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TMI Blog2020 (10) TMI 347X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - Ashok Kumar Borah, Member (J) And Veera Brahma Rao Arekapudi, Member (T) For the Appellant : Ranjit Babu, K.B. Arunkumar, Menon and Pai, Advocates ORDER 1. On perusal of the application, it is observed that the Corporate Insolvency Resolution Process against M/s. Albanna Engineering (India) Private Limited (the 'Corporate Debtor') was ordered by this Bench on 25.10.2019, pursuant to admission of Section 9 Application filed by an Operational Creditor - M/s. Sanghvi Movers Limited and Others. The Committee of Creditors was constituted on 19.11.2019 on the basis of verification of proof of claims received from the creditors pursuant to public announcement dated 03.11.2019. 2. The present Miscellaneous Application is filed by the Operational Creditors of the Corporate Debtor under Section 60(5) of the Insolvency and Bankruptcy Code to seek injunction/ direction to the Respondent No. 4 (i.e., Bharat Petroleum Corporation Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofessional has requested the Committee of Creditors to consider filing application with this Bench to invoke the two bank guarantees of parent company and use the same for Resolution of Corporate Debtor. However, the Committee of Creditors led by M/s. Punjab National Bank, who have granted a loan to the tune of ₹ 14.5 Crores to the Corporate Debtor on the personal guarantee of the Directors (96% voting power) has not yet provided the approval for the same stating that technically these bank guarantees are performance guarantees and they need to study whether it is legally possible to invoke the same. 7. The 4th respondent herein, i.e., BPCL, stated that for the purpose of undertaking the contract work, AELLC had made use of the services of several sub-contractors/agencies including the Corporate Debtor as well as the Applicants herein. It has further come to the notice of the 4th Respondent that amounts are payable to these sub-contractors/ agencies by AELLC for the services rendered by them. Such sub- contractors/agencies had filed several suits against AELLC as well as the Corporate Debtor for realization of money in various courts. It is respectfully submitted that the 4th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the whole case records in this application and based on preliminary information in documents submitted before us, we observed that, as per the records with Registrar of Companies, the Corporate Debtor is a 100% subsidiary of M/s. Albanna Engineerina LLC, Dubai, UAE ( LLC ). Mr. Saeed Ahmad Mohammed Saleh Albanna, subscriber to the Memorandum of Association of the Corporate Debtor (CD) as a representative of the holding Company M/s. Albanna Engineering LLC, UAE, is holding 99.99% of shares of Corporate Debtor. The said Mr. Saeed Ahmad Mohammed Saleh Albanna and Mr. Biswadeep Das along with Mathew Kavalan (presently holding one shares of Corporate Debtor) were the first Directors of the Corporate Debtor as per the Articles of Association. The first two persons mentioned above were subsequently resigned from the Director Board of the Corporate Debtor. However, they were directors of the Corporate Debtor at the time the Corporate Debtor incurred the liability to the Financial Creditor M/s. Punjab National Bank (having 96% voting share in CoC). Though instructions were sought from the Mr. Mathew Kavalan as to why the Promotor and representative of the Holding Company had resigned wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parent company is responsible to make good the cash loss to the Corporate Debtor to settle the creditors' claims arising on account of CIRP. The parent company has also provided two performance bank guarantees to M/s. BPCL Kochi Refinery for the project (full security deposit against bank guarantee) amounting to ₹ 24.67 crores which is to be expired on March 31,2020. 15. In the meanwhile, the Operational Creditors of the Corporate Debtor has filed this application to this Bench to urgently consider the above since the bank guarantees are expiring on March 31, 2020. As we are facing the situation of lock down in our country, the Bank Guarantee No. 0010BG00002215 dated 14.07.2014 issued by ICICI Bank for an amount of ₹ 12,96,01,078/- and Bank Guarantee No. 5525604809 dated 07.07.2014 for USD 16,50,000/- issued by the CITI Bank, Mumbai have amended the expiry dates to 30.06.2020 respectively. The emails sent by ICICI Bank to M/s. BPCL Kochi Refinery and CITI Bank to M/s. BPCL Kochi Refinery on 31.03.2020 were sent by the Resolution Professional through mail to the Registry and was placed on record. 16. Circumstances being as above, the applicants quoted the case of Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in insolvency may affect corporate debtor entities significantly, this issue may be dealt with in the long-term once the present system is well established. Quoting the above Report, the Order of Mumbai Bench stated as below: 76. At that point of time the Hon'ble Members of the Insolvency Law Committee have thought that the mechanism of combining Insolvency proceedings in respect of associate or holding companies was 'too soon to introduce', but the jurisprudence on Insolvency Code developed very fast in last 3 years, as witnessed by all of us, that this problem of 'Consolidation' has also cropped sooner than expected in this Group of cases, so pressing that it cannot be avoided or deferred. No option is available to this Bench to declare that in the absence of any specific provisions in the I B Code 2016 issue of 'Consolidation' is premature so be not dealt with. Nonetheless, I cannot hold that in the absence of Law, the question of Consolidation need not to be addressed. I am aware that this approach shall not be appreciated being against the natural justice. Equity demands to give a verdict on an issue raised by the litigants before a court of law, bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 62. It is not necessary to take into account the facts of that case. We may, however, note that in that case the corporate veil was lifted to confer benefit upon a group of companies under the provisions of the Land Compensation Act, 1961 of England. Lord Denning at page 467 of the report has made certain interesting observations which are worth repeating in the context of the instant case. The Master of the Rolls said at page 467 as follows: - Third, lifting the corporate veil. A further very interesting point was raised by counsel for the claimants on company law. We all know that in many respects a group of companies is treated together for the purpose of general accounts, balance sheet and profit and loss account. They are treated as one concern. Professor Gower in his book on company law says: 'there is evidence of a general tendency to ignore the separate legal entities of various companies within a group, and to look instead at the economic entity of the whole group. This is especially the case when a parent company owns all the shares of the subsidiaries, so much so that it can control every movement of the subsidiaries. These subsidiaries are bound hand and foot to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil. 37. It is thus clear 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. As such keeping in mind of the ratio laid down in above cases of LIC, Renusagar, it is clear that the law and criteria for lifting or not lifting corporate veil changes from case to case and law is evolving in modern jurisprudence. Therefore it can not be said that corporate veil can be lifted only for particular reasons but has to be judged on unique facts applicable to each case. In our opinion the facts pertaining to present case and relationship of Respondent No. 1 to 5 is also unique and which is also to the knowledge of the Lenders and BP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above decided case laws, we came to a conclusion 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. Section 221 (Agent's lien on principal's property) and Section 222 (Agent to be indemnified against consequences of lawful acts) of the Indian Contract Act, 1872 can also be involved in this instant application. The Invoicing Payment Terms in Agreement dated 19.05.2014 between the Prime Contractor (Albanna Engineering LLC) and Subcontractor (Albanna Engineering (India) Pvt. Ltd) clearly states that: M/s. Albanna engineering LLC, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous of the fact that these guarantees are performance guarantees. Section 126 of the Indian Contract Act defines a 'contract of guarantee' as: a contract to perform the promise, or discharge the liability, of a third person in case of his default. However, there is a slight variation in 'financial guarantee' and 'performance guarantee'. Whereas a financial guarantee promises repayment of money, in case of non-completion of the contract by client, a 'performance guarantee', on the other hand provides a promise of compensation in case of inadequate or delayed performance of a contract. In other words, in both financial guarantee and performance guarantee, the liability of the bank is reduced to financial compensation only. In the instant case also, the Banks will compensate the Respondent No. 4 for non-performance by way of financial payments only. The pleadings of the applicant are to invoke Bank Guarantees, so that the parent company cannot get away from its obligations towards the contractors/ suppliers engaged by the Corporate Debtor to execute the contract of the parent company, which is a 100% wholly owned subsidiary of AELLC. We are convinced wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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