NCLAT Sets Aside Ligare Aviation's Insolvency Resolution, Cites Loan as Round-Tripping of Funds

NCLAT Sets Aside Insolvency Proceedings Against Ligare Aviation

The National Company Law Appellate Tribunal (NCLAT) has overturned insolvency proceedings against Ligare Aviation Ltd, ruling that the National Company Law Tribunal (NCLT) had erred in admitting the insolvency plea filed by Religare Enterprises. The appellate tribunal found that the NCLT had not properly examined the nature of the underlying transactions, which it described as "only round tripping of money" and not "any genuine financial transaction".

In a strongly worded order, the NCLAT stated that the material on record "clearly proves" that there was no financial debt disbursed by the financial creditor (Religare Enterprises) to the corporate debtor (Ligare Aviation) for consideration of the time value of money, a key requirement under the Insolvency and Bankruptcy Code (IBC). The NCLAT observed that the transactions in question were merely a "round tripping of money/layering of money" undertaken for "some undisclosed fraudulent purposes" and did not create any financial debt capable of triggering insolvency proceedings.

Religare Enterprises and Ligare Aviation are both group companies and related parties, controlled by Malvinder Mohan Singh and Shivinder Mohan Singh, the two brothers who were ex-promoters of Ranbaxy Laboratories and Fortis Healthcare. The NCLAT also faulted the New Delhi-based Principal Bench of the NCLT for admitting the insolvency plea filed by Religare Enterprises despite the absence of a genuine financial debt.

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Timeline of Key Events

The NCLAT noted that Rs 3.6 crore transferred by RAIML to Ligare Aviation on March 31, 2009 was remitted to Religare Finvest, a subsidiary company of Religare Enterprises, which was reflected in the bank transfer of the same day. The appellate tribunal also observed that the bank transfer of March 31, 2009 further indicates various amounts received from different group companies and transmitted on the same day to other group companies of the group.

Daiichi Sankyo, a Japanese global pharmaceutical company and a shareholder, had filed an appeal against the NCLT order. The high court passed orders attaching properties of the different group companies, including RHC Holdings, which was a debtor to Ligare Aviation. This matter also went before the Supreme Court.

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The NCLAT set aside the NCLT order, saying this "observation of the NCLT is wholly erroneous". It also said FIR lodged by Religare Finvest and the allegations made therein and subsequent proceedings "are not to be relied as any substantive evidence in the proceeding" under Section 7. The FIR has been lodged by a subsidiary of the financial creditor, making allegations against the erstwhile promoter of the corporate debtor and financial creditor, it said.

Setting aside the NCLT order, a NCLAT bench comprising Chairperson Justice Ashok Bhushan and Member Barun Mitra said, "There was no financial debt in existence in the transaction, and its initiation of CIRP by the financial creditor could not have been made on such a transaction. The order of the adjudicating authority (NCLT) admitting the Section 7 application cannot be sustained."