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2021 (11) TMI 661 - AT - Insolvency and BankruptcyMaintainability of Joint CIRP - whether the corporate debtor M/s. Premia Projects Limited and Respondent No.2 M/s. Solitaire Infomedia Limited should either be considered for joint CIRP so that the land can be considered as an asset in the joint CIRP of the Corporate Debtor and Respondent No. 2? - HELD THAT - The Insolvency and Bankruptcy Code 2016 provides for the resolution of insolvent companies for the revival of those companies and for the benefit of financial and operational creditors. The preamble of the IBC states that the reorganization and insolvency resolution of corporate persons partnership firms and individuals in a time bound manner for maximization of value of assets of such persons is the prime objective of this legislation. Taking a cue from such an objective and the detailed framework provided under IBC there is no gainsaying the fact that the interests of creditors which doing an effective resolution of an insolvent company are the primary objectives of the IBC. The shareholding of the Corporate debtor in the Respondent No. 2 Company is over 97% in the asset of the Corporate Debtor and should therefore be part of Information Memorandum. Thus there exists a cogent case of undertaking joint CIRP. The cost of the project includes cost of land and cost of development. This total cost of the project forms the basis of the cost of each flat. Each home buyer pays for the proportionate share of land alongwith the cost of development and construction. Therefore in considering their rightful interest in the resolution of the corporate debtor company it is reasonable and logical to factor in the connected land parcel in the total assets base - it is considered just fair and proper that the land held by Respondent No.2 M/s. Solitaire Infomedia Pvt. Ltd. is an integral part of the housing development project and should be considered as a part of the total asset base for the insolvency resolution of the Corporate Debtor M/s. Premia Projects Limited. The inter-woven nature of the assets of the two companies is amply clear from the provisions of the Collaboration Agreement and the MOU respectively. The Corporate Debtor has provided valuable consideration to Respondent No.2 and also taken possession of the land in question for developing the housing project through the Corporate Debtor. Hence the asset of land is effectively transferred to the Corporate Debtor on whose strength it has entered into Memoranda of Understanding with various homebuyers. In the instant matter the CIRP of the corporate debtor M/s Premia Projects Ltd. is under consideration. The landowning company M/s Solitaire Infomedia Pvt. Ltd. is not under CIRP hence it would not be possible to include in the CIRP of the Corporate Debtor the asset of land on which the Corporate Debtor is developing the housing project but which is owned by the Respondent No. 2 company without following the due procedure as enumerated in law - the matter be remanded to the Adjudicating Authority with further direction that an admission application for the landowning company M/s. Solitaire Infomedia Pvt. Ltd. be considered by the Adjudicating Authority and a consolidation of CIRP be thereafter considered so that the combined assets of land and flats may be considered together to provide fair just and proper relief to the creditors of the Corporate Debtor Premia Projects Limited. Appeal allowed by way of remand.
Issues Involved:
1. Joint Corporate Insolvency Resolution Process (CIRP) for the Corporate Debtor (CD) and its subsidiary. 2. Consideration of assets of the subsidiary in the CIRP of the Corporate Debtor. 3. Piercing the corporate veil to address fraudulent activities by a common director. 4. Intertwining of business and assets between the Corporate Debtor and its subsidiary. 5. Legal provisions and precedents supporting joint CIRP. Issue-wise Detailed Analysis: 1. Joint Corporate Insolvency Resolution Process (CIRP) for the Corporate Debtor and its Subsidiary: The main issue in this appeal is whether the Corporate Debtor (M/s. Premia Projects Limited) and its subsidiary (M/s. Solitaire Infomedia Limited) should be considered for a joint CIRP. The Resolution Professional (RP) sought directions to either take charge of the assets of the subsidiary or initiate a joint CIRP for both entities. The Adjudicating Authority denied the relief, stating there was no provision in the IBC to grant such relief. 2. Consideration of Assets of the Subsidiary in the CIRP of the Corporate Debtor: The Collaboration Agreement between the Corporate Debtor and Respondent No. 2 (subsidiary) allowed the Corporate Debtor to develop a project on the land owned by the subsidiary, with the right to sell 90% of the constructed area. The RP argued that the land should be considered an asset of the Corporate Debtor for effective insolvency resolution. The Tribunal noted that the intertwined nature of the assets and business operations of the two companies necessitates considering the land as part of the Corporate Debtor's assets. 3. Piercing the Corporate Veil to Address Fraudulent Activities by a Common Director: The RP and home buyers alleged that Tarun Sheinh, a common director in both companies, siphoned off funds collected from home buyers. The Tribunal found that piercing the corporate veil was necessary to expose the fraudulent activities and ensure the creditors of the Corporate Debtor receive their rightful dues. The Tribunal emphasized that the intricate business relationship between the two companies and the role of the common director in defrauding creditors must be made clear. 4. Intertwining of Business and Assets Between the Corporate Debtor and its Subsidiary: The Tribunal examined the Collaboration Agreement and found that the Corporate Debtor had almost total control over the subsidiary, with significant intermingling of assets and business operations. The Tribunal highlighted that the land owned by the subsidiary was integral to the housing project developed by the Corporate Debtor and should be included in the insolvency resolution process. 5. Legal Provisions and Precedents Supporting Joint CIRP: The Tribunal referred to various legal provisions and precedents, including the State Bank of India vs. Videocon Industries Limited case, which outlined a 14-point test for consolidation of CIRPs. The Tribunal found that the Corporate Debtor and its subsidiary satisfied many of these points, such as common control, common directors, and inter-dependence. The Tribunal also cited the Jaypee Kensington Boulevard Apartments Welfare Association case, where the Supreme Court considered the assets of a subsidiary in the resolution plan of the corporate debtor. Conclusion: The Tribunal directed that the matter be remanded to the Adjudicating Authority to consider an admission application for the subsidiary and, if admitted, to consolidate the CIRP of both the Corporate Debtor and its subsidiary. This consolidation would ensure that the combined assets, including the land, are considered together to provide fair relief to the creditors of the Corporate Debtor. The Tribunal emphasized the importance of piercing the corporate veil to expose fraudulent activities and ensure effective insolvency resolution.
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