Matter: Kushan Mitra v. Amit Goel & Anr.
Order dated: 16 December 2021
Summary:
In the present case, allotment of equity shares on preferential basis by Private Placement Offer was done and subsequently revoked, but the share application money was not returned to Mr. Amit Goel. On an application filed by Mr. Amit Goel, the NCLT initiated CIRP against CMYK Printech Limited holding that the share application money amounts to an outstanding loan. The order of the NCLT was challenged before the NCLAT.
The main issue under consideration before the NCLAT was;
(a) whether ‘share application money’ can be treated as ‘loan/debt’ in the event of non-allotment of shares and whether such an amount falls under the definition of ‘financial debt’ under the Code? and
(b) whether accrual of interest as per company law, be construed as ‘consideration for time value of money’, to qualify the requirement of ‘’financial debt’’.
NCLAT noted that as per law, if the shares are not allotted within sixty days of receiving the share application money, and if the refund does not take place within fifteen days form the expiry of the sixty 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 sixtieth 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 Although the amount was initially paid towards shares, since the allotment was revoked, the equity did not materialise.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, the amount has statutorily been given the character of loan with interest. Accordingly, it qualifies under the definition of ‘financial debt’ as per the Code. Therefore, the NCLAT upheld the NCLT’s order.
For further information, please contact:
Souvik Ganguly, Partner, Acuity Law
al@acuitylaw.co.in
