Insolvency and Bankruptcy Code, 2016. Payment received for shares, duly issued to a third party at the request of the payee, is not a financial debt. Application under Section 7 of the IBC is NOT maintainable. Supreme Court 7:8:2020.

M/s. Radha Exports (India) Pvt Ltd vs K.P. Jayaram and another, Civil Appeal 7474 /2019. Decided on 28 August 2020. Justice Arun Mishra & Justice Indira Banerjee. Judgment link: https://main.sci.gov.in/supremecourt/2019/33481/33481_2019_32_1502_23699_Judgement_28-Aug-2020.pdf

Held:  Para 43. The definition of ‘financial debt’ in Section 5(8) makes it clear that ‘financial debt’ means a debt along with interest, if any, disbursed against the consideration for time value of money and would include money raised or borrowed against the payment of interest; amount raised by acceptance under any acceptance credit facility or its de-materialised equivalent; amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; the amount of any liability in respect of any lease or hire purchase contract which is deemed as a finance or capital lease under the Indian Accounting Standards or such other accounting standards as may be prescribed; receivables sold or discounted other than any receivables sold on non-recourse basis or any amount raised under any other transaction, including any forward sale or purchase agreement, having the commercial effect of a borrowing. Explanation to Section 5(8) which relates to real estate projects is of no relevance in the facts and circumstances of this case. The payment received for shares, duly issued to a third party at the request of the payee as evident from official records, cannot be a debt, not to speak of financial debt. Shares of a company are transferable subject to restrictions, if any, in its Articles of Association and attract dividend when the company makes profits.

Compiled by: S.Basavaraj, Daksha Legal.