NCLAT Stays Insolvency Proceedings against Religare Enterprises, Finds Transactions Between Group Entities “Sham and Circular” [Read Order]

In a recent ruling, the National Company LawAppellate Tribunal (NCLAT),  New Delhi, has stayed the corporate insolvencyresolution process (CIRP) initiated against Ligare Aviation Ltd., observing that the transactions forming the basis of the Section 7 application were “sham, circular and lacking time value of money.”

The appeals were filed respectively by appellants Chandra Shekhar Jha and RHC Finance Pvt. Ltd., major shareholders of the corporate debtor, and by Daiichi Sankyo Company Ltd., decree‑holder in the ₹3,500 crore arbitral award against the Singh Brothers and their group entities.

The Adjudicating Authority had, on 18 July 2023, admitted a Section 7 application filed by Religare Enterprises Ltd. (REL), claiming default of ₹5.87 crore advanced under a series of one‑page Memoranda of Understanding (MoUs) executed between Religare Arts Investment Management Ltd. (RAIML) and Ligare Aviation between 2009 and 2016.

The appellants contended that the alleged loans were inter‑group fund movements within the Religare conglomerate, controlled at the time by Malvinder and Shivinder Singh, and not genuine financial debts. Bank records showed that ₹3.6 crore received by Ligare Aviation on 31 March 2009 was immediately transferred the same day to Religare Finvest Ltd., another subsidiary of REL—indicating mere round‑tripping of funds.

Counsel for the appellants pointed out that Religare Finvest Ltd. itself had lodged FIR No. 50/2019 with the Economic Offences Wing, alleging that the MoUs were fabricated “to give colour of genuine transactions to sham dealings” intended to siphon money. The FIR named former executives, including Anil Saxena, who had signed the MoUs now relied upon by REL in the insolvency petition.

The appellants argued that the NCLT failed to consider these materials and wrongly dismissed the defence as “moonshine,” despite clear evidence that the funds never remained with the corporate debtor even for 24 hours.

A Bench led by Justice Ashok Bhushan, technical member Barun Mitra noted that both the financial creditor and the corporate debtor were related parties under common management during the relevant period. Referring to the Supreme Court’s decision in Phoenix ARC Pvt. Ltd. v. Spade Financial Services Ltd. , the Tribunal stated that the real nature of the transaction must determine whether a “financial debt” exists.

The NCLAT observed that the bank statements and FIR allegations prima facie supported the claim that the transactions were fraudulent and lacked commercial substance, warranting deeper scrutiny before continuation of CIRP.

The Tribunal stayed the insolvency proceedings, restraining Ligare Aviation from alienating its assets. In a separate order dated 24 November 2023, it also upheld Daiichi Sankyo’s locus to challenge the admission order, noting that as a decree‑holder and garnishee creditor to the extent of ₹184.04 crore, it was a “person aggrieved” under Section 61 of the IBC.

The NCLAT’s judgment consolidated both appeals, holding that the transactions relied upon by REL were tainted by fraud and lacked the time value of money, and that the admission of Section 7 proceedings required reconsideration. The stay on CIRP continues pending further examination.

Accordingly, both appeals were allowed.

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