2020 (12) TMI 1324 - Tri - Insolvency and Bankruptcy

Seeking substantive consolidation of the Corporate Debtor - assets and liabilities deemed to be assets and liabilities of all the consolidated Corporate Debtors - appointment of a common Resolution Professional be made in order to carry out the obligations and functions of a Resolution Professional - constitution of common Committee of Creditors for the Corporate Debtor and the Respondents Nos. 2-6 - formulation of comprehensive Resolution Plan dealing with the Corporate Debtor and the Respondent Nos 2-6. HELD THAT - It is a matter of record that the CIRP of the Corporate Debtor/ Respondent No. 1, Sona Alloys Pvt. Ltd., admitted on 16.06.2020 vide C.P.(I.B) No. 586/2019. Thereafter, against the Ganga Advisory Pvt. Ltd. (Respondent No. 2) CIRP is initiated by the Adjudicating Authority on 24.01.2019 on filing an application under section 7 of the 1B Code by Pani Logistics and thirdly against Neuromed Imaging Centre Pvt. Ltd., CIRP is initiated on 12.07.2019 by this Adjudicating Authority on filing an application by Mahaveer transport under section 7 of the 1B Code. Evidently, as also matter of record that there are 3 separate orders of admission against the 3 different Companies (Corporate Debtors) having separate entities. Further, the CIRP is initiated on the basis of separate cause of actions, defaults and the amount due to the different creditors. As such, when these three companies are separate entities, the consolidation is not at all possible - It is a matter of record that the Ganga Advisory Pvt. Ltd. and Neuromed Imaging Centre Pvt. Ltd. are under liquidation. It is also a matter of record that Respondent No. 1, 2 and 3 are not group companies, hence, the question of any consolidation of the properties does not arise at all. It is pertinent to note that Substantial consolidation as a remedy should always be treated as an exception rather than the rule. Moreover, this remedy can be an option for group companies however, in the instant matter the companies are not group companies but only hold substantive shares in the Corporate Debtor. The instant application is not maintainable - Application dismissed.

Summary

Issues: Application for consolidation of proceedings under Section 60(5)(c) of the Insolvency and Bankruptcy Code, 2016.

Analysis:
1. The Liquidator filed an application seeking the consolidation of the Corporate Debtor and Respondents Nos. 2-6 into a single proceeding for the Corporate Insolvency Resolution Process (CIRP). The prayers included substantive consolidation, appointment of a common Resolution Professional, constitution of a common Committee of Creditors, and approval of a comprehensive Resolution Plan. The application aimed to consolidate assets and liabilities for efficient resolution under the Code.

2. The case involved multiple proceedings against the Corporate Debtor and Respondents Nos. 2-6 initiated under different sections of the Insolvency and Bankruptcy Code. Separate Interim Resolution Professionals were appointed for each proceeding, leading to diverse outcomes such as admission of CIRP and liquidation orders based on the Committee of Creditors' decisions.

3. Respondent No. 1 contested the application, arguing lack of legal basis for consolidation under the Code and questioning the applicant's standing in the proceedings. Respondent No. 1 highlighted the absence of provisions allowing consolidation of properties and emphasized the distinct nature of the entities involved, negating the possibility of consolidation.

4. The Tribunal examined the facts, noting the separate admissions of CIRP against different companies, each with distinct causes of action and creditors. The Tribunal emphasized that the entities were not group companies but held substantial shares in the Corporate Debtor, leading to individual initiation of CIRP proceedings based on unique defaults and creditor claims.

5. While acknowledging the applicant's reliance on legal precedents, the Tribunal emphasized the exceptional nature of substantive consolidation as a remedy, typically applicable to group companies. In this case, due to the lack of group company status and the absence of specific provisions in the Code, consolidation was deemed inappropriate.

6. Ultimately, the Tribunal concluded that the application for consolidation was not maintainable under the given circumstances. The application was disposed of based on the entities' separate legal status, distinct causes of action, and the absence of provisions supporting consolidation in the Insolvency and Bankruptcy Code, emphasizing resolution over liquidation as the primary objective of the Code.