NCLT Delhi Recalls Insolvency Admission Of V4 Infra After Finding Engineered Default

The National Company Law Tribunal (NCLT) at New Delhi has recalled its earlier order that had pushed V4 Infrastructure Pvt Ltd into insolvency, after finding that the process was misused to avoid paying an arbitral award that had already been upheld by the Delhi High Court.

The tribunal also imposed a cost of Rs 5 lakh on the lender involved for abusing the insolvency law.

A Bench of Judicial Member Manni Sankariah Shanmuga Sundaram and Technical Member Atul Chaturvedi said the company and the lender had acted together to defeat enforcement of the award.

“Instead of taking steps towards honouring the Award, the Corporate Debtor, acting in concert with the alleged Financial Creditor, appears to have devised a mechanism to circumvent the consequences of the Award. By artificially creating a “financial debt” of exactly Rs. 1 crore and orchestrating a default, the Corporate Debtor effectively attempted to shield itself by colluding with the so called Financial Creditor to artificially create a “financial debt” and engineer a default that would force the company into CIRP"

The dispute dates back to an arbitral award passed on May 20, 2017, by retired Delhi High Court judge Justice ML Mehta. The award directed V4 Infrastructure to pay Jindal Biochems & Developers Pvt Ltd Rs 7.75 crore, along with interest at 18% and Rs 10 lakh as costs.

V4 Infrastructure challenged the award, but a Single Judge of the Delhi High Court dismissed the challenge in March 2018. In May 2020, a Division Bench upheld the award, while reducing the interest rate to 9%.

After the award was confirmed, Jindal Biochems initiated recovery proceedings before the Delhi High Court. During those proceedings, the High Court restrained V4 Infrastructure from selling or creating third-party rights in certain immovable properties.

While these recovery proceedings were still pending, Kamal Renu Credit & Invest Pvt Ltd claimed that it had advanced an unsecured loan of Rs 1 crore to V4 Infrastructure in October 2021 and that the amount had not been repaid.

On this basis, the lender approached the NCLT, which admitted the case in July 2022 and started insolvency proceedings against V4 Infrastructure.

Jindal Biochems challenged the admission of the insolvency case, arguing that the loan was not genuine and had been created only to meet the minimum amount required to start insolvency proceedings.

It pointed out that the loan amount exactly matched the legal threshold and lacked any real business justification, showing that the move was aimed solely at bypassing the Delhi High Court's recovery process.

Accepting these submissions, the NCLT held that the transaction showed clear signs of collusion and lacked commercial rationale. The tribunal said insolvency law cannot be used as a tool to defeat legitimate claims or to perpetrate fraud.

"The Applicant has both undeniable and compelling reasons to bring to the Adjudicating Authority's attention the grave abuse of the Insolvency and Bankruptcy Code as a tool to fraudulently circumvent judicial proceedings", it said

The tribunal therefore recalled its earlier admission order, brought the insolvency process to an end, and allowed recovery proceedings against the company to resume. It directed that control of V4 Infrastructure be handed back to its former directors.

The NCLT also ordered that the earnest money deposit and performance bank guarantee given by the successful bidder during the insolvency process be returned within one week. In addition, it imposed a cost of Rs 5 lakh on Kamal Renu Credit & Invest Pvt Ltd, directing that the amount be deposited in the Prime Minister's National Relief Fund within ten days, failing which it would be recovered in accordance with law.