NCLAT upholds order rejecting Sec 7 application as amount offered was not for shares, Read Judgement

01 Dec 2023

The NCLAT, New Delhi Bench opined that Section 42 of the Companies Act, 2013 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.

In the present case, there was no evidence to prove that the amount was in pursuance of the offer of private placement. However, it was observed that any e- mail that amount shall be adjusted subsequently can in no manner effect the debt so long as it remains due. It does not mean that the debt was paid and liquidated.

Brief Facts:

The present appeal has been filed against the order of the NCLT vide which application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) was rejected.

Brief Background:

The Appellant transferred some money to the Corporate Debtor and parties were communicating for execution of a Memorandum of Understanding, however, no concluded contract was reached.

The Corporate Debtor refused any advance or loan by the Appellant and hence, Section 7 Application was filed.

Contentions of the Appellant:

It was contended that the Appellant provided an unsecured loan and hence, the amount was repayable. It was argued that the amount is a financial debt as per Section 5(8) of the IBC.

Contentions of the Respondent:

It was argued that Appellant has failed to prove that the amount was deposited as share deposit money. Further, it was urged that the amount has already been adjusted by making payments to companies owned by Appellant’s brother and father.

Observations of the Tribunal:

It was observed that there was no agreement between the parties.

Further, it was noted that Section 42 of the Companies Act, 2013 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 was no evidence to prove that the amount was in pursuance of the offer of private placement.

However, it was noted that any e- mail that amount shall be adjusted subsequently can in no manner effect the debt so long as it remains due. It does not mean that the debt was paid and liquidated.

There was no record of Corporate Debtor paying the amount offered by the Appellant back and hence, it would be untrue to hold that there was no financial debt. Therefore, the order of the NCLT to the extent that amount is paid back was deleted.

The decision of the Tribunal:

Based on the aforementioned reasons, the order of the NCLT rejecting Section 7 Application was upheld, however, paragraph delaing with repayment was deleted.

Case Title: Rahul Maroo v. Bruck Pharma Private Limited

Case No.: Company Appeal (AT) (Insolvency) No. 1156/2022

Coram: Justice Ashok Bhushan (Chairperson), Barun Mitra (Technical Member)

Advocates for Appellant: Advs. Mr. Naresh Jain, Mr. Akshay Jain, Mr. Alok Kumar, Ms. Lehar Jain

Advocates for Respondent: Advs Mr. Abhijeet Sinha, Mr. Saikat Sarkar, Mr. Siddharth Sharma, Mr. Arjun Asthana