Uniexcel Developers Pvt. Ltd vs Uniexcel Ltd

Uniexcel Developers Pvt. Ltd. ...Appellant

Vs

Uniexcel Ltd. ....Respondent Present:

For Appellant: Mr. Abhijeet Sinha, Mr. Saurabh Kalia, Mr. Palash Agarwal, Mr. Kanesh Vadula and Mr. Saikat Sarka, Advocates For Respondent: Mr. Bhuvan Gugnani and Ms. Mythili Srinivasamurthy, Advocates

ORDER

26.11.2019 This appeal is preferred by Uniexcel Developers Private

Limited- Corporate Debtor against whom Uniexcel Limited- Financial Creditor

filed application under Section 7 of Insolvency and Bankruptcy Code, 2016 (IBC

in short) before the Adjudicating Authority (National Company Law Tribunal)

New Delhi-II in IB-403/ND/2019. The application has been dismissed on

25.07.2019 with liberty given to the Respondent- Financial Creditor to revive the

application, if in spite of Financial Creditor fulfilling formalities to get refund the

Corporate Debtor fails to refund.

2. Thus, this appeal has been filed by the Corporate Debtor mainly

challenging the last part of the impugned order in paragraph-11 of the impugned

order.

3. A few facts may be referred to understand the dispute. The Financial

Creditor claimed in Section 7 Application that they had remitted a sum of US $

Company Appeal(AT)(Insolvency) No. 962 of 2019 Page 1 of 6 124,000/- on 05.05.2008 and US $ 142,000/- on 22.09.2008 for issue of shares

in favour of the Respondent- Financial Creditor. The allotment of shares was put

on hold on the request of the Financial Creditor since an unforeseen dispute on

the project land was raised by NOIDA authority which become subject matter

before the High Court of Judicature at Allahabad. It is stated that on 27.04.2015

a letter was addressed to the Board of Directors of the Corporate Debtor wherein

it was pointed out that Mr. Ajit Kumar Gupta, Director of Corporate Debtor

agreed, subject to approval of Reserve Bank of India to refund of share

application money as reflected in the balance sheet of the Corporate Debtor as

on 31.03.2015. Once again another letter of request for refund of money dated

03.07.2015 was issued and there was default.

4. The Appellant- Corporate Debtor before the Adjudicating Authority

opposed the application raising ground that the money was sent for shares and

not for any other purpose and it was not automatically change colour or convert

particular transaction into loan. The Adjudicating Authority framed issues

regarding (1) limitation, (2) whether the claim can be categorized as financial

debt and (3) whether there was a default on behalf of Corporate Debtor in

payment of the amount claimed. Question of limitation was held in favour of the

Financial Creditor. Regarding second issue whether the share money could be

categorized as Financial debt, the Adjudicating Authority considered Companies

Act as well as Companies (Acceptance of Deposits) Rules, 2014 and concluded

in paragraph-10 of the impugned order as under:

.....

Company Appeal(AT)(Insolvency) No. 962 of 2019 Page 2 of 6

10. "It is clear from a reading of Section 42 of the Act and

the Deposit Rules that if the shares are not allotted within 60

days of the receipt of the money the share application money has

to be refunded and if the refund does not take place within 15

days from the expiry of the 60 days' time limit, then the share

application money will be treated as a deposit. On the non-

allotment of shares, after the expiry of the time limit of 75 (60+15)

days the share application money will be a deposit advanced to

the company, which has to be returned by the company at the

rate of 12% per annum from the expiry of the 60th day. The person

applying for the shares will get compensation for the time value

of the share application money given by him to the company,

which makes the money advanced a financial debt to be repaid

by the company. Thus, the Respondent's plea that the nature of

the money given will not change into a loan does not stand as

the Act itself allows such re-categorization. In the present case

the money was transmitted in 2008 and the allotment has not

been made till date, thus, the money transmitted is a deposit and

can be treated as a financial debt."

....

5. Thereafter the Adjudicating Authority in paragraph-11 which is mainly

disputed in this appeal has observed as under:

....

"11. However, the third issue cannot be answered in favour

of the Applicant as a perusal of the documents show that the

Company Appeal(AT)(Insolvency) No. 962 of 2019 Page 3 of 6 Respondent has been ready to refund the money after it receives

the required letter from the Applicant. Although the Applicant has

placed on record a letter dated 03.07.2015 signed by the

Applicant's representative, there is nothing to show that the said

letter was actually delivered to the Respondent. Even if it was

delivered by hand as claimed by the Applicant, there should

have been an acknowledgement of receipt by the Applicant on

the copy of the letter. In the absence of anything to show that the

delivery was actually made and that the Applicant has fulfilled

all its formalities, it cannot be said that it is the Respondent's

fault that the refund of the money has not been made. Allowing

this application in such circumstances would amount to allowing

the Applicant to take the benefit of its own wrong. Since the

Respondent is willing to refund the money even now provided

the procedure as prescribed by RBI as followed, the Applicant is

hereby directed to fulfil the formalities to get the refund, within

three months from the date of this order. If the Respondent fails

to refund the money, the Applicant has the liberty to revive this

application. Thus, the application is dismissed, with liberty to the

Applicant to revive the application if the refund is not made even

after the Applicant complies with the required formalities."

(Emphasis supplied)

6. It is clear from the above paragraphs of the impugned order that the

Adjudicating Authority came to the conclusion that the money has changed its

Company Appeal(AT)(Insolvency) No. 962 of 2019 Page 4 of 6 color to become Financial Debt. Adjudicating Authority found that the delivery

of letter dated 03.07.2015 (page 131 of the Paper Book) by which refund was

claimed has not been established and hence it held that although there was

claim, default had been proved.

7. Learned Counsel for the Appellant- Corporate Debtor is submitting that

no such order (as underlined - supra) could have been given by the Adjudicating

Authority once it came to the conclusion that default had not been proved.

Against this the learned Counsel for the Respondent - Financial Creditor is

claiming that direction was given since the Corporate Debtor had stated before

the Adjudicating Authority that it was willing to refund money.

8. What can be seen is that the offer made by the Corporate Debtor was

conditional in the sense that it stated that it was willing to refund money

provided the procedure prescribed by RBI is followed. Now, before us learned

Counsel for both the parties are trying to make submissions against each other.

While the learned Counsel for the Financial Creditor states that they made

demand and the learned Counsel for Corporate Debtor is submitting that the

demand is improper and Rules applicable under FEMA and RBI Act are required

to be followed.

9. We do not want to go into these necessities whether the application making

claim is properly made or whether the Appellant has justification for not

refunding the money. Once the Adjudicating Authority came to the conclusion

that default has not been proved, the only option it had was to reject the

application and the conditional offer could not have been gone into. We find that

Company Appeal(AT)(Insolvency) No. 962 of 2019 Page 5 of 6 the underlined portion of impugned order (referred supra) where it gives

directions to fulfil requirements and liberty to revive cannot be maintained. We

set aside the portion of the impugned order in paragraph-11 which reads:

"Since the Respondent is willing to refund the money even

now provided the procedure as prescribed by RBI as

followed, the Applicant is hereby directed to fulfil the

formalities to get the refund, within three months from the

date of this order. If the Respondent fails to refund the

money, the Applicant has the liberty to revive this

application."

The reasons and finding as recorded in paragraph -10 of the Impugned Order

regarding it being financial debt, is not agitated before us and we find no reason

to disturb the finding.

10. We are disposing this appeal with liberty to the Respondent - Financial

Creditor to take necessary steps (which were found wanting in paragrqaph-11 of

the Impugned Order) and it may file fresh application under Section 7 of IBC, if

so advised. In the circumstance, we keep question of limitation open for

consideration when such application is moved.

11. Disposed accordingly. No costs.

[Justice A.I.S. Cheema] Member (Judicial)

(Kanthi Narahari) Member(Technical)

(V P Singh) Member(Technical) Akc/Md

Company Appeal(AT)(Insolvency) No. 962 of 2019 Page 6 of 6