Murlidhar Vincom Pvt. Ltd. v. Skoda (India) Pvt. Ltd. (2024)
Facts
From 2009 to 2014, Murlidhar Vincom Pvt. Ltd. (Appellant) made investments in the form of “Share Application Money” in Skoda (India) Pvt. Ltd. (Corporate Debtor).
Initially, equity shares amounting to ₹6.98 Lakh were issued, followed by additional investments of ₹1.32 Crore, yet no shares were issued in return.
Skoda (India) Pvt. Ltd. paid back ₹40 Lakh but later sought additional payments of ₹79 Lakh to resolve a liquidity issue. They did not issue shares against the payment or repay the remaining ₹92 Lakh.
Claiming the payment was a financial obligation, the Appellant issued a demand notice under the Companies Act, 2013 with a request to settle the payment with interest, which was ignored.
Murlidhar Vincom submitted a Section 7 application under the IBC 2016, initiating a Corporate Insolvency Resolution Process (CIRP) which Skoda termed as “share application money.”
Issues
Does the unallotted share application money qualify as “financial debt” as defined under Section 5(8) of IBC?
Is there a default on repayment by the Company, thus allowing the BAR to initiate CIRP?
What are the legal consequences of not issuing shares within the statutory timeframe as per Companies Act 2013?
Contentions
The unallotted share application money which appellant claimed was a financial debt owed by the company Skoda (India) Pvt.
Respondent argued share application money is not a form of financial debt within the scope of the Insolvency and Bankruptcy Code.
It was noted that the Code and its settled laws do not consider share application money as financial debt in the absence of share allotment.
Judgements
In the matter of application of financial debt under IBC Pramod Sharma v. Karanaya Heart Care Pvt. Ltd. (2022) was cited as a precedent and the New Delhi Bench of NCLT on March 22, 2024, awarded the application of section 7 and in its judgement noted that share application money is not financial debt of the IBC.
NCLAT (November 26, 2024) affirmed the decision and added as unallotted share application money there is no consideration for the time value of money and no statutory compliance for debt.
The tribunal noted that under CIRP claims were not allowed and the petitioner must seek a remedy under Companies Act for repayment.
The court recognized the importance of distinguishing real financial equity from something that is meant to disguise a loan.
My View
Judgement reflects distinction between true equity infusions and financial debt in the context of insolvency proceedings. It shores up the misuse of the insolvency framework by equity injections that present themselves as debt, in scenarios where there is a statutory non-compliance of share allotment rules. The dismissal directs claimants towards the right statutory processes.
The case clarifies that unallotted share application money in private companies cannot be treated as financial debt under IBC if statutory compliance is absent and the consideration for time value of money is missing. Consequently, CIRP under Section 7 of IBC is not maintainable in such scenarios, and affected parties must seek other legal remedies for repayment and relief.
Q1. What is the case of Murlidhar Vincom v. Skoda (India) Pvt. Ltd. (2024) about?
This case deals with whether unallotted share application money can be treated as “financial debt” under Section 5(8) of the Insolvency and Bankruptcy Code (IBC), thereby enabling initiation of Corporate Insolvency Resolution Process (CIRP).
Q2. What were the facts of the case?
Murlidhar Vincom Pvt. Ltd. invested money in Skoda (India) Pvt. Ltd. as share application money. Some shares were issued initially, but later large amounts remained unallotted. The company also failed to repay most of the money, leading the appellant to file under Section 7 of IBC.
Q3. What was the main legal issue?
The central issue was whether unallotted share application money qualifies as “financial debt” under the IBC and whether non-repayment constituted a default enabling CIRP.
Q4. What did the NCLT decide?
On March 22, 2024, the NCLT, New Delhi, held that share application money does not qualify as financial debt under IBC and rejected the Section 7 application.
Q5. What was the NCLAT ruling in this case?
On November 26, 2024, the NCLAT upheld the NCLT decision, reasoning that unallotted share application money does not involve consideration for the time value of money, hence cannot be treated as financial debt.
Q6. What precedent was cited in this case?
The tribunal referred to Pramod Sharma v. Karanaya Heart Care Pvt. Ltd. (2022), which similarly clarified that share application money is not financial debt.
Q7. Why is share application money not considered financial debt?
Because financial debt under IBC must involve disbursement against consideration for time value of money. Share application money represents an intent to acquire equity, not a loan or borrowing.
Q8. What is the significance of this judgment?
The case draws a clear distinction between equity investment and financial debt. It prevents misuse of IBC by investors trying to recover unallotted share application money through insolvency proceedings instead of remedies under the Companies Act.
Q9. What legal remedy is available to investors in such cases?
Investors must seek remedies under the Companies Act, 2013 for refund of unallotted share application money, rather than filing for insolvency under Section 7 IBC.
Q10. Why is this case important for law students and practitioners?
It clarifies the scope of “financial debt” under IBC, reinforces the principle of time value of money, and highlights the limits of insolvency law in disputes involving share application money.
Award-Winning Article Written By: Ms.Shameksha Raghavan
