NCLAT Upholds Recall of Insolvency Case Against Logix Infrastructure

The National Company Law Appellate Tribunal (NCLAT) has upheld the decision of the National Company Law Tribunal (NCLT) to recall a previous ruling for an insolvency case against real estate firm Logix Infrastructure. The NCLAT found the debt claim to be fraudulent and malicious.

A two-member NCLAT bench stated that the plea for CIRP against Logix Infrastructure, which was developing the Blossom County project in Noida Sector 137, was based on collusion and malicious intent with sufficient material to support the claim.

In the facts and circumstances of the case, the bench found no infirmity in the orders of the adjudicating authority (NCLT) allowing the Section 65 application filed by the Respondents. The bench noted that reversing Section 7 proceedings does not amount to a review in the guise of a fresh determination.

Section 65 of the Insolvency & Bankruptcy Code (IBC) allows the NCLT to set aside insolvency proceedings filed with a malicious intent to defraud or gain an unfair advantage under Section 7 or Section 9. Penalties ranging from Rs 1 lakh to Rs 1 crore can be imposed on those individuals or entities involved.

On February 6, 2023, the Delhi bench of NCLT recalled its earlier order passed on July 14, 2023, directing the initiation of CIRP against Logix Infrastructure and imposed a penalty of Rs 55 lakh. The NCLT found that the financial creditor, Expert Realty Professionals, and the corporate debtor, Logix Infra, were connected parties.

The NCLT direction came after a petition filed by a homebuyers' association, which alleged collusion between the financial creditor and debtor. The NCLT order was challenged before the appellate tribunal by Expert Realty Professionals.

The NCLAT dismissed the appeal and upheld the findings of the tribunal, stating that the realty firm and its financial creditor used this forum for purposes other than insolvency resolution of the Corporate Debtor with purported malicious intent, contrary to the objectives of the IBC, 2016.

The appellate tribunal, in its 30-page order, also noted the NCLT's finding that the loan transaction between Expert Realty and Logix Infrastructure was not genuine and that the financial arrangement was fraudulent or malicious in nature. The tribunal highlighted several instances of collusion between the two entities.

Moreover, the tribunal noted overlapping roles of directors. One of the directors of Logix held the position of Additional Director in Experts Realty from May 12, 2020, to September 5, 2020. He resigned on September 5, 2020, and joined Logix just six days later as the Director of the company. His resignation was officially filed only in April 2021, after a memorandum of understanding (MoU) signed between the two companies.

Hemant Sharma of Logix and Neeraj Gusain, director of Experts Realty, were partners in one LLP firm, New Greens Landkart. Both signed the MoU on behalf of their companies. The NCLAT found that Hemant Sharma and Neeraj Gusain are related parties.

The NCLAT also examined the financial documents and noted that the financial statements of Expert Realty revealed that the liability of Logix, which was Rs 21.16 crore as of March 31, 2021, had come down to 'nil' on March 31, 2022. The NCLAT also noticed that for the same debt, a Section 7 petition was filed in 2023.

On April 6, 2023, Expert Realty filed a Section 7 Petition before the NCLT, alleging failure of Logix to repay the due amount arising out of the MoU dated October 20, 2020, and minutes dated December 15, 2021, which did not exist in the books of accounts. The NCLAT noted that the investment had changed its form, and at the time of alleged disbursement, the nature of the debt was Real Estate Allottee. However, Expert Realty filed the petition as a financial creditor by relying on alleged minutes dated December 15, 2021.

Furthermore, the NCLAT observed that Logix candidly admitted the debt and default without raising any objection. In this background, the NCLAT concluded that this was nothing else but collusion between Logix and Expert Realty.

The appellate tribunal noted that at the time of execution of the MoU and alleged minutes, Logix Infrastructure and Expert Realty were related parties and deliberately did not disclose the clear facts of the case to the NCLT and participated in the insolvency proceedings. The tribunal also observed that no resolution plan had been approved, even though FORM-G was issued on October 14, 2023.

Therefore, the NCLAT held that the Financial Creditor had invoked the provisions of IBC against the Corporate Debtor with fraudulent, mala fide intention. The Section 7 application filed by the Financial Creditor was a collusive application filed in collusion with the Corporate Debtor with an ulterior motive.