The article is written by Adv. Siddhant Jain.

In the case of Pramod Sharma v. Karanaya HeartCare Pvt. Ltd., the Appellant provided Rs. 1,03,00,000/- as share application money to the Respondent, but no shares were allotted in return. Although the principal amount was later refunded, no interest was paid, leading the Appellant to claim that the money had transformed into a deposit and, as such, filed an application under Section 7 of the Insolvency and Bankruptcy Code (IBC), 2016. The central issue was whether the unallotted share application money could be classified as a financial debt under the IBC. The Adjudicating Authority ruled that it could not, and therefore, the Appeal was dismissed, holding that the transaction did not meet the criteria for triggering the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC.

Pramod Sharma V. Karanaya Heart Care Pvt. Ltd.

Facts:

1. The Appellant provided Rs. 1,03,00,000/- as Share Application Money to the Respondent.
2. No shares were allotted in exchange for this money.
3. The principal amount was subsequently returned to the Appellant, but no interest was paid.
4. The Appellant argued that the money became a deposit due to the non-allotment of shares and, therefore, filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016.

Issue

• The primary issue was whether the Share Application Money could be treated as a financial debt under the Insolvency and Bankruptcy Code, 2016.

Conclusion

• The Adjudicating Authority concluded that the Share Application Money, which was not allotted as shares, does not qualify as a financial debt. Therefore, the Appellant cannot trigger the Corporate Insolvency Resolution Process under Section 7 of the Insolvency and Bankruptcy Code, 2016.
• The Appeal was dismissed on the grounds that the nature of the transaction did not meet the criteria for a financial debt.

Read more Insolvency related articles at IBC Archives – Vakalat Today

Siddhant Jain

Meet Siddhant Jain, a lawyer who thrives in the wild world of Business and Commercial Law—where boardrooms are battlefields, mergers are puzzles, and corporate jargon is his second language. Whether it’s navigating the maze of company law, tackling securities regulations, or guiding businesses through the stormy seas of bankruptcy and insolvency, Siddhant has done it all.

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