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2020 (10) TMI 347 - Tri - IBCCIRP proceedings - piercing of Corporate Veil - seeking invoking the Bank Guarantee furnished by the parent company - HELD THAT - The corporate veil between the subsidiaries and holding company are to be lifted depending on facts of each case and no straight formula can be defined. As held in various judgments, the corporate veil can be lifted for unlimited reasons and it is not only limited to the extent of the cases of fraud, impropriator. Each case needs to be tested with the unique facts of arrangement applicable to it. In the recent case of ArcelorMittal India, 2018 (10) TMI 312 - SUPREME COURT Hon'ble Apex Court has held that there is a limited principle of English Law which applies and the Court may pierce the corporate veil for the purpose, and only for the purpose of depriving company or its controller of the advantage that they would otherwise have obtained by company's separate legal personality - It is also held in the said Judgment that where a statute itself lifts the corporate veil, or where protection of public interest is of paramount importance, or where a company has been formed to evade obligations imposed by the law, the court will disregard the corporate veil. Further, this principle is applied even to group companies, so that one is able to look at the economic entity of the group as a whole. In Hindustan Construction Company Limited and Ors. Vs. Union of India (UOI) and Ors. 2019 (12) TMI 5 - SUPREME COURT , where the Hon'ble Supreme Court have referred to their judgment in Mobilox Innovations Pvt Ltd. v. Kirusa Software Pvt Ltd. 2017 (9) TMI 1270 - SUPREME COURT and stated that Section 5(6) of the Insolvency Code, which defines 'disputes', read with Section 8(2) of the Insolvency Code, would make it clear that there is no bar to applying an Order Vlll-A of the Code of Civil Procedure type procedure to proceedings under the Insolvency Code, so that when his client's sub- contractor triggers the Insolvency Code against his client, his client in-turn should be able to make its principal employer a party to such proceedings, so that the subcontractor may then recover these amounts from the principal employer directly, thereby absolving his client from the clutches of the Insolvency Code. Thus, it can be concluded that the instant application is a fit case for piercing 'Corporate Veil'. Accordingly, we came to the same view that lifting of Corporate Veil is very much needed and permitted in the instant case as the promoters/ directors of a company diversify the business in various field by creating several independent entities, call it subsidiaries, with the constitution of common directors and at some point of time if the Group gets financially stressed due to default in repayment of debt, at that juncture a right of recourse is required to be adopted. That is why, the right recourse shall be to examine the necessity of 'Consolidation' as there is a clear case of principal-agent relationship. The assets and properties, including any claim, interest therein, of Albanna Engineering LLC (Dubai) held through M/s. Albanna Engineering (India) Private Limited will have to be said to be the property of the Corporate Debtor, for the purpose of the present CIRP. Further, the bank guarantee of parent company for completing the work for BPCL is done by M/s. Albanna Engineering (India) Private Limited (sub-contractors), wherein the applicants, i.e., Sanghvi Movers Limited, MNB Nair, Kerala Metal Distributors and Brothers Engineering are the service providers and material suppliers for engineering projects for BPCL. Therefore, the assets held by them can be said to be its assets i.e. the assets of present Corporate Debtor, which is under the CIRP. The Corporate Insolvency Resolution Process was initiated and moratorium was passed on 25.10.2019, therefore, it prohibits the institution of suits or continuation of pending suits or proceedings against the Corporate Debtor or its parent company, including execution of any judgement, decree or order in any court of law, tribunal, arbitration panel or other authority. Section 14 read with Section 238 of Insolvency Bankruptcy Code, 2016 is applicable - Respondent No. 4, i.e., BPCL is directed to invoke both the Bank Guarantees immediately provided by the parent company of the Corporate Debtor, i.e., Albanna Engineering LLC, and to keep the proceeds in an interest-bearing fixed deposit with itself in the name and style of Bharat Petroleum Corporation Limited - Account Albanna Engineering until further orders - Respondent No. 4, i.e., BPCL is hereby directed to produce the original receipt of such deposit before the Registry of this Tribunal. Application disposed off.
Issues Involved:
1. Invocation of Bank Guarantees by Bharat Petroleum Corporation Limited (BPCL). 2. Lifting of Corporate Veil between the Corporate Debtor and its parent company. 3. Admissibility of claims by Operational Creditors. 4. Legal implications of the moratorium under Insolvency and Bankruptcy Code (IBC), 2016. 5. Jurisdiction and authority of the National Company Law Tribunal (NCLT). Issue-wise Detailed Analysis: 1. Invocation of Bank Guarantees by Bharat Petroleum Corporation Limited (BPCL): The Operational Creditors filed a Miscellaneous Application under Section 60(5) of the Insolvency and Bankruptcy Code to seek an injunction or direction to BPCL to invoke the Bank Guarantee furnished by the parent company, M/s. Albanna Engineering LLC Dubai. The Tribunal directed BPCL to invoke both the Bank Guarantees immediately and keep the proceeds in an interest-bearing fixed deposit until further orders. This decision was based on the fact that the Corporate Debtor, a wholly-owned subsidiary of the parent company, had no other substantial assets in India to fall back on. 2. Lifting of Corporate Veil between the Corporate Debtor and its parent company: The Tribunal considered the case as involving 'Group Insolvency' and relied on the principle of lifting the corporate veil to treat the assets and liabilities of the parent company as those of the Corporate Debtor. This was based on the interconnectedness and interwoven nature of the companies' operations, management, and ownership. The Tribunal cited various case laws, including the State Bank of India vs. Videocon Industries Limited, to justify lifting the corporate veil, emphasizing that the assets of the parent company should be treated as the property of the Corporate Debtor for the purpose of the Corporate Insolvency Resolution Process (CIRP). 3. Admissibility of claims by Operational Creditors: The Tribunal noted that the Operational Creditors had provided services and materials to the Corporate Debtor based on work orders and purchase orders issued by the Corporate Debtor. The Corporate Debtor had issued cheques for the due amounts, which were dishonored due to insufficient funds. The Operational Creditors had filed their claims before the Resolution Professional post-admission of the insolvency application against the Corporate Debtor. The Tribunal acknowledged the claims and directed the invocation of Bank Guarantees to settle the creditors' claims arising from the CIRP. 4. Legal implications of the moratorium under Insolvency and Bankruptcy Code (IBC), 2016: The Tribunal emphasized that the initiation of the Corporate Insolvency Resolution Process and the moratorium passed on 25.10.2019 prohibited the institution or continuation of suits or proceedings against the Corporate Debtor or its parent company. This included the execution of any judgment, decree, or order in any court of law, tribunal, arbitration panel, or other authority. The Tribunal relied on Section 14 read with Section 238 of the IBC, 2016, to uphold the moratorium and ensure that no amounts due from BPCL to the parent company were disbursed. 5. Jurisdiction and authority of the National Company Law Tribunal (NCLT): The Tribunal exercised its power vested under Rule 11 of NCLT Rules and Section 60(5) of the Insolvency and Bankruptcy Code to pass orders directing BPCL to invoke the Bank Guarantees and keep the proceeds in a fixed deposit. The Tribunal also directed the Registry to communicate the order to all relevant parties. The Tribunal's authority to pierce the corporate veil and treat the assets of the parent company as those of the Corporate Debtor was affirmed, ensuring that the creditors' claims could be settled through the proceeds of the Bank Guarantees. Conclusion: The Tribunal's judgment comprehensively addressed the issues of invoking Bank Guarantees, lifting the corporate veil, admitting claims by Operational Creditors, enforcing the moratorium under IBC, 2016, and exercising its jurisdiction and authority. The decision ensured that the creditors' claims were settled and upheld the principles of justice and equity in the context of insolvency proceedings.
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