20. It is well settled in Company Law that preference shares are part of the company’s share capital and the amounts paid up on them are not loans. Dividends are paid on the preference shares when company earns a profit. This is for the reason that if the dividends were paid without profits or in excess of profits made, it would amount to an illegal return of the capital. Amount paid up on preference shares not being loans, they do not qualify as a debt.

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34. It will be clear from a plain reading that to maintain a proceeding under Section 7, an application has to be filed by a financial creditor and the application has to be filed when a default has occurred. It will be noticed from the above that for a default “to kick in” there should be non-payment of debt, when whole or any part of the debt has become due and payable and is not paid. Admittedly, the CRPS had not become due and payable since the respondent had not made profits and did not have any reserve out of the profits made in the past nor did it possess any proceeds from a fresh issue of shares made for the purpose of redemption. In this admitted scenario, the question of there being any default under Section 3(12) of the IBC does not arise. Hence, the argument that the three years period mentioned in the CRPS for redemption having expired, the shares were due for redemption, does not carry the case of the appellant any further.