NCLAT Quashes Ligare Aviation CIRP; Loan Ruled Round-Tripping

The National Company Law Appellate Tribunal (NCLAT) has set aside insolvency proceedings against Ligare Aviation Ltd, ruling that the underlying loan from Religare Enterprises was not genuine financial debt but “only round tripping of money”. The order, passed on May 27, 2026, overturns a prior NCLT admission of the insolvency plea and carries direct consequences for Daiichi Sankyo Company, the Singh brothers, and the broader web of group companies once controlled by Malvinder Mohan Singh and Shivinder Mohan Singh.

For event-driven investors, the ruling removes one layer of uncertainty around the Singh brothers' asset pool. It also exposes how related-party lending structures can be challenged under the Insolvency and Bankruptcy Code (IBC). The decision does not eliminate Daiichi Sankyo's ₹3,500 crore arbitral award enforcement. It simply closes one route creditors had used to force liquidation.

What the NCLAT Ruling Changed

The NCLAT found that the NCLT had erred by admitting Religare Enterprises' Section 7 petition without examining whether a genuine financial debt existed. The appellate tribunal's 69-page order concluded that the transaction was “merely a round tripping of money/layering of money” undertaken for “some undisclosed fraudulent purposes”.

The key mechanism: ₹3.6 crore transferred by Religare Arts Investment Management Ltd (RAIML) to Ligare Aviation on March 31, 2009 was remitted the same day to Religare Finvest, a subsidiary of Religare Enterprises. The money did not remain with Ligare Aviation for even 24 hours. The NCLAT noted that the Memorandum of Understanding (MoU) for the loan was a “sham one-pager document created dishonestly to give the colour of genuine transactions to fraudulent transaction”.

Why This Mechanism Matters Now

Under the IBC, a financial creditor must demonstrate that a debt was disbursed against the time value of money. When funds are routed through group entities and returned within hours, no genuine credit risk or lending relationship exists. The NCLAT's finding effectively nullifies the debt. Ligare Aviation cannot be forced into Corporate Insolvency Resolution Process (CIRP) on the basis of that claim.

Practical rule: Any related-party loan that moves in a circular flow – from entity A to B to C and back to A within a single day – is vulnerable to being recharacterised as round-tripping, not financial debt. Creditors relying on such structures for IBC petitions face dismissal and potential costs.

The Round-Tripping Mechanism: How the Money Moved

The NCLAT traced the flow in detail:

1. March 30, 2009 – RAIML and Ligare Aviation signed an MoU for a ₹5 crore loan at 13% interest.
2. March 31, 2009 – RAIML transferred ₹3.6 crore to Ligare Aviation.
3. Same day – Ligare Aviation transferred the ₹3.6 crore to Religare Finvest, a subsidiary of Religare Enterprises.
4. The bank transfer records showed “various amounts received from different group companies and transmitted on the same day to other group companies of the group”.

The NCLAT held that this circular flow proved no genuine financial debt existed. The NCLT had previously ruled that none of the MoU clauses provided for onward transmission. The appellate tribunal called that observation “wholly erroneous”.

The FIR as Evidence

On March 27, 2019, Religare Finvest filed an FIR naming Religare Enterprises as the financial creditor and alleging that the MoUs were “documents created dishonestly to give the colour of genuine transactions to sham transactions” intended to siphon money. The NCLAT said the FIR and subsequent proceedings “are not to be relied as any substantive evidence in the proceeding” under Section 7 of the IBC. The FIR was lodged by a subsidiary of the financial creditor against the erstwhile promoter of both the corporate debtor and the financial creditor – a conflict that undermined its evidentiary weight.

Risk to watch: The NCLAT's refusal to treat the FIR as substantive evidence means that even when a related party admits the loan was fraudulent, that admission does not automatically invalidate the debt for IBC purposes. Creditors must still prove the absence of genuine financial debt through transactional records.

Exposure: Who Gains and Who Loses

Daiichi Sankyo's Arbitral Award