NCLT recalls insolvency order against Logix Infra, cites 'fraudulent and mala fide' intentions

New Delhi: In a rare move, NCLT has recalled and set aside its own order directing insolvency proceedings against realty firm Logix Infrastructure in July 2023, saying the plea was initiated with "fraudulent and mala fide intentions" and a collusive petition was filed by the financial creditor.

NCLT said "there is a nexus and connection" between its financial creditor Experts Realty Professionals whose plea for insolvency was initiated against Logix Infrastructure. The corporate tribunal said the entire transaction was "orchestrated" and forum was used "with purported malicious intent".

The insolvency petition filed "with an ulterior motive" against Logix Infrastructure and its financial creditor has used this forum for purposes other than the insolvency resolution of the realty firm with purported malicious intent, contrary to the objectives of the IBC, the tribunal said.

The National Company Law Tribunal (NCLT) also asked for a thorough probe by the Serious Fraud Investigation Office (SFIO) and lifting of the veil to comprehensively examine the alleged fraudulent and collusive actions.

"We are of the considered view that the Section 7 application bearing IB-237(ND)/2023 filed by the financial creditor (Experts Realty Professionals) is a collusive application filed in collusion with the corporate debtor (Logix Infra) with an ulterior motive," said NCLT.

On July 14, 2023, the NCLT had directed initiating a Corporate Insolvency Resolution Process (CIRP) against Logix Infrastructure while admitting a plea filed by Experts Realty Professionals claiming a default on repayment of debt.

The NCLT on last Thursday recalled and set aside its July 2023 order and passed a new ruling "directing the Resolution Professional to hand over the management of the corporate debtor's affairs to the ex-management/suspended board of directors of the corporate debtor".

The NCLT further said if any resolution plan has been submitted by any successful bidder, in that case Resolution Professional is directed to refund the earnest money deposit followed by the performance bank guarantee submitted by them within one week.

It has also directed the financial creditor to pay all costs, fees, and expenses of the Resolution Professional within a week.

Besides, the insolvency tribunal also imposed a penalty of Rs 5 lakh on the financial creditor and asked it to deposit the amount in the Prime Minister's National Relief Fund (PMNRF) within ten days from the date of passing of this order.

NCLT's latest order came after an application moved by allottees in the Logix Blossom Country, a project of the realty firm, requesting the tribunal to revoke the insolvency process as it has been filed with fraudulent and malicious intentions to defraud creditors and the flat allottees.

They pointed out two key people as related parties. Hemant Sharma, an Additional Director in Experts Realty Professionals, was the financial creditor from May 12, 2020 to September 5, 2020 and was appointed as a director in Logix Infra on September 11, 2020.

They also challenged the Memorandum of Understanding (MoU) dated October 20, 2020, involving the consideration of Rs 15 crore and the minutes of meeting dated December 15, 2021, under which the realty firm sold the allocated units to a financial creditor, contending that these documents highlight several deficiencies.

The tribunal also observed that the MoU and minutes were not accompanied by any stamp paper. According to the Stamp Act, such agreements require a stamp paper of at least Rs 100.

Agreeing to allottees' submissions, NCLT said: "We are of the considered view that this raises doubts about the authenticity and genuineness of the MoU dated October 20, 2020 and the minutes dated December 15, 2021. Therefore, these documents cannot be relied upon by the financial creditor, in the main Section 7 Application."

NCLT further said applicants have "provided valid evidence to prove fraud or malicious intent" of Experts Realty Professionals against Logix Infrastructure and the explanation given by the financial creditor "is not convincing".

"After reviewing the master data and the documents provided by the applicants regarding the financial creditor ...we accept the contention ...that there is a nexus and connection between the financial creditor and the corporate debtor," the NCLT said.

NCLT has found the related party transaction manipulated the actions of both the corporate debtor and the financial creditor, said a two-member NCLT bench comprising members Atul Chaturvedi and B V Balram Das.

"Both companies were initially managed by independent persons; however, simultaneous changes in Key Managerial Personnel (KMPs) in both companies, including resignations in the financial creditor and appointments in the corporate debtor, cannot be ignored and highlight their conduct," said the 18-page NCLT order.