NCLT to Hear Interlocutory Plea Against Suraksha ARC Alleging Fraud

The National Company Law Tribunal (NCLT), Mumbai is set to hear an Interlocutory Application (IA) filed against Suraksha Asset Reconstruction Company (ARC), accusing it of fraud, misrepresentation, and violations of regulatory norms in an ongoing insolvency case.

The plea has been filed by Lakhminder Dayal Singh, the suspended director of Sapphire Land Development Pvt. Ltd. (SLDPL), which has been under the Corporate Insolvency Resolution Process (CIRP) since 2021. Singh has alleged that the very basis of the insolvency proceedings rests on irregular and collusive arrangements between Yes Bank and Suraksha ARC.

According to Singh’s IA, the assignment of Sapphire Land’s loan from Yes Bank to Suraksha ARC was not a genuine transaction but a circular funding exercise. He claims Yes Bank indirectly financed Suraksha’s purchase of the stressed loan through its group entity, thereby routing the money back to itself.

Such practices, widely referred to as “round-tripping” and “evergreening of loans”, are prohibited under the Reserve Bank of India’s (RBI) guidelines. Singh has pointed to a Yes Bank audit report, included in a CBI chargesheet, which he says reveals irregularities in the loan assignment process.

Singh further alleges that Yes Bank prematurely classified Sapphire Land’s account as a stressed loan despite timely repayments. This, he argues, created a false default narrative that allowed Suraksha ARC to press for insolvency proceedings.

The petition also raises concerns about the conduct of the current Resolution Professional, Snehal Kamdar. Singh alleges he was denied access to important company records and excluded from meetings of the Committee of Creditors (CoC), despite his right as a suspended director under the Insolvency and Bankruptcy Code to be kept informed.

In a significant move, Singh has also made the RBI a party to the case. His IA contends that key provisions of the regulator’s framework on loan assignments, asset classification, and ARC funding structures were breached, and therefore the insolvency process should not be allowed to proceed.

Through the IA, Singh has sought to set aside the original admission order, declare Suraksha ARC not a valid financial creditor, dissolve the CoC, and restore management of Sapphire Land to its board. He has also asked the tribunal to stay all ongoing CIRP proceedings until the matter is decided.

The NCLT is expected to hear the case in the coming weeks, with the outcome likely to be closely watched across the asset reconstruction and banking sectors.