2023 (1) TMI 1366 - AT - Insolvency and Bankruptcy

Condonation of delay in filing appeal - assets of the land holding companies, i.e., subsidiary of the Corporate Debtor can be treated to be assets of the Corporate Debtor or not - lease lands could have been dealt and the Resolution Plan could legally contain a clause for transfer of the lease hold rights by the Appellant or not - assets of the subsidiary companies can be dealt with in Corporate Insolvency Resolution Process of holding Company or not - Appellant was required to be made party to the CIRP proceedings and heard before approval of any resolution plan dealing with the Project land or not - Resolution Professional acted within the ambit of I B Code in giving a certificate that Resolution Plans submitted by Roma Unicon Designex Consortium and Alpha Corp Development Private Limited are in accordance with the provisions of the Code or not - Appellant was aware of the development carried out by the Corporate Debtor on the lease land before commencement of the CIRP of the Corporate Debtor or not. Time Limitation - HELD THAT - Reference made to the Judgement of Hon ble Supreme Court passed in IN RE COGNIZANCE FOR EXTENSION OF LIMITATION 2022 (1) TMI 385 - SC ORDER . By the said order, the Hon ble Supreme Court held that in computing the period of limitation for petitions/applications/appeals/suits, the period from 15/03/2020 to 28/02/02022 shall stand excluded. Hon ble Supreme Court further held that in case where the limitation would have expired during the period 15/03/2020 to 28/02/2022 notwithstanding the actual balance period of limitation, all person shall have a limitation period of 90 days i.e. from 01st March, 2022 to 29th May, 2022. As per the judgement of the Hon ble Supreme Court, the period of limitation for filing the Appeal expiring between 15th March, 2020 to 29th May, 2022 and appeal having been filed within 90 days period as provided by the said order, the Appeal Company Appeal (AT) (Insolvency) Nos.180, 629 630 of 2022 55 cannot be held to be barred by time. The objection regarding the limitation is overruled. Whether in the CIRP proceedings of the Corporate Debtor, i.e. Earth Infrastructures Limited, the assets of the land holding companies, i.e., subsidiary of the Corporate Debtor can be treated to be assets of the Corporate Debtor? - Whether, in the Resolution Plans submitted by the Successful Resolution Applicants, i.e., Roma Unicon Designex Consortium and Alpha Corp Development Private Limited, the assets of the subsidiary, i.e., lease lands could have been dealt and the Resolution Plan could legally contain a clause for transfer of the lease hold rights by the Appellant in favour of Successful Resolution Applicant without there being any prior permission from the Appellant? - Whether assets of the subsidiary companies can be dealt with in Corporate Insolvency Resolution Process of holding Company? - HELD THAT - The Judgement of this Tribunal in NEW OKHLA INDUSTRIAL DEVELOPMENT AUTHORITY VERSUS MR. NILESH SHARMA RESOLUTION PROFESSIONAL OF DREAM PROCON PVT. LTD., VICTORY ACE SOCIAL WELFARE SOCIETY 2022 (3) TMI 600 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL , PRINCIPAL BENCH, NEW DELHI does not help the Respondents in the present case. In Nilesh Sharma case, the Adjudicating Authority directed the NOIDA Authority to participate in the CIRP Process and file its claim in the Insolvency Resolution Process whereas in the present case neither the Appellant were asked to participate in the CIRP nor file their claim rather they were informed by the Resolution Professional only after approval of the Resolution Plan. It is further to be noted that the Judgement do not consider the provisions of Section 18 hence can not be held to be a binding precedent holding that assets of a subsidiary can be included in the assets of holding company. The Judgement of this Tribunal in Nilesh Sharma case thus is still under scrutiny by the Hon ble Supreme Court. However, Hon ble Supreme Court has granted liberty to Resolution Professional including Resolution Applicant and Others, if required, so as to find out some amicable solution between all parties including the lessee within the ambit of IBC. The law is well settled that subsidiary company and the holding company are separate entities. Learned Counsel for the Appellant in the above reference has relied on Judgement of the Hon ble Supreme Court in MRS. BACHA F. GUZDAR, BOMBAY VERSUS COMMISSIONER OF INCOME-TAX, BOMBAY 1954 (10) TMI 2 - SUPREME COURT . It was held by the Hon ble Supreme Court that shareholder does not acquire any interest in the assets of the company by purchasing shares of company. Thus the Corporate Debtor, who was lead member of the Special Purpose Company, was contemplated to be separate entity and the contention of the Respondent that both should be treated to be one entity cannot be accepted. It is further relevant to notice that Learned Counsel for the Respondents have also contended that Corporate Veil of the land holding company be pierced and should be lifted in the facts of the present case which will make it clear that it is the corporate debtor which is behind the land holding companies. Lifting of Corporate Veil between the subsidiary and parent company have been legally accepted proposition. The Judgement of the Hon ble Supreme Court in JAYPEE KENSINGTON BOULEVARD APARTMENTS WELFARE ASSOCIATION ORS. VERSUS NBCC (INDIA) LTD. ORS. 2021 (3) TMI 1143 - SUPREME COURT is also to be noticed on another aspect of the matter. In the above case, the Corporate Debtor was granted lease of the land by Yamuna Expressway Industrial Development Authority which was also constituted under Section 3 of Uttar Pradesh Industrial Area Development Act, 1976. It has provided land for execution of various projects by JAL/JIL under the concession agreement. It was observed by the Hon ble Supreme that Resolution Plan could have modified the terms of contract but the same could not have been carried out without the approval and consent of the authority concerned - the judgement of the Hon ble Supreme Court fully supports the view which we are taking in the present matter that without the approval of the Appellant, the leased land could not have been included in the Resolution Plan nor there could have any direction by the Adjudicating Authority to transfer the lease land without the approval of the Appellant. The transfer of land thus is statutorily governed and terms and conditions lays down by authority are statutorily protected. Resolution Plan which contains provisions for transfer of the project of the land contrary to the terms and conditions of the lease deed under which the project land was leased out to the land holding company is contrary to the terms and conditions of the lease deed as well as Section 7 of the UP Industrial Area Development Act, 1976. Resolution Plan thus was clearly in breach of the provisions of the 1976 Act which can not be sustained - Explanation to Section 18(1)(f) clearly contemplates that assets of subsidiary company are entirely different from assets of the holding company and principle of lifting of veil cannot be invoked contrary to statutory prescription as in the present case that is Section 18(1)(f). Resolution Plan could have contained the provision obligating the Appellant to transfer lease hold right in favour of SRA or any third entity or not - HELD THAT - Resolution Plan could not have contained clause for transfer of land without there being any approval of the Appellant for such transfer. Further direction to the Appellant to transfer while waiving of its entitlement and charges is clearly contrary to the terms and conditions of the lease and not in a public interest - In the present case, in the Information Memorandum, it clearly gives the details of status of the project land which indicates that no project is complete. The apartment as contemplated in 2010 Act are not even in existence in the facts of the present case hence there is no question of applicability of Section 5 - The present is not a case where any apartment has been transferred in favour of the allottees. The submission made on behalf of the SRA relating to 2010 Act are misconceived. Whether the Appellant was required to be made party to the CIRP proceedings and heard before approval of any resolution plan dealing with the Project land? - HELD THAT - The Appellant s case in these Appeals are that Appellant was not issued any notice by the Adjudicating Authority for participation in the CIRP Process. From the facts, it is clear that the Resolution Professional wrote a letter asking certain information from the Appellant and thereafter only informed about the approval of the Resolution Plan, at no point of time the Appellant was asked to participate in the CIRP Process of the Corporate Debtor. The Resolution Plan which was approved by the Committee of Creditors on 26.08.2019 clearly has dealt with the lease land of the NOIDA Authority. Resolution Professional was well aware that Appellant has its dues on the lease land which have not been paid so far. It was incumbent on the Resolution Professional to inform the Appellant about the Resolution Plan which have been received in the CIRP Process of the Corporate Debtor - It is to be noted that the Corporate Debtor was lead shareholder of the land holding company in case of Earth Towne Infrastructures Pvt. Ltd. it being 98% shares and with regard to other two land holding companies it had 100% shareholding. In the CIRP Process of such corporate debtor, the Appellant was necessary party and without they being before the CIRP Process the land leased out by them could not have been made subject matter of the Resolution Plan - Appellant was required to be made party to the CIRP Process before approval of any resolution plan dealing with project land. Whether, Resolution Professional acted within the ambit of I B Code in giving a certificate that Resolution Plans submitted by Roma Unicon Designex Consortium and Alpha Corp Development Private Limited are in accordance with the provisions of the Code? - HELD THAT - The Resolution Professional was well aware that the project land is a leased out land which has been leased out by the Appellant to the land holding companies which fact has been clearly mentioned in the Information Memorandum. Information Memorandum also mentions few facts regarding the lease rent. Resolution Professional in his submission has also submitted before us that Resolution Professional has shared the details of the dues of the Appellant to the Resolution Applicants. When the Resolution Professional is aware that project land does not belong to the Corporate Debtor how he permitted the said lease land to be part of resolution plan is question which is unanswered. The development right in the project under which the developer is entitled to carry on development is not akin to any ownership/lease hold right in the leased land. Resolution Professional has certified the Resolution Plan that it is in accordance with I B Code which clearly deals with the project land that is lease land in its entirety. The Resolution Professional did not communicate to the appellant about the receiving of the Resolution Plan and the nature of resolution plans which have been received nor invited attention of the Appellant that Appellant s dues are not being taken care in resolution plan. The Resolution Professional did not act within the ambit of the Code while certifying that Resolution Plan submitted by Roma Unicon Designex consortium and Alpha Corp Development Private Limited is in accordance with the provisions of the Code - Registry is directed to forward the Copy of this Order to IBBI to examine the work and conduct of RP and take such action as it may deem fit and proper. Whether Appellant was aware of the development carried out by the Corporate Debtor on the lease land before commencement of the CIRP of the Corporate Debtor? - HELD THAT - The lease deed clearly cast an obligation on the Appellant to monitor the implementation of the project. It has been the case of the association of allottees that they have time and again brought to the notice of the Appellant about the misdeeds of the corporate debtor. Reference to BuilderBuyers meeting held on 20th May, 2016 has also been made - The allottees has brought into the notice of the Appellant about the grievances which they were facing due to delay in the project causing financial distress and mental distress to them. The Appellant was well aware that the development on the project land is being carried out by the Corporate Debtor. Further it is observed that the fact that appellant was aware that the corporate debtor is carrying out development in the project land is not akin to their knowledge of terms and conditions of Resolution Plan which was submitted in the resolution process of the corporate debtor - The knowledge by the Appellant of carrying out development by the corporate debtor cannot be read as their consent to transfer the land in favour of the Successful Resolution Applicant or any other person. What is the way out in the facts and circumstances of the present case? - HELD THAT - Looking to the stage at which the projects are as on date and looking to the fact that allottees have paid hundreds of crores rupees in the above three projects to the Corporate Debtor and waiting for possession of the flat for last several years, we have to find out ways and means to save the interest of the allottees as well as the interest of the Appellant - It shall be open for the Appellant to enter into an arrangement with the Resolution Applicant and Flat Buyer Associations for payment of dues and thereafter it may permit transfer of the land so ultimately allottees be given rights and the projects can be developed by the SRA. The Appellant shall recalculate the dues and communicate to the Resolution Professional and Flat Buyers Associations without charging any penal interest within 15 days. Fresh Resolutions Plans so submitted will be considered and examined by the RP and be submitted before CoC for fresh consideration and approval. The application of Resolution Plan may be filed for approval of the plan, thereafter. Appeal disposed off.

Summary

Issues Involved:
1. Whether the assets of the land-holding subsidiaries can be treated as assets of the Corporate Debtor in its CIRP.
2. Whether the Resolution Plans could legally include the transfer of leasehold rights without prior permission from the Appellant.
3. Whether assets of subsidiary companies can be dealt with in the CIRP of the holding company.
4. Whether the Appellant was required to be made a party to the CIRP proceedings and heard before approval of the resolution plan.
5. Whether the Resolution Professional acted within the ambit of the IBC in certifying the Resolution Plans.
6. Whether the Appellant was aware of the development carried out by the Corporate Debtor before the CIRP.
7. What is the way out in the facts and circumstances of the present case?

Issue-wise Detailed Analysis:

1. Whether the assets of the land-holding subsidiaries can be treated as assets of the Corporate Debtor in its CIRP:
The Tribunal noted that assets of the Corporate Debtor and its subsidiaries are distinct. Section 18(1) of the IBC and its explanation clarify that assets of subsidiaries are not included in the assets of the Corporate Debtor. The Tribunal relied on the Supreme Court's judgment in "Embassy Property Developments Pvt. Ltd. vs. State of Karnataka" and other precedents to conclude that the assets of the land-holding subsidiaries cannot be treated as assets of the Corporate Debtor in its CIRP.

2. Whether the Resolution Plans could legally include the transfer of leasehold rights without prior permission from the Appellant:
The Tribunal found that the Resolution Plans included provisions for transferring leasehold rights without the Appellant's permission, which is impermissible. The lease deeds required prior approval for any transfer, and the Resolution Plans could not override these contractual obligations. The Tribunal emphasized that the Appellant's approval was necessary for any transfer of leasehold rights.

3. Whether assets of subsidiary companies can be dealt with in the CIRP of the holding company:
The Tribunal held that assets of subsidiary companies cannot be dealt with in the CIRP of the holding company without the permission of the lessor. The Tribunal reiterated that the IBC and relevant case law distinguish between the assets of a holding company and its subsidiaries, and the Resolution Plans could not include the assets of the subsidiaries without proper authorization.

4. Whether the Appellant was required to be made a party to the CIRP proceedings and heard before approval of the resolution plan:
The Tribunal concluded that the Appellant was a necessary party to the CIRP proceedings and should have been heard before the approval of the resolution plans. The Resolution Professional's failure to include the Appellant in the process was a significant oversight, and the Appellant's interests should have been considered.

5. Whether the Resolution Professional acted within the ambit of the IBC in certifying the Resolution Plans:
The Tribunal found that the Resolution Professional did not act within the ambit of the IBC. The Resolution Professional was aware that the project land belonged to the subsidiaries and not the Corporate Debtor, yet the plans included provisions for transferring the leasehold rights. The Tribunal directed the Insolvency and Bankruptcy Board of India (IBBI) to examine the conduct of the Resolution Professional.

6. Whether the Appellant was aware of the development carried out by the Corporate Debtor before the CIRP:
The Tribunal acknowledged that the Appellant was aware of the development activities carried out by the Corporate Debtor on the leased land. However, this awareness did not equate to consent for the transfer of leasehold rights as stipulated in the Resolution Plans.

7. What is the way out in the facts and circumstances of the present case:
The Tribunal emphasized the need to protect the interests of the homebuyers who had invested significant amounts in the projects. The Tribunal directed the Resolution Professional to publish a fresh Form-G inviting new Resolution Plans, ensuring that the Appellant's dues are addressed and permission is obtained for transferring the leasehold rights. The Tribunal extended the CIRP period and outlined steps for recalculating dues and involving the Appellant in the process.

Conclusion:
The Tribunal set aside the orders approving the Resolution Plans and directed a fresh process to ensure compliance with the IBC and protection of all stakeholders' interests. The Appellant was made a party to the CIRP, and the Resolution Professional was instructed to recalibrate the process with the Appellant's involvement.