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Advance paid for purchase of shares of Corporate Debtor does not fall under definition of Financial Debt: NCLT

NCLT

National Company Law Tribunal, Mumbai: Mr. Prabhat Kumar* (Technical Member) and Mr. Kishore Vemulapalli (Judicial Member) held that the amount of advance paid for purchase of shares of the Corporate Debtor does not fall under the definition of Financial Debt which is defined under S. 5(8) IBC.

In the present matter, the Financial Creditor agreed to purchase 100% of share capital of the Corporate Debtor held by its Shareholders/promoters for a consideration of Rs. 4,50,00,000/- and paid an advance payment of Rs. 1,25,00,000 to the Corporate Debtor towards this transaction on 17-12-2014. On default of payment, the petitioner-Jushya Realty Private Limited, (the Financial Creditor) preferred a company petition under S. 7 IBC was preferred before the Adjudicating Authority seeking initiation of CIRP against the respondent/Ninety Properties Private Limited, (the Corporate Debtor).

The petitioner contended that the respondent failed to provide any documents to the advisors for carrying out the due diligence as mutually agreed at the time of entering in the transaction. On the other hand, the respondent denied the existence of any transaction for sale of shares of Corporate Debtor and contended that the petitioner is not the Financial Creditor as per the Code.

The Adjudicating Authority observed that from the perusal of Financial Statement of the Corporate Debtor for the year ended 31-03-2018, there is no dispute as to existence of the debt.

Relying on the definition of Financial Debt under S. 5(8) of IBC, the Adjudicating Authority observed that the amount of advance paid for purchase of shares of the Corporate Debtor does not fall under the definition of Financial Debt as it was not disbursed against the consideration for the time value of money. The Adjudicating Authority further observed that such advance also does not fall within the inclusive definition part as contained in clause (a) to (i).

The Adjudicating Authority opined that the petitioner is not a financial creditor in terms of S. 5(7) IBC as the amount in default is not a financial debt. Moreover, the present petition filed under S. 7 IBC is not maintainable because S. 7 IBC only provides filing of an application by a Financial Creditor.

The Adjudicating Authority dismissed the petition filed by the petitioner/ Financial Creditor seeking the initiation of CIRP against the Corporate Debtor.

[Jushya Realty (P) Ltd. v. Ninety Properties (P) Ltd., 2023 SCC OnLine NCLT 18, decided on 03-02-2023]

*Judgment by Mr. Prabhat Kumar (Technical Member)


Advocates who appeared in this case:

Mr. Shyam Kapadia, Counsel for the Petitioner;

Mr. Rohit Gupta, Counsel for the Respondent.

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