NCLAT quashes Ligare insolvency case: 5 takeaways for IBC

Why the NCLAT order matters

The National Company Law Appellate Tribunal (NCLAT) in Delhi has set aside the admission of insolvency proceedings against Ligare Aviation Ltd. The appellate tribunal held that the transactions relied upon by Religare Enterprises Ltd were “only round tripping of money” and not for any genuine financial transaction. This is significant because the Insolvency and Bankruptcy Code (IBC) process hinges on proving a real financial debt and a genuine default. When tribunals find that paperwork and fund flows are structured to create the appearance of lending, the foundation of a Section 7 insolvency petition can weaken. The decision also comes amid a wider set of disputes and investigations referenced in the record, adding to the complexity around historic transactions.

What the appellate tribunal said on “round tripping”

In its reasoning, the NCLAT highlighted that money received on 31.03.2009 was transmitted on the same day to a subsidiary of the financial creditor. It noted this was not a case where the corporate debtor could utilise the transferred amount for any purpose. The tribunal described the sequence as indicating “only round tripping of money” rather than a genuine financial transaction. By treating the fund movement as circular, the NCLAT undercut the premise that an operational loan was extended and remained outstanding in the manner claimed. The order therefore reversed the earlier step of admitting the corporate debtor into insolvency.

Religare’s claim and the size of the alleged default

Religare stated that unsecured loans carrying interest had been advanced to Ligare Aviation and that about INR 5.87 crore remained unpaid. The insolvency application referenced a total financial default of INR 5.87 crore as on 15.01.2021. It also broke that figure into principal outstanding of INR 3.82 crore and interest outstanding of INR 2.05 crore. The application was filed on 18.01.2021 to initiate the Corporate Insolvency Resolution Process (CIRP), seek a moratorium, and appoint an Interim Resolution Professional. These figures were central to the Section 7 attempt, but the appellate tribunal’s view of the underlying transaction trail proved decisive.

The MoU trail and the 2009 transaction sequence

The material referenced a Memorandum of Understanding dated 30 March 2009 under which Ligare Aviation Limited (previously known as Religare Aviation Limited) sought a short-term loan facility of INR 5.00 crore from Religare Arts Investment Management Ltd (RAIML). The structure described was an unsecured demand loan. However, the appellate tribunal’s observations focused on same-day fund movement and the inability of Ligare Aviation to utilise the funds. Separately, the record also characterises the one-page MoUs as potentially being used for “financial layering”, and notes that this modus operandi is the subject matter of investigations by various agencies. The NCLAT’s conclusion turned on the nature of these flows rather than only the existence of documentation.

FIR reference and allegations of sham documentation

The appellate tribunal noted that Religare Finvest Ltd (RFL), a subsidiary of the financial creditor, had lodged an FIR alleging that the MoUs were created to give the colour of genuine transactions to sham transactions, with the purpose of siphoning away money. This reference was important because it came from within the creditor group’s ecosystem, and it directly questioned the authenticity of the stated loan arrangements. While the NCLAT’s core finding in this matter was about round-tripping, the FIR context reinforces why tribunals scrutinise related-party fund flows and paper trails. It also underscores why insolvency forums often look beyond form to the substance of financial transactions.

From NCLT admission to NCLAT reversal

The NCLAT allowed the appeals and set aside the NCLT order that had admitted Ligare Aviation into insolvency proceedings. The provided case history also indicates that, in a separate listing, the NCLT Principal Bench, New Delhi admitted a matter involving Ligare Aviation on 18-Jul-2023 (CP (IB) No.02-(PB)-2022). But in the dispute described here, the appellate tribunal’s order is clear: the admission based on the cited loan trail could not stand when the transactions were characterised as non-genuine. The outcome effectively removes Ligare Aviation from the insolvency track arising out of this specific creditor claim.

Parallel dispute: NCLT rejects insolvency plea against Religare

In a separate proceeding, the National Company Law Tribunal (NCLT) dismissed a plea seeking insolvency proceedings against Religare Enterprises Ltd. The NCLT observed that Religare Enterprises was a financial service provider and does not come under the ambit of the IBC. It held that the petition filed by Ligare Aviation against Religare Enterprises was “not maintainable” because the respondent did not fall within the definition of “corporate debtor” or “corporate person” for IBC purposes. The case relates to Religare Enterprises being a corporate guarantor of Auriga Marketing Services Private Limited. The principal borrower’s default cited was INR 35.55 crore, and with 14.25% interest, the claim was stated as INR 74.20 crore as on 27.01.2023.

Broader regulatory and legal backdrop cited in the record

The broader record includes references to alleged diversion of funds from RFL. It cites observations that funds amounting to about INR 2,315.09 crore had been diverted from the books of RFL for utilisation of promoters and promoter group entities of Religare Enterprises. It also references a Delhi High Court order granting bail to a former Religare group CFO in a case related to alleged siphoning of INR 2,397 crore from RFL. Separately, the text cites that SEBI’s interim order dated 14 Mar 2019 was based on a preliminary examination and a forensic audit conducted on SEBI’s directions. Within this backdrop, the NCLAT’s emphasis on round-tripping aligns with a wider theme in the record: scrutiny of circular funding patterns and documentation used to support them.

Key facts at a glance

What the rulings signal for IBC stakeholders

For lenders and borrowers, the Ligare Aviation order reinforces that insolvency petitions can fail if the underlying transaction is found to be circular, non-utilisable, or structured only to create an appearance of debt. For corporate groups, the case highlights the risks when intra-group transfers, subsidiaries, and back-to-back payments are central to the alleged financing chain. The separate NCLT dismissal against Religare also reiterates a jurisdictional boundary: financial service providers may fall outside IBC’s corporate debtor framework, even when large sums are disputed through guarantees. Together, these rulings show that both the nature of the transaction and the legal status of the respondent can decide whether insolvency proceedings proceed at all.

Conclusion

NCLAT’s decision to set aside Ligare Aviation’s insolvency admission rests on a clear finding that the loan trail relied upon was round-tripping and not a genuine financial transaction. Religare’s claimed default of INR 5.87 crore, including principal and interest, was therefore insufficient to sustain the insolvency admission when the transaction substance was rejected. In parallel, the NCLT’s dismissal of Ligare Aviation’s insolvency plea against Religare Enterprises on maintainability grounds adds another layer of legal constraint around IBC filings. The next steps, where applicable, will hinge on proceedings already on record, including appeals, stays, and the progress of referenced investigations and regulatory actions.