Authority: National Company Law Appellate Tribunal, Chennai Bench (Justice N. Seshasayee, Member (Judicial) and Jatindranath Swain, Member (Technical))

Order Date: 08 September 2026

Case Overview

This order arises from two appeals (Company Appeal (AT) (CH) (Ins) No.400/2026 and 404/2026) filed by the suspended directors of M/s. Virgo Properties Private Limited and M/s. Virgo Realtors Private Limited. The appeals challenged a common order dated 31 July 2026 from the National Company Law Tribunal (NCLT), Chennai Bench, which admitted the two companies to the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The petitions were initiated by M/s. Phoenix ARC Limited, acting as the Trustee of Phoenix Trust FY 22-16, which is the current assignee of the debt. The financial creditor in the original NCLT petitions was M/s. L&T Housing Finance Ltd (LTHFL).

The dispute originates from a loan transaction. In June 2017, LTHFL sanctioned a total of ₹107 crores to the two Virgo companies, which are promoted by the same family and are in the real estate business. A bilateral agreement was executed on 23 June 2017. Of the sanctioned amount, approximately ₹56 crores were disbursed to Virgo Properties and ₹44.7 crores to Virgo Realtors. The appellants claimed that only ₹98 crores were actually disbursed. Virgo Realtors later sold a secured asset with LTHFL's assent for around ₹60 crores and applied part of the proceeds to the loan account. The appellants asserted that a total of ₹134 crores had been repaid, leading to a 'nil' balance in the loan account, which they argued extinguished the debt. The respondent, Phoenix ARC, contested this, stating the appellants had ignored contractually payable interest and charges.

A series of assignments and a merger complicated the debt's ownership. On 29 March 2019, LTHFL assigned the debt to its sister concern, M/s. L&T Finance Ltd (LTFL), in an execution in Punjab (the First Assignment). The appellants challenged this assignment, arguing it transferred only the debt and not the underlying security, creating a split cause of action. They further contended that if the security was included, the deed required registration in Tamil Nadu under the Registration Act, which was not done. On 19 March 2021, LTHFL and LTFL merged pursuant to an order from the NCLT Kolkata Bench. The appellants argued the scheme of this merger was not disclosed, raising questions about the nature of the liabilities transferred.

Due to an alleged default in interest payments, LTFL issued notices in August and September 2019. On 29 October 2021, LTFL issued a notice to commence arbitral proceedings under the Arbitration and Conciliation Act, 1996. An arbitral tribunal was constituted in December 2021. Before it, the corporate debtor filed a claim for approximately ₹23 crores, and LTFL filed a counterclaim for about ₹34 crores; these proceedings are ongoing. LTFL declared the loan account a non-performing asset (NPA) on 13 November 2021. Subsequently, on 3 February 2022, after the arbitration began, LTFL filed the separate Section 7 petitions against the two Virgo companies. During the pendency of these petitions, on 29 March 2022, LTFL assigned the debt to Phoenix ARC. The NCLT approved the substitution of the financial creditor to Phoenix, though the arbitral tribunal refused it.

Final Outcome

The NCLAT granted a stay on the NCLT's orders admitting the companies to CIRP in CP(IB)/28(CHE)/2022 and CP(IB)/71(CHE)/2022. The tribunal found a strong prima facie case on two key issues raised by the appellants. First, it noted that while the pendency of arbitration is not a bar to a Section 7 petition, the debt must be crystallized. The ongoing arbitration to determine the existence and quantum of liability from the very same loan transaction raised a question of whether the debt was indeed crystallized. Second, the admitted 'nil' balance in the loan account led to a just question of whether any debt still existed to be enforced. The tribunal stated that other legal pleas, such as those concerning the registration of assignment deeds, could be considered at the final hearing. The appeals were posted for final hearing on 16 November 2026, and both sides were directed to submit pointed notes of submissions.

Topics: Corporate Insolvency, Debt Assignment Dispute, Arbitration