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The Tax Publishers I&B Code Provisions Not Invokable for Recovery of Sum Advanced for Shares Purchase T.N. Pandey This article is based on the findings and discussion in a recent NCLT Delhi decision. In this case petitioner is a partnership firm, which approached NCLAT with a prayer to initiate Corporate Insolvency Resolution Process in the matter of the Respondent company. The Petitioner claimed to be a financial creditor and described the company-Respondent - as corporate debtor. The petitioner under an agreement with respondent corporate debtor paid Rs. 2.5 crores for purchase of the respondent company's shares. The petitioner claimed that shares had not been issued and share subscription money became a debt and payable with interest, therefore, Corporate Insolvency Resolution Process deserved to be initiated. An important fact was that the petitioner was not a registered firm till the date of making payment but got itself registered subsequent thereto. It was held that the subscription money advanced for purchase of shares did not fall within the definition of expression 'Financial Debt'. Observing that allotment could not be made to an un-registered partnership firm, it was finally concluded that insolvency and Bankruptcy Code provisions cannot be invoked for recovery of any sum advanced towards purchase of shares. 1. Introduction No legislation has been so popularly adopted concerning debts recovery as the Insolvency and Bankruptcy Code, 2016 (Act No. 31 of 2016) (IBC-for short) since its enactment, though all the provisions of IBC did not come into force simultaneously. The Benches of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) are flooded with cases relating to IBC. More than 5,000 proceedings are reported to have already been initiated under this Code. 2. Why IBC? The Preamble to the IBC shows that is an act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

I&B Code Provisions Not Invokable for Recovery of Sum Advanced for Shares Purchase

T.N. Pandey

This article is based on the findings and discussion in a recent NCLT Delhi decision. In this case petitioner is a partnership firm, which approached NCLAT with a prayer to initiate Corporate Insolvency Resolution Process in the matter of the Respondent company. The Petitioner claimed to be a financial creditor and described the company-Respondent - as corporate debtor. The petitioner under an agreement with respondent corporate debtor paid Rs. 2.5 crores for purchase of the respondent company's shares. The petitioner claimed that shares had not been issued and share subscription money became a debt and payable with interest, therefore, Corporate Insolvency Resolution Process deserved to be initiated. An important fact was that the petitioner was not a registered firm till the date of making payment but got itself registered subsequent thereto. It was held that the subscription money advanced for purchase of shares did not fall within the definition of expression 'Financial Debt'. Observing that allotment could not be made to an un-registered partnership firm, it was finally concluded that insolvency and Bankruptcy Code provisions cannot be invoked for recovery of any sum advanced towards purchase of shares.

1. Introduction

No legislation has been so popularly adopted concerning debts recovery as the Insolvency and Bankruptcy Code, 2016 (Act No. 31 of 2016) (IBC-for short) since its enactment, though all the provisions of IBC did not come into force simultaneously. The Benches of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) are flooded with cases relating to IBC. More than 5,000 proceedings are reported to have already been initiated under this Code.

2. Why IBC?

The Preamble to the IBC shows that is an act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.