can come out of the sale of summit units and then to be paid to the Appellant. The said e-mail cannot be read to mean that the amount has been paid and debt has been liquidated, even the Adjudicating Authority notices that the Financial Creditor has agreed that the said sum of Rs.2.6 Crores could have been adjusted by sale of summit units. Adjudicating Authority further made observations that this is a completely different arrangement which has been suppressed by the Financial Creditor. Any e-mail that amount shall be adjusted subsequently can in no manner effect the debt so long as it remains due. We are of the view that the observations made against the Appellant by the Adjudicating Authority in paragraph 27 are not correct.

Counsel for the Appellant is right in his submission that in reply filed by the Corporate Debtor in this Appeal now they are stating that the amount of Rs.2.6 Crores has been adjusted of all accounts between the parties and its group companies and entities. In paragraph 15 of the reply of the Corporate Debtor, following has been stated:-

The Corporate Debtor, thus, is not supporting the observations of the Adjudicating Authority that an amount of Rs.2.6 Crores has to be paid from sale of summit units and now the new theory is being propounded that the said amount is paid and adjusted. We are of the view that the finding of the Adjudicating Authority in paragraph 27 that no financial debt is due is unsustainable. Further, the finding of the Adjudicating Authority is “it can easily be presumed that as on this day there is no financial debt within the meaning of Section 5(8) of the IBC, 2016”, which finding is based only surmises and conjecture. There being no material on the record to indicate that an amount of Rs.2.6 Crore was paid to the Appellant, we, thus, are of the view that the paragraph 27 of the impugned order passed by the Adjudicating Authority deserves to be deleted.

We make it clear that we have not expressed any opinion as to whether amount of Rs.2.6 Crores was repaid to the Appellant or not. The said issue can be dealt and decided in appropriate proceedings in accordance with law.

In result, the Appeal is disposed of in following manner: -