Sanjay Subhash Katira vs NV Autospares Private Limited

This is an Application bearing C.P. (IB) No. 222/MB/2025 filed on 21.02.2025 by Sanjay Subhash Katira, the Applicant (FC), under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the Code”) read with Rule 4 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (hereinafter referred to as “the AAA Rules”) initiation of Corporate Insolvency Resolution Process (CIRP) against NV Autospares Private Limited, the Corporate Debtor (CD).

The Applicant, is high-net-worth individual engaged in the business of manufacturing and supplying auto components. The CD is a company registered under the provisions of the Companies Act, 1956 (now, the Companies Act, 2013). The CD is in the business of manufacturing, sale and supply of the auto components and ancillary products.

The Applicant has relied on the following documents:

As per Part-IV of the Application, the amount claimed to be in default is Rs.1,20,71,271.42 (One Crore Twenty Lakh Seventy-One Thousand Two Hundred Seventy-One Rupees and Forty-Two Paisa), which includes the principal amount of Rs.1,00,51,017/- (One Crore Fifty-One Thousand and Seventeen Rupees) and interest of Rs.20,20,254.42/- (Twenty Lakh Twenty Thousand Two Hundred Fifty-Four Rupees and Forty-Two Paisa) as on 04.01.2025.

The date of default as stated in Part-IV is 06.02.2024.

The Applicant submits that this matter arises from the Order dated 04.01.2024 (hereinafter referred to as ‘Order-in-Appeal’) passed by the Ld. Regional Director, MCA, Western Region, Mumbai. This order has originated from the Order dated 01.05.2023 (hereinafter referred to as ‘Order-in-Original’) passed by ROC, Mumbai and this was pursuant to the Complaint dated 10.02.2022 lodged by the Applicant. The Order-in-Original was passed under Section 42 read with Section 454 of the Companies Act, 2013. The Order-in-Original is produced below along with Section 42 of the Companies Act:

The ROC in Order-in-Original ordered the CD to refund the share application money (pending allotment) along with interest at the rate of 12% p.a. The Applicant being one of the prospective investors having invested the amount that is in default is entitled to the aforementioned refund. Further, Rs.4,00,00,000/- was levied on the CD for contravening the provisions of Section 42 of the Companies Act.

It is submitted that the CD preferred an appeal against the Order-in-Original before the RD. The RD vested with the powers of the Appellate Authority confirmed the Order-in-Original, except the penalty was reduced to Rs.4,00,000/- by granting the ‘small-company’ status to the CD. Therefore, by the virtue of the Order-in-Appeal, the CD was ordered to refund the share application money along with the interest at the rate of 12% p.a. within a period of 30 days from the date of the Order. Therefore, it is submitted that by virtue of the Order-in-Appeal and further by virtue of Section 2(31) of the Act, the 'Share Application Money Pending Allotment' stood classified as 'Deposit' and as a result the Applicant steps in the shoes of the financial creditor. Copy of Order-in-Original dared 01.05.2023 and Order-in-Appeal dated 04.01.2024 is annexed as Annexure A-2 and Copy of Complaint dated 10.02.2022 is annexed as Annexure A-3. The Order-in-Appeal is produced below:

Despite the binding direction, the CD has not repaid the share application money to the Applicant. The facts show that during FY 2016-17 and FY 2017-18, the CD faced serious liquidity problems and due to this the CD was unable to honor the banking commitments. As a result, its bank account was classified as a Non-Performing Asset (NPA) by the Central Bank of India on 01.10.2017. Consequently, the company defaulted on supplier payments and statutory dues. This led to a freeze and lien on its banking operations. To revive the business, the CD asked the Applicant for financial support, claiming it could restore the company. Following this, and after reaching a mutual agreement, the Applicant and other investors provided funds.

This money was initially used to settle external debts. Due to banking restrictions, statutory NOCs were needed before opening a designated account for allotment purposes as required under Section 42. After the discharge of outside liabilities and after seeking necessary NOC's and/or approvals, a separate bank account was opened and remaining share application money was infused therein in adherence to the provisions of Section 42 of the Act. Later, the share application money was properly reflected in the balance sheet under the section "Share Application Money Pending Allotment."

However, despite clear assurances the CD did not issue shares in lieu of the investment. The ROC search of the documents and on perusal of the Auditor’s and the Board Report for respective years it became evident that the CD had kept the monies as ‘Share Application Money Pending Allotment’. Therefore, the investors mutually agreed to initiate the appropriate legal action against the CD and as a result, a Complaint was filed on 10.02.2022 before the ROC. The ROC issued the show-cause notice dated 06.01.2023 to the CD and its existing directors i.e., Mr. Kailas Laxman Ahire and Mrs. Alka Kailas Ahire. The CD filed reply affidavit on 21.02.2023 and made an appearance before the ROC on 23.03.2023. It is submitted that the ROC after going through the filings and after having heard the parties in detail passed the speaking Order-in-Original on 01.05.2023. Aggrieved by the non-compliance of the Order-in-Original the parties preferred an Appeal on 21.06.2023. Thereafter, in the said appeal the order in original was confirmed, however, ----- was reduced to Rs. 4 crore vide order dated 04.01.2024

Thereafter, the CD invoked Writ jurisdiction of the Hon’ble High court of Judicature at Bombay under Article 226/227 of the Constitution of India and filed Civil Writ Petition No. 5201 of 2024 on 18.03.2024. The Hon’ble High Court, vide interim order dated 29.05.2024, granted an ad-interim stay only against coercive action for non-payment of penalty and not against recovery of share application money. Copy of interim order dated 29.05.2024 is annexed as Annexure A-4 to the petition.

The Applicant has stated the grounds of invoking Section 7 of the Code being that the Auditors of the CD took note of the infusion and made a qualification that the allotment pending is in contravention of Section 42 of the Companies Act and therefore, a qualified Audit Report was issued. The CD by way of Board Report took note of the qualification and addressed it stating that the decision to issue shares shall be taken as per its convenience. Copies of latest financial reports are annexed as Annexure A-5 to the petition.

The Applicant has attached tabular calculation of the amount along with interest as Annexure A-6 and NeSL record of default in Form-C as Annexure A-7.

It is further submitted that the present application under Section 7 of the Code is not barred by the interim order dated 29.05.2024 passed by the Hon’ble Bombay High Court, as it seeks resolution and not recovery of money.

The CD filed Affidavit-in-Reply on 03.04.2025 and affirmed by Mr. Kailas Laxman Ahire – Director and Principal Officer of the CD vide Board Resolution dated 13.03.2025.

The CD has stated that the Application is not maintainable either in law or in facts and the Applicant has abused the process of law. The Application has not been filed as per the provisions of the Code.

The Applicant’s case is that the alleged debt was paid by the Applicant to the CD as a share application and the said alleged debt is nothing but "share application money (pending allotment)". It is a settled position of law that the Share Application Money is not a "financial debt" and no application under Section 7 with respect to the said share application money is maintainable. The same has been duly held by various Benches of NCLT across the country and the Hon'ble NCLAT.

It is stated that "financial debt" has been defined under Section 5(8) of the Code. Amounts raised by way of share application money are not covered in the transactions covered by sub-clauses (a) to (i) of Section 5(8) of the Code. The alleged debt of the Applicant being share application money does not come within the ambit of "financial debt" at all. As such, neither the said Applicant is a "financial creditor" nor is the alleged debt a "financial debt". The instant application is thus not maintainable and is liable to be dismissed.

In the said application it has been alleged that the "Share Application Money Pending Allotment" stood classified as "deposit" and as such, the Applicant steps in the shoes of the financial creditor. The said contention is untenable in law. It is evident from above that the share application money is not "financial debt". Even otherwise, upon a bare reading of Section 42 of the Companies Act, 2013 it is clear that several statutory compliances are required to be met prior to issue of shares on private placement basis. Section 42(2) of the Companies Act stipulates the requirement of issue of private placement offer letter in such cases. From the records available, it is evident that the CD had not issued any such private placement offer letter to the Applicant.

It is stated that from Rule 2(c)(vii) of The Companies (Acceptance of Deposits) Rules, 2014 ("CADR Rules, 2014") and the explanatory clause appended thereto, it becomes clear that it refers to any amount received and held pursuant to an offer made in accordance with the provisions of the Companies Act, 2013 towards subscription to any securities, including share application money. It is stated that Rule 2 of CADR Rules envisages that only if any amount is received pursuant to any private placement offer made in accordance with the provisions of the Companies Act, 2013 and no shares are allotted qua that amount, only then the sum becomes a "deposit". When no proof of any private placement offers made in accordance with the provisions of the Companies Act, 2013 has been placed on record by the Applicant, the CADR Rules cannot be held to be applicable.

The Applicant has placed heavy reliance on the order dated 01.05.2023 passed by the ROC, Mumbai and the order dated 04.01.2024 passed by the RD, Mumbai which is incorrect and misplaced. The CD filed a Writ petition no. 5201 of 2024 in the matter of NV Autospares Pvt. Ltd. vs. The Regional Director, Western Region, Ministry of Corporate Affairs, Mumbai and Ors, before the Hon'ble High Court of Judicature at Bombay, inter alia, challenging the order dated 04.01.2024 passed by the RD. The Hon'ble High Court vide order dated 29.05.2024 has stayed the order dated 04.01.2024 with respect to payment of penalty and has granted liberty to the CD to move the Hon'ble High Court, in case Clause 15(b) of the order dated 04.01.2024 is pressed. Since the writ petition is still pending before the Hon'ble High Court, being a continuation of the proceedings, the orders of ROC and RD cannot be relied upon and the same have not yet attained finality. The Applicant has approached this Tribunal under Section 7 of the Code with respect to an alleged debt which is already under challenge and sub-judice before the Hon'ble High Court.

It is also pertinent to mention that nowhere in the entire application has the Applicant mentioned the alleged "date of default". It is stated that in an application under Section 7 of the Code, the Adjudicating Authority is required to adjudicate on the basis of "debt" and "default'. Thus, the date of default becomes extremely crucial while considering an application under Section 7 of the Code.

The definition of 'debt' and 'default' is enumerated in section 3(11) and 3(12) of the Code, and that the financial debt has to be in the shape of liability and non-payment of such liability in the given time would cause default. In the present situation again, no date of default is made out and as such, neither the said transaction is in the shape of a financial debt nor any commercial effect of borrowing is evidenced and nor any default is made out.

The Applicant filed the Rejoinder on 09.04.2025. The Applicant submits that the matter was well adjudicated by the ROC and RD and the CD was well represented before the aforementioned adjudicating and appellate authorities. After giving the opportunities of being heard and after considering the detailed arguments that were made verbally and in writing the detailed respective orders were passed in the matter.

The Hon’ble Bombay High Court, through its interim order dated 29.05.2024, only gave temporary relief by allowing the penalty amount to be deposited in court. It did not stay the RD’s order in its entirety. The CD’s claim otherwise is misleading and incorrect. The RD’s order has confirmed both the debt and default.

The Applicant submits that the Application is complete in all respect and clearly mentions the default date as 06.02.2024 i.e. 30 days from receipt of the RD’s order. Further, it is undisputed that the service of the Petition was made twice i.e. on 21.01.2025 and again on 11.03.2025. The second service dated 11.03.2025 was made in compliance with the Tribunal’s interim order dated 26.02.2025 and therefore, a technical reason is not a valid defense.

The adjudication of the 'Share Application Money Pending Allotment,' as a deposit under the provisions of the Companies Act read with non-compliance Order of the RD cements the Debt and Default. The Applicant rightfully claims the position of financial creditor.

The Order passed by the RD was also based on undisputed acknowledgments made by the CD. However, the CD appears to have willfully omitted or concealed these acknowledgments in the Reply with mala fide intentions.

The Applicant has in its written submission submitted that the Audit Report continues to remain qualified till date and the adjoining Board Report unconditionally and unequivocally acknowledges and admits that the share application money was received and no allotment was made.

The Applicant further submits that law laid down by Hon'ble Supreme Court in Sundeep Kumar Bafna v. State of Maharashtra & Anr. ([2014] 4 S.C.R 486), the earlier judgement should be held as binding precedent, unless the later judgement has considered the earlier judgment and has overruled the same. The judgment of Hon'ble Bombay High Court in Manmohan Kapani and Hon'ble NCLAT in Kushan Mitra and Uniexcel Ltd., holds as binding precedent.

The Applicant has relied on the following judgments:

The CD has filed written submissions and has relied on the following judgments:

a. Share Application Money Pending Allotment Cannot Be Treated a Financial Debt under section 5(8) of the Code: As per the judgment in Murlidhar Vincom Pvt. Ltd. Vs Skoda (India) Pvt. Ltd. In Company appeal (AT) (Insolvency) No. 1334 of 2024 of NCLAT, it was held that share application pending allotment does not constitute financial debt. The judgement being the latest three-member bench of the Hon’ble NCLAT, commands binding precedential value and cannot be disregarded on the ground of having been rendered per incuriam.

b. The CD has further relied on the Hon’ble NCLAT and NCLT judgments in,

It is submitted that in case of conflicting judgements of equal strength, the later will prevail over the earlier. It is settled law that in the case of conflicting judgments of co-equal Benches, the latter judgment will prevail. The Hon’ble Karnataka High Court in D.V. Lakshmana Rao v. State of Karnataka & Ors. in Writ Petition No. 25795 of 2000, has held:

We have heard both the Ld. Counsels and have perused the records as placed before us. Our findings in the matter are as under: -

The Applicant has claimed that the Share Application Pending Allotment is a financial debt by virtue of the ROC order dated 01.05.2023 and RD order dated 04.01.2024 as the CD defaulted in issuing the shares to the Applicant. The CD failed to comply with the RD’s order dated 04.01.2024 and hence, the Applicant has made this Application under Section 7 of the Code.

In support of its contentions for existence of debt and default, the Applicant has attached the following documents along with the Application:

In our view, the Applicant has been able to establish with the help of above documents that there was a debt exceeding Rs. 1 Crore disbursed by the applicant to the CD, which has remained unpaid and with respect to the same the CD has committed a default.

Though, the applicant has been able to establish the existence of debt as well as the default on the part of the Respondent/CD, the CD has raised the following issues while opposing the admission of the Application filed:

In the following paragraphs, we have considered the above issues raised by the Respondent/CD:

(ii). The definition of deposit under Section 2(31) of the Companies Act is as follows: -

The second issue raised by the CD is that the Section 7 Application has been made with respect of an alleged debt, which is already under challenge and sub-judice before the Hon’ble Bombay High Court in a writ petition filed by the CD.

In regard to the said issue, the judgement made by Hon’ble NCLAT in the matter of A. Maheshwaran Vs. Stressed Assets Stabilitisation Fund & Anr and in Company Appeal (AT) (Insolvency) No. 954 of 2019 vide order dated 16.09.2019 is relevant wherein the Hon’ble NCLAT has held that if the debt amount is disputed and the amount is more than the threshold amount, application u/s 7 is maintainable and that exact amount of claim will be considered at the stage of CIRP by the IRP or the RP, as the case may be. Further, in another judgement in the matter of Karan Goel Vs. M/s Pasupati Jewellers and Anr, in Company Appeal (AT) (Insolvency) No. 1021 of 2019 vide order dated 01.10.2019, Hon’ble NCLAT held that merely because a suit has been filed by the Appellant and the same is pending, the same is not a ground to reject the application u/s 7 of the Code. Pre-existing dispute cannot be a subject matter of Section 7, though it may be relevant u/s 9 of the Code.

The relevant portion of the A. Maheshwaran judgment (supra) of Hon’ble NCLAT is reproduced hereunder:

The relevant portion of the Karan Goel judgment (supra) of Hon’ble NCLAT is reproduced hereunder:

In view of the said two judgements, we are of the view that the second issue raised by the CD does not hold any water and that the Application u/s Section 7 of Code can proceed even if there is a dispute pending with respect to the liability claimed by the Applicant in the Application. Moreover, Hon’ble Bombay High Court has not stayed the order passed by the RD in regard to the refund of share application money and has only stayed the order of the Ld. RD only with respect to the payment of Adjudication Fee. Further, it has been stated earlier that the amount of Share Application Money has been admitted by the CD in its Balance Sheet for the year ended 31.03.2022. In view of the same, we reject the second issue raised by the CD.

With regard to the third issue i.e. there is no date of default mentioned in Application and that the transaction in question is neither in the shape of a financial debt nor any commercial effect of borrowing is evident nor any default is made out, we are of the view that the statement made by the CD that no date of default is mentioned in the Application is incorrect as the application in Part-IV clearly states that the default date is 06.02.2024 which is 30 days from receipt of the RDs order. Further, with the support of the documents attached along with the Application, the Applicant has established that there is a debt exceeding the threshold amount of Rs. One Crore, with respect to which there is an admission by the CD in its balance sheet for the year ended 31.03.2022 and also the CD has not brought any evidence on record to prove that the share application money has been repaid by it to the Applicant. In regard to the subsequent part of the third issue i.e. the transaction in question is neither in the shape of a financial debt nor any commercial effect of borrowing is evidenced, our findings are contained in subsequent part of this order.

The issue which remains to be examined is whether the share application pending allotment is a financial debt. The Applicant has relied on the two member Bench judgment of Hon’ble NCLAT, New Delhi, dated 16.12.2021 in Company Appeal (AT) (Insolvency) No. 128 of 2021, Kushan Mitra vs. Mr. Amit Goel & CMYK Printech Limited wherein it was 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”. The relevant portion of the said judgment is reproduced hereunder:

In para 18 of the above judgment, Hon’ble NCLAT has held that as per section 42 of the Companies Act, 2013 and the deposit rules, 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 from the expiry of 60 days’ time limit, then this amount will be treated as ‘deposit’ advanced to the Company, which has to be returned by the company @ 12% p.a. from the expiry of the 60^th day, and therefore 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.

In the above judgment, Hon’ble NCLAT has further held that although the amount was initially paid towards shares, since the allotment was revoked, the equity did not materialise, and thereafter by operation of law i.e. as per section 42(6) of Companies Act, 2013 the amount has statutorily been given the character of loans with interest. It was further stated that the same is the case of amounts paid as optionally convertible debenture, which 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, i.e. the refund of share application money in the event of non-allotment of shares, attracts interest as provided for under section 42(6) 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 the definition of ‘financial debt’ as defined under section 5 (8) of the Code.

In the present matter the application has been filed based on order of Ld. RD dated 04.01.2024, vide which the Ld. RD directed the CD to refund the share application money amounting to Rs.13,92,19,042/- to the complainants/persons who have deposited the share application money with the company, which include the Applicant herein for a principal amount of Rs. 1,00,51,017/-, along with interest at the rate of 12% as per the provisions of section 42(10) of the Companies Act, 2013, within 30 days from the date of receipt of this order. Along with interest the total claim in the application is Rs. 1,20,71,271/-, which has not been paid by the CD and therefore, there has been a default on the part of the CD in making payment of the same. As per the above referred judgment the refund of share application money, in the event of non-allotment of shares, attracts interest as per the rate specified in section 42(6) of the companies Act, 2013 and therefore, the same qualifies the essential ingredients of section 5(8) of the Code in terms of consideration paid for time value of money and therefore, false within the definition of the “Financial Debt” as defined under section 5(8) of the Code. In the present case, the applicant is entitled to receive refund of the share application money along with interest at the rate of 12% p.a. pursuant to Section 42(10) of Companies Act, 2013, in regard to which Ld. ROC has passed an order, which has been confirmed by Ld. RD in appeal filed by the CD, and therefore, we are of the view that amount claimed by the Applicant in the Application qualifies to be a “Financial Debt” as per section 5(8) of the Code.

To contradict this judgment the CD placed reliance on the judgment of Hon’ble NCLAT, New Delhi in Murlidhar Vincom Pvt. Ltd. Vs Skoda (India) Pvt. Ltd. in Company appeal (AT) (Insolvency) No. 1334 of 2024 dated 26.11.2024 and submitted that it was held that share application pending allotment does not constitute financial debt. The Ld. Counsel for the CD argued that the said judgement being the latest judgment delivered by three-member bench of the Hon’ble NCLAT, commands binding precedential value and cannot be disregarded on the ground of having been rendered per incuriam.

The relevant portion of the said judgment is reproduced hereunder:

A perusal of the above paragraphs reflects that in the Murlidhar Vincom matter the CD had not issued any private placement offer to the appellant and there was no evidence of any valid concluded agreement between the two parties with respect to the allotment of shares and therefore the amount so advanced was not treated as the amount in response to the private placement offer. Hon’ble NCLAT held that Rule 2 of CADR Rules envisages that only if the amount is received pursuant to any private placement offer made in accordance with the provisions of Companies Act, 2013 and no shares are allotted qua the said amount, only then the sum becomes a deposit. Hon’ble NCLAT further held that since the amount advanced cannot be related to section 42 of the Companies Act, the applicability of section 42 (6) cannot be pressed as was being pressed by the Appellant in that case.

In the said judgment Hon’ble NCLAT also referred to the Kushan Mitra Judgment, however, it held that as the said judgment was challenged before the Hon’ble Supreme Court of India in Shobori Ganguly vs. Amit Goel and others in Civil Appeal No. 4333 of 2022 and a stay had been put on the said judgment, the said judgment could not come to the aid of the appellant in the said matter.

At this stage, we find that the Kushan Mitra judgment supra which was challenged before the Hon’ble Supreme Court of India in Shobori Ganguly Vs Amit Goel and Ors. in Civil Appeal Diary No. 4333 of 2022 now Civil Appeal No. 2661 of 2022 with Civil Appeal No. 2662 of 2022 were disposed of on 29.07.2025 in view of the settlement agreement arrived at between the parties in that case. Therefore, the stay of the order of Kushan Mitra supra in the Civil Appeal No. 2661 of 2022 with Civil Appeal No. 2662 of 2022 ceases to exist.

After considering the judgment in the matter of Murlidhar Vincom, we are of the view that the above case is based on distinguishable facts. It is seen that in Murlidhar Vincom matter there was no determination by the ROC or RD under Section 42(6) and 42(10) of the Companies Act, 2013. In addition, in the present case Ld. ROC vide order dated 01.05.2023 has adjudicated as under,

The said order was taken in appeal before Ld. RD who vide order dated 04.01.2024 has ordered as under: -

It may be seen from the above that in the present case the order passed by Ld. ROC as well as by Ld. RD is under sub-section (10) of Section 42 of the Companies Act, 2013 and the said sub-section is applicable when a company makes an offer or accepts money in contravention of section 42, besides making liable the company, its promoter and directors for penalty, the said sub-section imposes an obligation on the Company to refund all monies with interest as specified in sub-section 6 (i.e. at the rate of 12% p.a.) to subscribers within a period of 30 days of the order imposing the penalty. As such, the said sub-section covers a situation where a company has raised money in contravention of section 42, which includes contravention of sub-section (3) i.e. where the share Application money is raised without issue of a private placement offer. Sub-section (10) of section 42 is again reproduced hereunder:

In the Murlidhar Vincom judgment, Hon’ble NCLAT has considered whether the share application money pending allotment received not in responses to a private placement offer can be treated as a deposit under the CADR Rules, and whether Section 42 (6) of the Companies Act, 2013 will be applicable. Hon’ble NCLAT based on the same held that the said amount of share application money is not to be treated as a deposit under the CADR Rules, and therefore, section 42(6) will not be applicable. However, the case of the Applicant is based on orders made by the ROC as well as the Ld. RD, who have directed the CD to refund the share application money along with interest. The said order has been made under section 42(10) and not under section 42(6) of the Companies Act. Sub-section (6) of Section 42 deals with a situation where shares are not allotted within the time period of 60 days from the date of receipt of share application money, which is received pursuant to an offer or invitation made under section 42. However, section 10 of sub section 42 deals with a situation where share application money in contravention of section 42 i.e. the same is received not pursuant to any private placement offer. In our view, therefore, the Murlidhar Vincom judgment will not be applicable in the present case and that the judgment passed by the Hon’ble NCLAT in Kushan Mitra matter will apply and according to the same the share application money refundable along with interest at the rate of 12% p.a. under section 42(10) of the Companies Act, 2013 qualifies to be a “Financial Debt” as it has the essential element of consideration for the time value money. Further, in line with the reasoning given by Hon’ble NCLAT in the Kushan Mitra judgment, as per section 42(10) of the Companies Act, the share application money assumes the character of a debt after it becomes refundable as per the said section.

The CD had raised the contention that the CD has filed Writ Petition No. 5201 of 2024 in the matter of NV Autospares Pvt. Ltd. vs. The Regional Director, Western Region, Ministry of Corporate Affairs, Mumbai and Ors, before the Hon'ble High Court of Judicature at Bombay, inter alia, challenging the order dated 04.01.2024 passed by the RD. The Hon’ble High Court of Bombay vide order dated 29.05.2024 has not stayed the above actions of order of RD and has merely stated as follows,

As such Hon’ble Bombay High Court has vide the above order granted an ad-interim stay to clause 15(a) of the order of Ld. RD dated 04.01.2024, which relates to the payment of Adjudication Fee modified by the Ld. RD to Rs. 4,00,000/-, subject to deposit of the said amount 4 lakh with the Hon’ble Court within a period of four weeks. However, there is no stay in regard to the clause 15(b) of the said order of Ld. RD, which relates to the refund of share application money amounting to Rs. 13.92 crores along with interest at the rate of 12% as per the provisions of section 42(10) of the Companies Act, within 30 days from the date of receipt of the order of CD by the Company. In regard to the said clause, however, Hon’ble High Court has granted liberty to the petitioner company to move before the Hon’ble High Court in case recovery of the share application money is pressed.

The Respondent/CD has not brought on record any documents to show that it has moved before the Hon’ble Bombay High Court in regard to the filing of the present Petition under the provisions of IBC, nor it has brought any order of Hon’ble High Court on record to demonstrate that the Hon’ble Bombay High Court has passed any stay order on the present proceedings. Moreover, Hon’ble Supreme Court of India has in a number of matters including in the recent judgment in the matter of HPCL Bio-Fuels Ltd. vs Shahaji Bhanudas Bhad (2024) ibclaw.in288SC, held that the object of initiation of insolvency proceedings under Code is to seek rehabilitation of the CD by appointment of a new management and that insolvency proceedings are fundamentally different from proceedings for recovery of debt such as a suit for recovery of money, execution of decree or claims for amount due under arbitration etc. The relevant portion of the said judgement is reproduced below:

The Hon’ble Supreme Court has in another matter i.e. in the matter of Jaypee Kensington Boulevard Apartments Welfare Assn. v. NBCC (India) Ltd., reported in (2022) 1 SCC 401 (which is also referred to in the HPCL Bio-Fuels judgment) held that the focus of IBC was more on ensuring the revival and continuation of the corporate debtor rather than mere recovery of the debt owed by the corporate debtor to its creditors. The relevant observations read as under: -

Therefore, from all the above observations, we find that the share application pending allotment, which has become refundable as per sub-section (10) of section 42 of the companies Act, 2013 is a “Financial Debt” under Section 5(8) of IBC 2016. Consequently, the Applicant is a ‘Financial Creditor’ under Section 5(7) of the Code. We also hold that the CD has committed a default with respect to the said “Financial Debt”.

The CD has further relied on the Hon’ble NCLAT in Pramod Sharma Vs. Karanaya Heartcare Pvt. Ltd. (Company Appeal (AT) (Insolvency) No. 426 of 2022) where the court had held that, unallotted share application money could not be classified as a financial debt under IBC as the principal amount was refunded to the Appellant and no interest was paid to the Appellant which inter alia did not transform into a deposit. This case is not applicable to the present case, as the Applicant has not received any amount from the CD and also there are orders of the RD and ROC which supports the Applicant’s case. In Rahul Maroo Vs. Bruck Pharma Pvt. Ltd. (Company Appeal (AT) (Insolvency) No. 1156 of 2022), it was held that, 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. This case is misplaced by the CD as the facts in the case are distinguishable as the Applicant in the instant case has advanced money to the CD and pursuant to which the CD has not allotted the shares to the Applicant. In the case of Mittson Fille Enterprise (acting through its partner, Mrs. Neha Choudhary Vs Sammaan Ventures Limited, (CP (IB) No. 147/KB/2023), Hon’ble NCLT Kolkata and; Naman Global Impex Private Limited Vs Rathod Pharmachem Private Limited, (CP (IB) 110/NCLT/AHM/2021), Hon’ble NCLT Ahmedabad, the courts in these cases have findings on the similar observations on the NCLAT judgments as has been referred and dealt above and therefore, it is the considered view that the NCLT judgments are also misplaced by the CD on similar grounds as stated above.

Further, the date of default mentioned in Part-IV of the Application as 06.02.2024 which has been disputed by the CD. The Applicant has calculated this date of default as 30 days from the date of order of the RD i.e., 04.01.2024.

We are of the view that from the date of order of the RD, the amount of Rs. Rs.1,20,71,271.42 as claimed in the present application has assumed the status of financial debt, which is in excess of Rs. 1 Crore, being the threshold amount under Section 4 of the Code.

The Applicant has proposed the name of M/s. DiMax Restructuring Pvt. Ltd. to act as the Interim Resolution Professional (IRP) and has given his declaration in Form 2, inter alia, stating that no disciplinary proceeding is pending against him. The Applicant has provided his valid AFA in Form B valid till 31.12.2025.

We find that the Applicant has fulfilled the requisites of Section 7 along with necessary documents to prove the disbursement and default and therefore, the Application is complete and deserve to be admitted.

We make it clear that at this stage we have not crystalized the amount as claimed in this Application, the same is left to be collated by the IRP.

In view of the aforesaid findings, Application bearing C.P.(IB) No. 222/MB/2025 filed under Section 7 of the Code by Mr. Sanjay Subhash Katira, the Financial Creditor, for initiating CIRP in respect of NV Autospares Private Limited, the Corporate Debtor is hereby admitted.

We further declare moratorium under Section 14 of the Code with consequential directions as mentioned below: -

I. We prohibit-

II. That the supply of essential goods or services to the Corporate Debtor, if continuing, shall not be terminated or suspended or interrupted during the moratorium period.

III. That the order of moratorium shall have effect from the date of this order till the completion of the CIRP or until this Tribunal approves the resolution plan under Section 31(1) of the Code or passes an order for the liquidation of the Corporate Debtor under Section 33 thereof, as the case may be.

IV. That the public announcement of the CIRP shall be made in immediately as specified under Section 13 of the Code read with Regulation 6 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and other Rules and Regulations made thereunder.

V. That this Bench hereby appoints DiMax Restructuring Private Limited, a registered Insolvency Professional Agency having Registration Number IBBI/IPE-0172/IPA-3/2024-2025/50087 and e-mail address info@dimax.in having valid Authorisation for Assignment up to 31.12.2025 as the IRP to carry out the functions under the Code.

VI. That the fee payable to IRP/RP shall be in accordance with such Regulations/Circulars/ Directions as may be issued by the IBBI.

VII. That during the CIRP Period, the management of the Corporate Debtor shall vest in the IRP or, as the case may be, the RP in terms of Section 17 or Section 25, as the case may be, of the Code. The officers and managers of the Corporate Debtor the Corporate Debtor is directed to provide effective assistance to the IRP as and when he takes charge of the assets and management of the Corporate Debtor. Coercive steps will follow against them under the provisions of the Code read with Rule 11 of the NCLT Rules for any violation of law.

VIII. That the IRP/IP shall submit to this Tribunal periodical reports with regard to the progress of the CIRP in respect of the Corporate Debtor.

IX. In exercise of the powers under Rule 11 of the NCLT Rules, 2016, the Applicant is directed to deposit a sum of Rs.3,00,000/- (Rupees Three Lakh) with the IRP to meet the initial CIRP cost arising out of issuing public notice and inviting claims, etc. The amount so deposited shall be interim finance and paid back to the Applicant on priority upon the funds available with IRP/RP from the Committee of Creditors (CoC). The expenses incurred by IRP out of this fund are subject to approval by the CoC.

X. A copy of this Order be sent to the Registrar of Companies, Maharashtra, Mumbai for updating the Master Data of the Corporate Debtor.

XI. A copy of the Order shall also be forwarded to the IBBI for record and dissemination on their website.

XII. The Registry is directed to immediately communicate this Order to the Applicant, the Corporate Debtor and the IRP by way of Speed Post, e-mail and WhatsApp.

XIII. Compliance report of the order by Designated Registrar is to be submitted today.