NCLT Reverses Insolvency Order Against Logix Infrastructure

In a rare decision, the National Company Law Tribunal (NCLT) has taken back its own order that had directed insolvency proceedings against real estate company Logix Infrastructure. The tribunal found that the insolvency plea was filed with fraudulent intentions and in a collusive manner.

The case was initially brought forward by Experts Realty Professionals, which had claimed that Logix Infrastructure defaulted on debt repayments. However, the NCLT later found a strong connection between the financial creditor (Experts Realty) and the corporate debtor (Logix Infra). According to the tribunal, the entire insolvency plea was "orchestrated" and used for malicious purposes instead of genuine debt recovery.

The NCLT further stated that Experts Realty filed the insolvency petition with an ulterior motive, misusing the forum for purposes unrelated to insolvency resolution. This act was seen as being against the very objectives of the Insolvency and Bankruptcy Code (IBC).

Recognizing the serious nature of the fraud, the tribunal has called for a detailed investigation by the Serious Fraud Investigation Office (SFIO). The aim is to dig deeper into the collusive and fraudulent actions between the parties involved.

In its statement, the tribunal said, "We are of the considered view that the Section 7 application 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."

Previously, on July 14, 2023, the NCLT had ordered the initiation of a Corporate Insolvency Resolution Process (CIRP) against Logix Infrastructure, accepting the plea filed by Experts Realty. However, in a recent ruling, the tribunal reversed its decision, directing the Resolution Professional (RP) to return the management of Logix Infrastructure back to its original board of directors.

Investigation and Penalties Imposed

Moreover, if any resolution plan was already submitted by a successful bidder, the Resolution Professional has been instructed to refund the earnest money deposit and the performance bank guarantee within one week.

The tribunal has also placed financial responsibilities on the creditor. Experts Realty must bear all costs, fees, and expenses related to the Resolution Professional within a week. Additionally, NCLT has imposed a penalty of Rs 5 lakh on the financial creditor, ordering it to deposit the amount into the Prime Minister's National Relief Fund (PMNRF) within ten days.

This latest decision by NCLT comes after homebuyers in Logix Blossom County, a project by Logix Infrastructure, appealed to revoke the insolvency process. They argued that the case was filed with fraudulent intentions to deceive creditors and flat allottees.

The allottees also highlighted key individuals involved, pointing out Hemant Sharma, who was an Additional Director at Experts Realty from May 12, 2020, to September 5, 2020. Interestingly, he was later appointed as a director at Logix Infra on September 11, 2020, raising suspicions about a conflict of interest.

Additionally, they challenged two key documents: a Memorandum of Understanding (MoU) dated October 20, 2020, involving Rs 15 crore and meeting minutes dated December 15, 2021. The tribunal found multiple flaws in these documents, including the lack of stamp paper, which is legally required for such agreements. As per the Stamp Act, agreements must be executed on a stamp paper of at least Rs 100.

Agreeing with the homebuyers' claims, the NCLT concluded that the authenticity and reliability of these documents were questionable. The tribunal 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."

The NCLT further stated that the applicants (homebuyers) provided valid evidence proving fraud and malicious intent by Experts Realty against Logix Infrastructure. The tribunal found the explanation provided by Experts Realty to be unconvincing.

After examining the master data and documents submitted by the applicants, the NCLT ruled that there was a clear connection between the financial creditor and the corporate debtor. The tribunal found that the transactions between the two were manipulated and that both companies had undergone suspicious changes in management. The resignations and appointments of key managerial personnel in both companies were seen as an attempt to create a false narrative.

A two-member NCLT bench, comprising Atul Chaturvedi and B.V. Balram Das, observed, "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."

In conclusion, NCLT has not only reversed its insolvency order but has also directed a deeper investigation into the alleged fraud. The tribunal’s decision has provided relief to homebuyers while sending a strong message against misuse of insolvency proceedings for fraudulent purposes.