The National Company Law Appellate Tribunal (NCLAT) recently held that National Company Law Tribunals (NCLTs) can recall even an admitted insolvency petition if the process is shown to be fraudulent or malicious under Section 65 of the Insolvency and Bankruptcy Code (IBC) [Expert Realty Professionals Private Limited Vs Logix Infrastructure Private Limited].
In its September 8 order, a Bench of Justice N Seshasayee (Judicial Member) and Arun Baroka (Technical Member) said,
“We note that if there is fraud it will vitiate everything including order approving the resolution plan. Thus, the stage of CIRP is inconsequential, while considering the Section 65 application."
The case before the NCLAT had its origins in the Blossom County project, comprising 17 towers and 2,384 units, launched by Logix Infrastructure, a Noida-based developer.
In October 2020, it entered into a buy-back arrangement with Expert Realty for 1,37,918 sq. ft. of built-up area. Expert Realty infused ₹15 crore and minutes of a December 2021 meeting recorded a liability of ₹12.88 crore owed by Logix.
When the amount was not paid, Expert Realty filed a Section 7 petition, which was admitted in July 2023.
The NCLT appointed an Interim Resolution Professional and commenced the corporate insolvency resolution process (CIRP).
Homebuyers later challenged the proceedings under Section 65 of the IBC, alleging that the petition was collusive and intended to shield the company from its obligations towards Noida Authority and allottees. On February 6, the NCLT recalled the admission, calling the process fraudulent and mala fide, and imposed a penalty of ₹55 lakh on Expert Realty.
This led to the appeal before NCLAT.
The NCLAT upheld the NCLT finding after noting that documents relied on by Expert Realty were unstamped, unregistered and lacked safeguards.
The NCLAT also found that Logix’s director Hemant Sharma had been an Additional Director at Expert Realty and, along with its director Neeraj Gusain, was a partner in the same LLP.
"The proceedings were initiated with fraudulent and mala fide intent, contrary to the objectives of the IBC," it said.
The NCLAT further pointed out that financial statements of Expert Realty reflected the ₹15 crore infusion as “current investment” and that Logix’s liability, shown as ₹21.16 crore in 2021, had been reduced to nil in 2022. Despite this, a Section 7 petition was filed in 2023 claiming financial debt, it added.
The NCLAT thus concluded that the NCLT was right in piercing the corporate veil and recalling its admission order.
“The underlying loan agreement, commercial transaction, or financial debt was either fraudulent or malicious in nature. There are clear fraudulent activities and collusion in the business transactions and order under Section 65 is maintainable,” the Bench said.
The appeal was dismissed with the NCLAT holding that the recall by NCLT did not amount to a review but was a valid exercise of jurisdiction under Section 65 of the IBC.
The appellants were represented by Senior Advocate Sunil Fernandes and advocates Ketan Madan and Muskan Surana.
Advocates Gaurav Rana (Partner) and Ajitesh Kumar (Senior Associate) of Indo Legal Services represented homebuyers.
Advocates Rishi Singhal, Pawan Kr Goyal and Reena represented Logix Realty.
[Read Judgment]