Rahul Maroo vs Bruck Pharma Private Limited

[Arising out of Order dated 06.07.2022 passed by the Adjudicating Authority (National Company Law Tribunal), Kolkata Bench, Kolkata in C.P.(IB) No.362/KB/2021]

In the matter of:

Rahul Maroo ....Appellant Vs.

Bruck Pharma Private Limited ...Respondent For Appellant: Mr. Naresh Jain, Mr. Akshay Jain, Mr. Alok Kumar, Ms. Lehar Jain, Advocates. For Respondent: Mr. Abhijeet Sinha, Mr. Saikat Sarkar, Mr. Siddharth Sharma, Mr. Arjun Asthana, Advocates

JUDGMENT

(10 th November, 2023)

Ashok Bhushan, J.

This Appeal has been filed against the order dated 06.07.2022 passed

by the Adjudicating Authority (National Company Law Tribunal), Kolkata

Bench, Kolkata, rejecting Section 7 application filed by the Appellant. The

Adjudicating Authority has held that there being no concluded contract

between the parties and there is no consideration for time value of money

there is no financial debt, Section 7 Application cannot be admitted.

Appellant aggrieved by the said order has come up in this Appeal.

2. Brief facts of the case to be noticed for deciding this Appeal are:- 2

2.1. Appellant transferred an amount of Rs.2.6 Crores to the Corporate

Debtor between 04.03.2017 to 18.05.2017. With regard to amount

transferred by the Appellant to the Corporate Debtor, different emails were

exchanged between the parties for execution of Memorandum of

Understanding, however, no concluded contract could be executed between

the parties. Exchange of e-mails took place between the parties from

November, 2017 till 09th April, 2018. Appellant sent a legal notice dated

02.08.2021 to the Corporate Debtor asking the Corporate Debtor to refund

the amount of Rs.2.6 Crore with interest. After the aforesaid notice, reply

was given on 11.08.2021 to the notice stating that the Appellant never gave

any advance or loan to the company. The Appellant thereafter filed a petition

under Section 7 on 13.11.2021. The Appellant in Section 7 Application claim

an amount of Rs.2.6 Crores as financial debt along with the interest of 24%.

Section 7 application was opposed by the Corporate Debtor. The

Adjudicating Authority by the impugned order dated 06.07.2022 dismissed

Section 7 application holding that the Appellant failed to prove the financial

debt. The Adjudicating Authority also observed that it cannot be said that a

sum of Rs.2.6 Crores is still outstanding from the Corporate Debtor.

Aggrieved by the order passed by the Adjudicating Authority, this Appeal

has been filed.

3. We have heard Shri Naresh Jain, Learned Counsel for the Appellant

and Shri Abhijeet Sinha, Learned Counsel for the Respondent.

4. Learned Counsel for the Appellant submits that an amount of Rs.2.6

Crores was given to the Respondent for allotment of share of Rs.2 Crore Comp. App. (AT) (Ins.) No. 1156 of 2022 3

against the investment made by the Appellant and rest Rs.60 Lakhs was to

be treated as unsecured loan. Respondent failed to allot shares to the

Appellant. The amount, thus, was repayable as per Section 42(6) of the

Companies Act, 2013 along with the statutory interest @12% per annum. It

is submitted that the amount has not been repaid till date. It is submitted

that the Adjudicating Authority committed error in making observations in

paragraph 27 of the judgment that no debt is due on the Corporate Debtor.

The said observations are without any basis and incorrect. Amount of Rs.2.6

Crores is still due. Before the Adjudicating Authority, it was contended that

an amount of Rs.2.6 Crores is to be adjusted from sale of summit unit

whereas the reply filed in this Appeal now the Corporate Debtor has

changed his stand and stating that the amount was paid to the Financial

Creditor through consolidated adjustment between the group entities. E-

mail dated 08.04.2018 has been relied by the Financial Creditor. It is

submitted that the share application money which is not refunded is a

financial debt.

5. Learned Counsel for the Appellant has relied on judgments of this

Appellate Tribunal in "Shakebuddin Irtebatuddin Khan vs. Qumruddin

Faizi & Anr.- Company Appeal (AT) (Ins.) No.209 of 2019", "Pramod

Sharma vs. Karanaya HeartCare Pvt. Ltd.- Company Appeal (AT) (Ins.)

No.426 of 2022". He has also relied on the Judgments in "Mr. Kushan

Mitra vs. Mr. Amit Goel, CMYK Printech Ltd.- 2021 (12) TMI 739" and

"Uniexcel Developers Pvt. Ltd. vs. Uniexcel Ltd.- 2019 (11) TMI 1699".

Comp. App. (AT) (Ins.) No. 1156 of 2022 4

6. Learned Counsel for the Appellant has also placed reliance on Section

42(10) of the Companies Act, 2013 as well as the Companies (Acceptances of

Deposit) Rules, 2014 to support his submission that amount advance by the

Appellant is a financial debt within the meaning of Section 5(8) of the IBC.

7. Learned Counsel for the Respondent refuting the submissions of the

Counsel for the Appellant submits that the amount as claimed by the

Appellant was never advance against any share application money. It is

submitted that Section 42 of the Companies Act, 2013 on which reliance

has been placed is not attracted. There has to be several statutory

compliances before issuance of shares on private placement basis. The

issuance of private placement offer by the Corporate Debtor is essential to

attract Section 42 and at no point of time, Corporate Debtor has issued any

private placement offer. There has to be Board Resolution and Special

Resolution of the Corporate Debtor for issuance and allotment of shares on

preferential basis/private placement basis. Several statutory compliances

including submission of relevant forms are necessary which having never

done, Section 42 is not attracted. Appellant has failed to place on record any

piece of evidence to prove that the sum of Rs.2.6 Crores were deposited as

Share Deposit Money. Appellant has himself admitted in his application

under Section 7 that there was no valid concluded agreement between the

parties with respect to allotment of shares as the parties could not agree on

valuation of shares to be allotted as has been pleaded in Section 7

application itself. Judgments relied by the Counsel for the Appellant are not

relevant since present is not a case of payment of share allotment money as

Comp. App. (AT) (Ins.) No. 1156 of 2022 5

per Section 42. It is submitted that the money of Rs.2.6 Crores has been

refunded and duly repaid to the Corporate Debtor, details of which has

already been brought by the Corporate Debtor in Supplementary Affidavit

filed on 10.04.2023. The amount has been adjusted by payment to several

group companies which were owned by the Appellant's brother and father.

8. We have considered the submissions of the Counsel for the parties

and perused the record.

9. Between the parties, the payment of amount of Rs.2.6 Crores is not

disputed. Appellant has made the aforesaid payment to the Corporate

Debtor between the period as detailed in Section 7 Application. Appellant

himself in the Appeal has annexed several correspondences between the

parties sharing of draft MoU and revised draft MoU between the parties.

Several e-mails were exchanged between the parties, however, ultimately no

agreement could be executed between the parties. In Part-IV of Section 7

application filed by the Appellant, Appellant himself has made following

statement:-

"Since Corporate Debtor and Financial Creditor could not agree on the valuation of shares to be allotted, they mutually decided to treat the entire investment of Rs.2,60,00,000/- as financial assistance which would be repaid."

10. The above statement indicates that the parties could not mutually

agree, however, the statement of the Appellant that entire investment of

Comp. App. (AT) (Ins.) No. 1156 of 2022 6

Rs.2.6 Crores was pleaded as financial assistance was never accepted by the

Corporate Debtor.

11. When we look into the correspondences between the parties, which

was part of the record of the Appeal, it is clear that several options was

communicated to the Appellant including share in the profit or to pay the

substantial amount to take the entire management. The principal

submission of the Counsel for the Appellant is that the said amount was

advanced by the Appellant as Share Application Money and by virtue of

Section 42 of the Companies Act, 2013, the said amount was required to be

refunded with interest and on failure of the said amount, the said amount

will become deposit and a financial debt.

12. Counsel for the Appellant has relied on Section 42 of the Companies

Act, which is to the following effect:-

"42. Offer or invitation for subscription of securities on private placement-

xxx xxx xxx (6) A company making an offer or invitation under this section shall allot its securities within sixty days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within fifteen days from the date of completion of sixty days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at

Comp. App. (AT) (Ins.) No. 1156 of 2022 7

the rate of twelve per cent. per annum from the expiry of the sixtieth day:

Provided that monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than--

(a) for adjustment against allotment of securities; or (b) for the repayment of monies where the company is unable to allot securities xxx xxx xxx

(10) If a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount involved in the offer or invitation or two crore rupees, whichever is higher, and the company shall also refund all monies to subscribers within a period of thirty days of the order imposing the penalty."

13. Counsel for the Appellant has also relied on Companies (Acceptance of

Deposit) Rules, 2014 where in Rule 2(c) 'deposit' has been defined as

follows:-

"(c) 'deposit' includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include-

(i) any amount received from the Central Government or a State Government, or any amount received from any other source whose repayment is guaranteed by the Central Government or a State Government, or any

Comp. App. (AT) (Ins.) No. 1156 of 2022 8

amount received from a local authority, or any amount received from a statutory authority constituted under an Act of Parliament or a State Legislature:

(ii) any amount received from foreign Governments, foreign or international banks, multilateral financial institutions (including, but not limited to, International Finance Corporation, Asian Development Bank, Commonwealth Development Corporation and International Bank for Industrial and Financial Reconstruction), foreign Governments owned development financial institutions, foreign export credit agencies, foreign collaborators, foreign bodies corporate and foreign citizens, foreign authorities or persons resident outside India subject to the provisions of Foreign Exchange Management Act, 1999 (42 of 1999) and rules and regulations made there under;

(iii) any amount received as a loan or facility from any banking company or from the State Bank of India or any of its subsidiary banks or from a banking institution notified by the Central Government under section 51 of the Banking Regulation Act, 1949 (10 of 1949), or a corresponding new bank as defined in clause

(d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) or in clause (b) of section (2) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or from a co-operative bank as defined

Comp. App. (AT) (Ins.) No. 1156 of 2022 9

in clause (b-li) of section 2 of the Reserve Bank of India Act, 1934 (2 of 1934):

(iv) any amount received as a loan or financial assistance from Public Financial Institutions notified by the Central Government in this behalf in consultation with the Reserve Bank of India or any regional financial institutions or Insurance Companies or Scheduled Banks as defined in the Reserve Bank of India Act. 1934 (2 of 1934):

(v) any amount received against issue of commercial paper or any other instruments issued in accordance with the guidelines or notification issued by the Reserve Bank of India;

(vi) any amount received by a company from any other company;

(vii) any amount received and held pursuant to an offer made in accordance with the provisions of the Act towards subscription to any securities, including share application money or advance towards allotment of securities pending allotment, so long as such amount is appropriated only against the amount due on allotment of the securities applied for.

Explanation.- For the purposes of this sub-

clause, it is hereby clarified that -

(a) Without prejudice to any other liability or action, if the securities for which application money or advance for such securities was received cannot be allotted within sixty days Comp. App. (AT) (Ins.) No. 1156 of 2022 10

from the date of receipt of the application money or advance for such securities and such application money or advance is not refunded to the subscribers within fifteen days from the date of completion of sixty days, such amount shall be treated as a deposit under these rules.

[Provided that unless otherwise required under the Companies Act, 1956 (1 of 1956) or the Securities and Exchange Board of India Act, 1992 (15 of 1992) or rules or regulations made thereunder to allot any share, stock, bond, or debenture within a specified period, if a company receives any amount by way of subscriptions to any shares, stock, bonds or debentures before the 1st April, 2014 and disclosed in the balance sheet for the financial year ending on or before the 31st March, 2014 against which the allotment is pending on the 31 March, 2015, the company shall, by the 1st June 2015, either return such amounts to the persons from whom these were received or allot shares, stock, bonds or debentures or comply with these rules.]

(b) any adjustment of the amount for any other purpose shall not be treated as refund................"

14. Sub-rule (vii) of Rule 2 (c) has been relied along with the explanation.

When we look into the Section 42 of the Companies Act, 2013 there are

several statutory requirements by the Company for making a private Comp. App. (AT) (Ins.) No. 1156 of 2022 11

placement of securities. Section 42 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 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. Amount of Rs.2.6 Crores which was advanced by the Appellant

cannot be treated to be amount in response to the private placement. When

the amount advanced cannot be related to Section 42, the applicability of

Section 42(6) cannot be pressed as is being sought by the Appellant in the

present case. Similarly, Rule 2(vii) of the Companies (Acceptance of Deposit)

Rules 2014 and its explanation are not attracted. Rule 2(vii) contemplates

any amount received and held pursuant to an offer made in accordance with

the provisions of the Companies Act, 2013. No proof of any offer made in

accordance with the provisions of the Companies Act, 2013 by the Company

having brought on record Rules itself cannot be held applicable.

15. Learned Counsel for the Appellant has placed reliance on the

judgments as noted above to support his submission that the Share

Application Money should be considered as disbursement against

Comp. App. (AT) (Ins.) No. 1156 of 2022 12

consideration for time value of money and be treated as financial debt within

the meaning of Section 5(8). The above judgment cannot come to any aid of

the Appellant since Appellant has failed to prove that an amount of Rs.2.6

Crores advanced by him to the Corporate Debtor was against any offer made

by the company for private placement of shares. Counsel for the Appellant

has also submitted that the judgment of this Tribunal in "Pramod Kumar

Sharma" (supra) is not applicable. We need not enter into the above

submission since we have already held that an amount of Rs.2.6 Crores was

not towards any offer for private placement.

16. Counsel for the Appellant has contended that the finding returned by

the Adjudicating Authority in paragraph 27 or the judgment that no

financial debt is due is erroneous. In paragraph 27 of the judgment,

Adjudicating Authority made following observations:-

"27. In the present case, the financial assistance has been given without any agreement and there is no consideration for time value of money for the said amount. It is also evident from the email dated 9th April, 2018 that the Financial Creditor has agreed that the said sum of Rs. 2.60 Crores would be adjusted by sale of Summit Units /Flats. This is a completely different arrangement which has been suppressed by the Financial Creditor in the company petition. It cannot be said that a sum of Rs.2.60 Crores is still outstanding from the Corporate Debtor to the Financial Creditor. In this summary proceeding, it is not possible for this Tribunal to go on a fact finding roving enquiry. As Comp. App. (AT) (Ins.) No. 1156 of 2022 13

such, it can easily be presumed that as on this day there is no financial debt within the meaning of Section 5(8) of the IBC, 2016."

17. In paragraph 27, the Adjudicating Authority has referred to the e-mail

dated 09.04.2018. E-mail dated 09.04.2018 has been brought on the record

as Annexure A-13 to the Appeal along with the e-mail attachment was there

where under the heading 'further course of action', following was stated:-

"Further course of action.

(a) Shri Maroo ji to take complete project as top management and pay Rs. 30 Crores to Shri Kejriwal ji and own up bank liability -Please clarify what is meant by take over and elaborate on this point.

(b) Shri Kejriwal ji to repay 2.70 lakhs assistance given by Shri Maroo ji. This amount can come out of sale of Summit units. We had paid up for doing business and to grow capital and the same wasn't meant to be a mere interim capital, as any capital has opportunity cost attached to it."

18. Counsel for the Appellant is right in his submission that what was

observed in the aforesaid e-mail and the attachment was that the amount

can come out of the sale of summit units and then to be paid to the

Appellant. The said e-mail cannot be read to mean that the amount has

been paid and debt has been liquidated, even the Adjudicating Authority

notices that the Financial Creditor has agreed that the said sum of Rs.2.6

Crores could have been adjusted by sale of summit units. Adjudicating

Authority further made observations that this is a completely different Comp. App. (AT) (Ins.) No. 1156 of 2022 14

arrangement which has been suppressed by the Financial Creditor. Any e-

mail that amount shall be adjusted subsequently can in no manner effect

the debt so long as it remains due. We are of the view that the observations

made against the Appellant by the Adjudicating Authority in paragraph 27

are not correct.

19. Counsel for the Appellant is right in his submission that in reply filed

by the Corporate Debtor in this Appeal now they are stating that the amount

of Rs.2.6 Crores has been adjusted of all accounts between the parties and

its group companies and entities. In paragraph 15 of the reply of the

Corporate Debtor, following has been stated:-

"15) I say that the Appellant suppressed the fact of adjustment of the entire sum of Rs.

2,60,00,000/- (Rupees Two Crore and Sixty Lakh only) by virtue of various financial adjustments entered into between the parties herein and also to the associate and group companies of the Appellant and his family members. I say that the Appellant has suppressed the material facts and events with respect to the various verbal discussions held between the parties whereafter it was mutually agreed and decided that the said sum of Rs. 2,60,00,000/- (Rupees Two Crore and Sixty Lakh only) shall be adjusted towards numerous group companies and entities owned and controlled by the Appellant. I say that the various financial adjustments also take into account numerous payments made by the Respondent and its associate companies, to the Comp. App. (AT) (Ins.) No. 1156 of 2022 15

Appellant and its group companies. Thus, in light of the agreement between the parties, consolidated adjustment of all the accounts between the parties and its group companies and entities were held. I say that while the Respondent has adjusted all the sums payable to the Appellant amounting to Rs. 2,60,00,000/- (Rupees Two Crore and Sixty Lakh only), the Appellant and its group and associate companies are still liable and obligated to make payment to the tune of Rs. 1,70,00,000/-(Rupees One Crore and Seventy Lakh only). I crave leave to place on record ledgers, notices and account statements of with respect to the consolidated adjustment of accounts as and when directed by this Hon'ble Appellate Tribunal."

20. The Corporate Debtor, thus, is not supporting the observations of the

Adjudicating Authority that an amount of Rs.2.6 Crores has to be paid from

sale of summit units and now the new theory is being propounded that the

said amount is paid and adjusted. We are of the view that the finding of the

Adjudicating Authority in paragraph 27 that no financial debt is due is

unsustainable. Further, the finding of the Adjudicating Authority is "it can

easily be presumed that as on this day there is no financial debt within the

meaning of Section 5(8) of the IBC, 2016", which finding is based only

surmises and conjecture. There being no material on the record to indicate

that an amount of Rs.2.6 Crore was paid to the Appellant, we, thus, are of

the view that the paragraph 27 of the impugned order passed by the

Adjudicating Authority deserves to be deleted.

Comp. App. (AT) (Ins.) No. 1156 of 2022 16

21. We make it clear that we have not expressed any opinion as to

whether amount of Rs.2.6 Crores was repaid to the Appellant or not. The

said issue can be dealt and decided in appropriate proceedings in

accordance with law.

22. In result, the Appeal is disposed of in following manner: -

(i) Paragraph 27 of the order of the Adjudicating Authority dated

06.07.2022 is deleted.

(ii) The order of the Adjudicating Authority rejecting Section 7

Application is upheld.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

New Delhi Anjali

Comp. App. (AT) (Ins.) No. 1156 of 2022