Advances Made By Shareholder After Lapse Of Shareholders Agreement Amount To 'Financial Debt': NCLT Mumbai

The National Company Law Tribunal (NCLT), Mumbai Bench, has admitted a Section 7 application filed by Euro Corporate Services Pvt. Ltd. against Royal Fantasy Constructions Pvt. Ltd. The bench comprising Judicial Member Sushil Mahadeorao Kochey and Member Technical Prabhat Singh has ruled that the advances made by the shareholder after the expiration of the shareholder agreement amount to a financial debt under Section 5(8) of the IBC, 2016. The section 7 application was filed by the Euro Corporate Services Pvt. Ltd., a shareholder and lender to Royal Fantasy Constructions Pvt. Ltd., for default on repayment of loans exceeding Rs. 2 crores. The corporate debtor pleaded that the amounts received from the petitioner were payable out of surplus received from the revenue generated from the Complex in terms of clause 4.6 of the Share Subscription cum Shareholder Agreement. The bench observed that the ledger account of the corporate debtor mentions the receipt of the money and repayment thereof. It also observed that the amount paid in the year 2021-22 cannot relate back to the 2010 Share Subscription cum Shareholder Agreement, which had stipulated that loans were to be paid before December 2010. Also, the books of account provide interest on these amounts and the tax deduction on such interest. Accordingly, the bench concluded that the amount so received was in the nature of the loan, and since the disbursement was for the time value of money, it constitutes financial debt within the meaning of section 5(8) of the IBC. Lastly, the bench observed that the non-payment of a part of the debt when it becomes due and payable will amount to default on the part of the corporate debtor, and an order under Section 7 of the IBC must be followed. Case Name: Euro Corporate Services Private Limited v. Royal Fantasy Constructions Pvt. Ltd. Case No.: CP (IB)/674 (MB)/2024 Coram: Judicial Member Sushil Mahadeorao Kochey and Member Technical Prabhat Singh For Financial Creditor: Adv. Rohan Agarwal a/w, Adv. Sabeena Mahadik, and Adv. Pankaj Uttarodhi For Corporate Debtor: Adv. Aman Kacheria a/w Adv. Rishabh Dhanuka Order Date: 30.10.2025 Click Here To Read/Download The Order

Advances Made By Shareholder After Lapse Of Shareholders Agreement Amount To 'Financial Debt': NCLT Mumbai

Mohd.Rehan Ali

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