Insolvency and Bankruptcy Code, 2016 – CIRP of holding Company – Lifting of corporate veil – In the CIRP proceedings of the Corporate Debtor-Earth Infrastructures Limited (EIL), whether the assets of the land holding companies-subsidiary of the Corporate Debtor can be treated to be assets of the Corporate Debtor – Whether assets of the subsidiary companies can be dealt with in CIRP of holding Company – Whether present is a fit case to lift the corporate veil – NCLAT inter alia held that the assets of the three subsidiary companies of EIL, the CD, could not be treated as its assets: Held: When, in reality, associated or group companies are inextricably connected so as to form part of one concern, the corporate veil should be lifted – Where protection of public interest is of paramount importance or where a company has been formed to evade obligations enforced by law and by the Courts, the Court would disregard the corporate veil – This principle would be applied even to group companies so that one is able to look at the economic entity of the group as a whole – Neo Multimedia Limited and Nishtha Software Private Limited were both wholly owned subsidiaries of EIL, the CD – They had leases over the lands in which EIL was to develop the projects, viz., Earth TechOne and Earth Sapphire Court – Earth Towne Infrastructures Private Limited (ETIPL) was incorporated only to enable GNIDA’s (Greater Noida Industrial Development Authority) leasing of land for development of Earth Towne and was controlled by EIL, with a 98% shareholding – Therefore, ETIPL stands on a different footing from the other two companies, insofar as GNIDA is concerned – All three companies either share common directors with EIL and/or have their relations as directors – The only assets of the three companies were the lands leased out to them by GNIDA for the projects in question – The companies’ shareholdings indicate that EIL was the dominant and majority shareholder – Further, on facts, GNIDA cannot claim ignorance of the constructions by EIL in relation to all three projects – This was an eminently fit case for lifting the corporate veil, as EIL was the main driving force in the development of the projects and in payment of GNIDA’s dues – The subsidiary companies were only a front – Given the fact that GNIDA is responsible for this litigation to a great extent, owing to its failure in monitoring the development of the projects and in taking timely measures to realise its dues from EIL, it would not be entitled to any interest on the principal amounts due for the extended period of twenty four months, during which the successful resolution applicants, Alpha and Roma, are required to clear its dues – The resolution plans of Alpha and Roma restored – The successful resolution applicants shall endeavour to complete the projects within the time frames indicated by them in their resolution plans – Companies Act, 2013 – s.2(87) – Uttar Pradesh Industrial Area Development Act, 1976 – s.3. [Paras 54-56, 68] Approbation and Reprobation – Impermissibility: Held: It is not open to GNIDA to approbate and reprobate – On the one hand, GNIDA contends that EIL, the CD, had nothing to do with the lands leased out by it to the three companies and that those lands ought not to have formed part of EIL’s assets during the CIRP proceedings – On the other hand, GNIDA raised claims before the IRP and the RP and it also complained of not being kept abreast of CIRP proceedings against EIL – GNIDA contributed greatly to the present imbroglio by its persistent inaction and ineptitude all through – Having executed lease deeds for development of the lands, it failed to keep track of and monitor the development being undertaken on such lands to ensure timely completion thereof within the stipulated period of seven years – Long prior to initiation of the CIRP proceedings against EIL, the CD, GNIDA was informed by the aggrieved home/office space buyers of the tardy progress in the construction of the projects but failed to take necessary coercive steps against the lessees and/or the developer, EIL – GNIDA cannot claim ignorance of the fact that it was EIL that was executing the development of the projects on all three plots of land leased out by GNIDA to the three companies – Having addressed a letter to the police authorities in relation to EIL’s construction on the land leased out to ETIPL, GNIDA cannot now seek to claim ignorance of the reality that it was EIL that was undertaking the construction of the projects on all three leased lands. [Paras 45, 49]
Insolvency and Bankruptcy Code, 2016 – s.25A(3A): Held: s.25A(3A) provides that an authorised representative u/s.21(6A) of the Code would cast his vote on behalf of the class of financial creditors he represents, such as homebuyers, in accordance with the decision taken by a vote of more than 50% of the voting share of the financial creditors he represents, who have cast their vote – The homebuyers of Earth Copia were, accordingly, represented by their authorised representative, who voted in favour of Alpha’s resolution plan dated 15.10.2019, as per the desire of majority of those homebuyers as a class – Therefore, it is not open to individual homebuyers, who may have been part of the minority that dissented thereto, to gain a foothold by opposing the majority’s decision – A few persons within such class cannot dissent with the majority vote in favour of the resolution plan. [Para 30]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Divya Pandey. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.