2026 Supreme(Online)(NCLAT) 636

NATIONAL COMPANY LAW APPELLATE TRIBUNAL
Ashok Bhushan (Chairperson) , Mr. Barun Mitra (Member (Technical)) ,
Daiichi Sankyo Company Limited – Appellant
Versus
RELIGARE ENTERPRISES LTD AND ORS. – Respondent
1238/ND/2023 COMPANY APPEAL(AT)(INS)

The Adjudicating Authority must examine pleadings and evidence to determine the true nature of a transaction to see if it constitutes a financial debt; a sham/round-tripping transaction with no genuine disbursal is not a financial debt under IBC.

Headnote:(A) Insolvency and Bankruptcy Code, 2016 - Sections 5(8), 7, 61 and 65 - Financial debt - Definition - Section 5(8) defines "financial debt" as a debt together with interest, if any, which is disbursed against the consideration for time value of money - The essential ingredient of a financial debt is disbursal against consideration for time value of money; a transaction which is sham or collusive only creates an illusion of such disbursal when the real intent of the parties is something other than advancing a financial debt - The Adjudicating Authority must determine the true nature of a transaction to ascertain whether a financial debt exists; merely having a written agreement (MoU) does not preclude an inquiry into whether the transaction was a genuine financial transaction or a sham/round-tripping arrangement - When the Corporate Debtor raises specific pleadings and evidence that the transaction was fraudulent and not intended to create a financial debt, the Adjudicating Authority must examine those materials instead of dismissing them as a "moonshine defense" - A related-party status between Financial Creditor and Corporate Debtor does not bar a Section 7 application, but the nature of the transaction must be examined to ensure it is not a fraudulent initiation of CIRP - The provision of Section 65 (punishment for malicious or fraudulent initiation of proceedings) requires adequate pleadings and findings. (Paras 26, 27, 28, 29, 30, 33, 48, 50)

(B) Insolvency and Bankruptcy Code, 2016 - Section 61 - Locus standi - Any person aggrieved - The expression "any person aggrieved" in Section 61 of the IBC must be understood widely and not in a restricted fashion in light of the CIRP being a proceeding in rem - A shareholder of the Corporate Debtor generally does not have locus to file an appeal under Section 61, as held by a Three-Member Bench of this Tribunal in "Park Energy Pvt. Ltd." - However, a shareholder who is also a creditor of the Corporate Debtor (as acknowledged in the balance sheet) becomes a stakeholder in the CIRP process and is entitled to maintain an appeal - Further, in cases where the transaction underlying the Section 7 application is alleged to be fraudulent or collusive and constitutes the entire basis of the CIRP initiation, a shareholder who raises such substantial grounds of fraud is considered a "person aggrieved" and can maintain an appeal - A decree-holder with a garnishee order against the Corporate Debtor, who has a direct claim and interest in the process (such as a pending execution proceeding that would be affected by the moratorium), has locus to challenge the admission of a Section 7 application. (Paras 13, 14, 15, 16, 18, 19, 20, 21, 22, 23, 24, 25)

(C) Insolvency and Bankruptcy Code, 2016 - Sections 7 and 5(8) - Sham transactions and round-tripping - A transaction where money is received by the Corporate Debtor and is immediately (on the same day) transferred to a subsidiary of the Financial Creditor, with the Corporate Debtor never having the benefit or use of the funds, does not constitute a "disbursal" for the time value of money and is not a "financial debt” - A series of such mirror transactions showing a pattern of money moving between group companies on the same day without any genuine purpose of lending or borrowing indicates a practice of financial layering/round-tripping and not a genuine financial transaction - An FIR lodged by a subsidiary of the Financial Creditor itself, alleging that the MoUs were sham documents created to siphon money, while not substantive evidence, is relevant to show the nature of the transaction and the intent of the parties - An acknowledgment of liability in a financial statement must be read with attending circumstances; it can be negated by a contemporaneous denial (via a balance confirmation reply disagreeing with the claim) and the overall context of the transaction. (Paras 30, 31, 36, 37, 39)

Facts of the case:
The Financial Creditor (REL) and the Corporate Debtor (Ligare Aviation) were group companies controlled by the same brothers. REL filed a Section 7 application claiming a financial debt of approximately Rs. 5.87 Crore based on a series of MoUs from 2009 to 2016. The Corporate Debtor opposed the application, pleading that the transactions were fraudulent round-tripping of funds, not genuine financial debts. It was specifically pleaded that Rs.3.60 Crore received on 31.03.2009 from REL’s predecessor was immediately transferred on the same day to a subsidiary of the Financial Creditor. The Corporate Debtor also pointed to an FIR (No. 50/2019) filed by the Financial Creditor’s own subsidiary making similar allegations of sham transactions. The Corporate Debtor also denied the claimed balance in a confirmation letter. The Adjudicating Authority (NCLT) admitted the Section 7 application, dismissing the Corporate Debtor's defense as a "moonshine" and stating the MoUs did not provide for onward transfer of funds. Two appeals were filed: one by a creditor/shareholder of the Corporate Debtor and another by Daiichi Sankyo Company Ltd., a decree-holder with a garnishee order against the Corporate Debtor. This Tribunal stayed the CIRP process.

Findings of Court:
This Tribunal set aside the impugned order admitting the Section 7 application. It found that the Adjudicating Authority failed to examine the real nature of the transaction in the face of specific pleadings and evidence (bank statements showing immediate onward transfer) brought by the Corporate Debtor. The transaction was held not to be a financial transaction as there was no genuine disbursal for the time value of money. The appeals were allowed, and the Section 7 application was dismissed.

Issues: The main issues were (I) Whether the appeal by shareholders/creditors is maintainable; (II) Whether the decree-holder (Daiichi) has locus to file the appeal; (III) Whether the transaction between REL and the Corporate Debtor constitutes a "financial debt" under Section 5(8); (IV) Whether the Adjudicating Authority was required to examine the true nature of the transaction when the existence of a financial debt was challenged; (V) The relevance of the FIR lodged by the Financial Creditor's subsidiary.

Ratio Decidendi: The court ruled that the Adjudicating Authority has a duty to look beyond the written documents (MoUs) and examine the pleadings and evidence to ascertain the true nature of a transaction, especially when it is alleged to be a sham or collusive. A transaction where money is received and immediately routed out on the same day to a related entity, without the Corporate Debtor deriving any benefit, does not constitute a "disbursement against consideration for the time value of money" and is not a "financial debt." The mere existence of a written agreement (MoU) is not sufficient to establish a financial debt if the underlying reality is different. Furthermore, a shareholder who is also a creditor or a party with a substantial claim (like a judgment creditor with a garnishee order) can be a "person aggrieved" under Section 61, particularly when challenging a transaction alleged to be fraudulent.

Result: Both appeals are allowed. The impugned order dated 18.07.2023 is set aside and Section 7 application C.P (IB) No.2(PB)/2022 is dismissed. All pending IAs are disposed of. Parties shall bear their own costs. Keywords:Financial Debt Definition; Sham Transaction; Round-Tripping of Funds; Locus Standi of Shareholder; Person Aggrieved under IBC; CIRP Initiation; Time Value of Money; Related Party Transaction; Fraudulent Initiation; Adjudicating Authority's Duty