Prakash Ambure & Ors & Ors vs Invent Bio-Med Pvt Ltd

1. Prakash Ambure ...Appellant No.1

2. Rebecca Hillel Judah ...Appellant No.2

3. Esther Hillel Judah ...Appellant No.3

4. Aniket Enterprises ...Appellant No.4 Through its Proprietor, Aniket Ambure

5. Galaxy Minerals Supplier, ...Appellant No.5 Through its Proprietor, Judith S. Samuel

6. Polyesther, ...Appellant No.6 Through its Proprietor, Esther H. Judah

7. Chhaya Ambure ...Appellant No.7

8. Abhijit Minchem, ...Appellant No.8 Through its Proprietor, Abhijit Ambure

Vs

Invent Bio-Med Private Limited ...Respondent

(Arising out of Order dated 04.08.2023 passed by the Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court - II) in C.P. (IB) No. 4100/MB/2019) 2

For Appellant: Ms. Uttara Babbar, Sr. Advocate with Ms. Alpana Sharma, Ms. Rayana Mukherjee, Advocates For Respondent: Mr. Udai Chandani, Mr. Shivam Kumar, Ms. Upasana Singh, Advocates

JUDGEMENT

Per Justice N. Seshasayee, Member (Judicial)

Challenging an Order of the Adjudicating Authority (NCLT - II, Mumbai) dated

04.08.2023, dismissing a petition under Sec.7 IBC, and at any rate the right to

claim is barred by limitation, the purported financial creditor is now before us.

The issue in short is, if there exists a financial debt.

The Facts:

2. The material facts relevant for the current purpose are now stated:

a) Following the request of the corporate debtor- the respondent herein, the

appellant had invested a sum of Rs.55.0 lakhs in the former. That was

between February, 2015 and June, 2015. The payment and receipt of the

amount is not in dispute, since the transaction had taken place only

through bank-transfer of funds.

b) On 28.03.2015, appellant wrote to the respondent indicating therein that

certain proposal of the respondent was being considered, and that Rs.5.0

lakhs which the appellant had sent to the respondent was required to be

kept as a deposit.

c) The parties herein were on correspondence, and on 24.06.2015, the

appellant wrote to the respondent in which the former has inter alia Company Appeal (AT) (Ins) No.582 of 2024 3

indicated or instructed the latter that shares (for the value of Rs.55.0

lakhs) could be issued, "from the stock of unissued shares or by way of

transfer of shares by some existing shareholder/s ". On 05.09.2015, the

appellant addresses a letter to the respondent wherein the appellant

mentions that he was still awaiting, "Allotment and/or transfer of equity

shares of the company in the name of the persons who have deposited

amounts" as per the letters earlier issued, and that "the receipts issued (by

the respondent) do not bear the nature of the payment received". On

09.09.2015, the respondent e-mailed the appellant indicating therein how

it proposes to allot shares to the appellant's group. Necessary

authorization was also issued to the respondent on how to adjust the

funds let with it for appropriation towards share-price and in whose name

the share might have be issued.

d) The respondent, apparently has done precious little towards issue of

shares. In these circumstances, on 21.12.2016, the appellant had written

to the respondent to release the deposits made by the former. Then on

01.05.2017, the appellant had written to the respondent in which he had

underscored that "the above deposits, as of today have assumed the

character of unsecured deposits received by the company from general

public." As the "original plan to induct us as shareholders, has failed."

e) According to the appellant, there was change of director at the helm of

affairs of the respondent and that the new director of the respondent had

promised return of the deposit, which he has recorded in his

communication dated 07.10.2017 to the new director of the respondent.

Company Appeal (AT) (Ins) No.582 of 2024 4

f) Accordingly, what had commenced as an investment for purchase of

shares stood converted to deposit-amount, and this stands fortified by an

admission of the respondent in its trial balance for the financial year

ending 31.03.2018, wherein it has positively referred to the sum paid by

the appellant as deposit and figures in the Standalone financial Statement

of the MCA portal as 'long term liabilities'.

Since the respondent did not refund the deposit-amounts due to the appellant,

in September, 2019, he laid a petition to initiate a CIRP against the respondent.

3. The respondent's plea has been:

a) That the any amount paid towards purchase of shares would not

constitute financial debt;

b) Alternatively, if the same were presumed as financial debt, then applying

the timeframe as stipulated in Sec.42(6) of the Companies Act for return

of the share-subscription money consequent to non-allotment of shares,

time runs from payment of each of the instalment of amounts by the

appellant from January, 2015 to June 2015 (whereas the appellant claims

that the payments were made between February 2015 and June, 2015),

and it expires between January, 2018 and June, 2018. However, petition

is filed only in September, 2019.

4. To the plea of bar of limitation, the appellant would plead that the petition is

within time, since the respondent has acknowledged the deposit due to the

Company Appeal (AT) (Ins) No.582 of 2024 5

appellant in its trial balance for the year 2017-2018, and that the petition was

laid within three years therefrom.

Finding of the Adjudicating Authority

5. The Adjudicating Authority was persuaded by the plea of limitation and

dismissed the petition. Though in paragraph 10 of its Order where the

Adjudicating authority purports to detail the defence taken by the respondent, it

did touch upon the issue if share-purchase money would constitute a financial

debt, yet in the operative portion, it overlooked it and did not give a pointed

finding.

Arguments:

6. The arguments are predictable and they merely touched upon two aspects: (a)

whether the money initially invested by the appellant constituted a deposit as to

fall within the definition of financial debt under Sec.5(8) IBC; and if the petition

filed under Sec.7 is time barred.

7. The learned counsel for the appellant submitted while the initial intent that

could be gathered might indicate that appellant paid the money for acquiring the

shares of the respondent, the money so paid changed character when shares

were not allotted as promised, and it assumes the character of a deposit. What

is significant in the context of the facts of the present case is that there was a

meeting between the appellant and the new director of the respondent in

October, 2017, pursuant to which the appellant had written a letter dated Company Appeal (AT) (Ins) No.582 of 2024 6

07.10.2017 to the respondent wherein the appellant confirms what had been

agreed during the meeting. This is not disputed. And, what corroborates this

change of character of the money in the hands of the respondent, how it chose

to describe the same in its books. Indeed, in its trial balance for the year 2017-

2018, the respondent had shown the amount only as deposit. And if this with

interest is reckoned then it constitutes financial debt. And, inasmuch as the

respondent had acknowledged its liability in its trial balance in 2018, the petition

laid in September, 2019, under Sec.7 IBC is not time barred.

8. Per contra, relying on the ratio in Pramod sharma Vs Karanaya

Healthcare Pvt. Ltd., [C.A. (AT)(Ins) 426 of 2022], dated 21.04.2022 which was

relied on in M/s Muralidhar Vincom Pvt. Ltd., Vs M/s Skoda (India) Pvt.

Ltd., [C.A.(AT)(Ins) 1334 of 2024], dated 26.11.2024, the learned counsel for the

respondent submitted that the appellant had merely made investment to

purchase shares in the respondent when it was under the erstwhile management

and an investment for purchase of shares does not constitute a financial debt

within the meaning of Sec.5(8) of the Code and hence a proceeding under sec.7

of the IBC can neither be maintained nor sustained. The learned counsel then

proceeded to adopt the stands of the respondent vis-à-vis the point of limitation

which it adopted before the Adjudicating Authority.

Discussion & Decision

9. That the appellant has essentially made an investment for purchase of shares

in the respondent is established beyond debate, for the very correspondences

which the appellant had written to the respondent and which the appellant relies

Company Appeal (AT) (Ins) No.582 of 2024 7

on, themselves evidence it. For facts, refer to paragraph 2 above. At that time,

the respondent was under a different management. Then there was a change of

management, and according to the appellant, he had held discussion with the

new director of the respondent, and that he had confirmed what transpired in

that meeting in his letter dated 07.10.2017 and this was followed by the

acknowledgement of respondent's liability to the appellant in the trial balance of

the respondent as on 31.03.2018, where it was shown as deposits. And, the

respondent is particularly silent on this aspect.

10. Very evidently, the appellant aims at a rear-guard action, but it is not

without its fallacies. Is there a subsequent change of character of the money

which the appellant had paid the respondent as to bring it within the definition

of a financial debt? If the appellant's payment were to be treated as share-

subscription money, he straight away is driven beyond the IBC zone. If he were

to give it a colour of deposit, then it would stand excluded in terms of Rule 2(c)(vii)

of the Companies (Acceptance of Deposits) Rules, 2014. The point is how far the

trial balance of the respondent referred to earlier will be of use to the appellant?

It is true, the respondent goes silent on it in its pleading, but it may have least

impact since it will still stand excluded from the definition of deposit in terms of

Rule 2(c)(vii) of the Companies (Acceptance of Deposits) Rules, which positively

excludes share subscription amount from the definition of deposit. See:

Muralidhar Vincom case [C.A.(AT)(Ins) 1334 of 2024]. Therefore, even if there

is no pointed finding of the Adjudicating Authority as to the existence of a

financial debt, we have little hesitation in holding that there exists no financial

debt which may enable the appellant to invoke IBC.

Company Appeal (AT) (Ins) No.582 of 2024 8

11. With the gates of IBC closed for the appellant to seek entry into it, we consider

there is hardly any need to consider the point of limitation.

12. To conclude, we find no merit in the appeal, and accordingly we dismiss it.

No costs.

[Justice N. Seshasayee] Member (Judicial)

[Arun Baroka] Member (Technical)

[Indevar Pandey] Member (Technical) rs/beena

Company Appeal (AT) (Ins) No.582 of 2024