NCLAT Sets Aside CIRP Against Ligare Aviation, Says Religare Transactions Were “Round Tripping Of Money”

The National Company Law Appellate Tribunal (NCLAT) at Delhi has set aside the admission of insolvency proceedings against Ligare Aviation Ltd., holding that the transactions relied upon by Religare Enterprises Ltd. were “only round tripping of money” and not “for the purpose of any genuine financial transaction.”

A bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra observed,

“The present is a case where the amount which was received on 31.03.2009 on the same day was transmitted to subsidiary of Financial Creditor and present was not a case for where Corporate Debtor has been able to utilise the amount transferred for any purposes. Series of transactions as noted above all indicate that transactions were only round tripping of money which were not for the purpose of any genuine financial transaction.”

The appeals were filed by shareholders of Ligare Aviation, including RHC Finance Pvt. Ltd., and by Daiichi Sankyo Company Ltd. against the National Company Law Tribunal's July 18, 2023 order admitting Religare Enterprises' insolvency plea against the company.

The dispute arose from a series of one-page Memoranda of Understanding (MoUs) executed between Religare Arts Investment Management Ltd. (RAIML), later amalgamated with Religare Enterprises Ltd., and Ligare Aviation beginning in March 2009. Religare claimed that unsecured loans carrying interest had been advanced to Ligare Aviation and that about Rs 5.87 crore remained unpaid.

Ligare Aviation and the appellants argued that the transactions were not genuine financial transactions and that the funds moved between companies under the same management. They pointed to bank records showing that Rs 3.6 crore received by Ligare Aviation on March 31, 2009 was transferred on the same day to Religare Finvest Ltd., a subsidiary of the financial creditor.

Daiichi Sankyo argued that it was an aggrieved party because it had obtained an arbitral award against the Singh brothers and their group companies and had initiated execution proceedings before the Delhi High Court, in which garnishee proceedings involving Ligare Aviation were pending.

Religare opposed the appeals, contending that the debt stood established through the MoUs and that shareholders could not challenge the admission of insolvency proceedings.

The appellate tribunal held that Daiichi Sankyo was a “person aggrieved” entitled to maintain the appeal. It also held that RHC Finance Pvt. Ltd. could maintain the appeal because it was reflected as a creditor in the corporate debtor's balance sheet.

Referring to the Supreme Court's judgment in Phoenix ARC Pvt. Ltd. v. Spade Financial Services Ltd., the NCLAT said the real nature of a transaction had to be examined to determine whether it was a genuine financial transaction.

The tribunal observed:

“A transaction which is sham or collusive would only create an illusion that money has been disbursed to a borrower with the object of receiving consideration in the form of time value of money, when in fact the parties have entered into the transaction with a different or an ulterior motive.”

The NCLAT held that the adjudicating authority had failed to examine the bank statements and other materials placed on record by the corporate debtor.

The bench observed,

“Adjudicating Authority even did not advert to the bank statement of 31.03.2009 and 31.03.2009 which reflected the transaction in the bank account of the Corporate Debtor which was nothing but layering of money for undisclosed purpose.”

The appellate tribunal also noted that Religare Finvest Ltd., a subsidiary of the financial creditor, had lodged an FIR alleging that the MoUs were created “to give the colour of genuine transactions to sham transactions the purpose of which was only to siphon away the money.”

Allowing the appeals, the NCLAT set aside the NCLT's order admitting Ligare Aviation into insolvency proceedings.