2022 (7) TMI 1071 - AT - Insolvency and Bankruptcy

Appellant is subsidiaries or affiliate of the Unitech Limited or not - Unitech Holdings Limited a wholly owned subsidiary of Unitech Limited has shareholding to the extent of 41.95% in the Appellant. - appointment of Directors in the Appellant Company by the Board of Directors of Unitech Limited - appellant was a joint venture holding of Unitech Holdings Limited - whether the order of Moratorium does not apply to the joint venture? - HELD THAT - From the facts of the present case, it is clear that Unitech Holdings Limited a wholly owned subsidiary of Unitech Limited has shareholding to the extent of 41.95% in the Appellant. The Appellant is clearly an affiliate . Thus, subsequent events which have been brought on the record by Appellant clearly indicate that Unitech Holdings Limited exercises control over the Appellant and Board of Directors of the Unitech Limited has nominated Directors in the Board of Directors of the Appellant. In view of the order dated 20.01.2020, the Resolution Plan with regard to Unitech Limited was to be filed in the Hon ble Supreme Court. Learned Counsel for the Appellant submitted that the Resolution Plan with regard to group entities of Unitech are also being filed before the Hon ble Supreme Court which is under consideration. There are no doubt that the Appellant is an affiliate of Unitech Group and Moratorium imposed by the Hon ble Supreme Court by order dated 20.01.2020 as clarified by further order dated 24.03.2021 was applicable on the Appellant who was also entitled for the benefit of the said orders. Learned Adjudicating Authority committed error in holding that orders dated 20.01.2020 and 24.03.2021 are not applicable to the Appellant who is a joint venture of Unitech Holdings Limited. The new Board of Directors of Unitech Limited has also taken steps for appointment of Nominee Directors of Board of Directors of the Appellant - the order dated 06.04.2022 passed by the Adjudicating Authority in I.A No. 5608 of 2021 cannot be sustained and is set aside. Section 7 Application filed by the Respondent stands adjourned sine die till the currency of Moratorium as imposed by the orders of the Hon ble Supreme Court dated 20.01.2021 and 24.03.2021.

Summary

Issues Involved
1. Applicability of the Supreme Court's Moratorium orders dated 20.01.2020 and 24.03.2021 on the Appellant.
2. Determination of whether the Appellant is an affiliate or subsidiary of Unitech Limited.
3. Validity of the Adjudicating Authority's decision to reject the Appellant's application for adjournment sine die.

Issue-wise Detailed Analysis

1. Applicability of the Supreme Court's Moratorium Orders
The primary issue revolves around the applicability of the Moratorium orders passed by the Hon'ble Supreme Court on 20.01.2020 and 24.03.2021. The Supreme Court's order dated 20.01.2020 imposed a Moratorium on the institution of proceedings against Unitech Limited and its subsidiaries. The subsequent order on 24.03.2021 extended this Moratorium to all group entities of Unitech Limited, including affiliates, trusts, and subsidiaries. The Appellant argued that it falls under the scope of this Moratorium as it is controlled by Unitech Holdings Limited, a wholly owned subsidiary of Unitech Limited. The Tribunal concluded that the Moratorium is indeed applicable to the Appellant, recognizing it as an affiliate of Unitech Group.

2. Determination of Affiliate or Subsidiary Status
The Appellant claimed to be an affiliate of Unitech Group rather than a subsidiary. The Tribunal examined the shareholding pattern and control dynamics, noting that Unitech Holdings Limited holds a 41.95% share in the Appellant. The definition of "Affiliate" was pivotal, which includes entities controlled by or having significant shareholding by the parent company. The Tribunal found that Unitech Holdings Limited exercises control over the Appellant, including appointing Directors, thus classifying the Appellant as an affiliate of Unitech Group. The Tribunal emphasized that the Appellant's status as an affiliate entitles it to the benefits of the Moratorium.

3. Validity of the Adjudicating Authority's Decision
The Adjudicating Authority had rejected the Appellant's application for adjournment sine die, stating that the Appellant failed to prove it was a subsidiary of Unitech Holdings Limited. The Tribunal found this reasoning flawed, as the Appellant never claimed to be a subsidiary but an affiliate. The Tribunal highlighted that the new Board of Directors of Unitech Limited had taken steps to appoint Nominee Directors in the Appellant, further solidifying the control and affiliation. Consequently, the Tribunal set aside the Adjudicating Authority's order, allowing the application for adjournment sine die and recognizing the applicability of the Supreme Court's Moratorium orders to the Appellant.

Conclusion
The Tribunal concluded that the Appellant, being an affiliate of Unitech Group, is entitled to the benefits of the Moratorium orders dated 20.01.2020 and 24.03.2021. The order of the Adjudicating Authority dated 06.04.2022 was set aside, and the Section 7 Application filed by the Respondents was adjourned sine die, subject to any further orders or clarifications by the Hon'ble Supreme Court.