Related Party Nexus Between Financial Creditor and Corporate Debtor Pierces Corporate Veil: NCLAT Recall S. 7 Admission Order [Read Order]

In a recent ruling, the National Company Law Appelate Tribunal (NCLAT), New Delhi bench, recalled its earlier admississon ofa section 7 insolvency petition. The tribunal also imposed a penalty of ₹55 lakh on the petitioner under section 65 of the Insolvency and Bankruptcy Code (IBC).

The petition had originally been admitted on 14 July 2023, commencing the corporate insolvencyresolution process( CIRP) against Logix Infrastructure. The application filed by the appellant, Expert Realty Professionals, claiming default of ₹12.88 crore arising from a 2020 MoU under which it had advanced ₹15 crore to Logix for allotment of 1,37,918 sq. ft. built‑up area in the Blossom County project, Noida.

The appellant, Expert Realityprofessional Pvt Ltd, argued that the Section 65 application was filed 5 months after admission of CIRP and eight months after filing of the Section 7 petition. also The Section 7 petition was filed based on a duly executed loan/MoU dated 20.10.2020, with all relevant details furnished.

Also included that being a related party only disqualifies participation in CoC (Section 21(2)) or resolution plan submission (Section 29A). It does not automatically mean fraud or malicious initiation under Section 65.

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The respondents, Logix Infrastructure Private Limited, including Varun Kumar Bala and Ankoor B Sarkar, challenged the admission by filing an application under Section 65 IBC in December 2023. They alleged collusion between the financial creditor and the corporate debtor, pointing to overlapping directorships and common partnership in an LLP between key individuals of both entities.

Also included that the concealment of related party status and collusive arrangement amounted to fraudulent initiation of CIRP, warranting recall of the Section 7 order and imposition of penalty

The tribunal, after hearing both sides, pierced the corporate veil and found that the Section 7 proceedings were collusive, noting that the MoU was unstamped and unregistered, and that concealment of related party status was deliberate.

The Tribunal held that the insolvency process was misused to gain voting rights in the Committee of Creditors and to block legitimate claims of homebuyers and statutory authorities.

The bench, Justice N Seshasayee ( judicial member ), Arun Baroka( technical member ), upheld the adjudicating authority’s decision allowing the Respondents’ Section 65 application, finding no error in recalling the Section 7 admission. It clarified that reversing the Section 7 proceedings was a valid fresh determination, not an impermissible review.

Accordingly, the appeal is rejected, and all pending IAs linked to it are also closed.

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