Assets Of Subsidiary Company Cannot Be Dealt With In CIRP Of Holding Company: NCLAT Delhi
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Dr. Alok Srivastava (Technical Member) and Mr. Barun Mitra (Technical Member), while adjudicating an appeal filed in Greater Noida Industrial Development Authority (GNIDA) v Roma Unicon Designex Consortium, has held that the assets of the Subsidiary Company...
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson), Dr. Alok Srivastava (Technical Member) and Mr. Barun Mitra (Technical Member), while adjudicating an appeal filed in Greater Noida Industrial Development Authority (GNIDA) v Roma Unicon Designex Consortium, has held that the assets of the Subsidiary Company cannot be dealt with in the CIRP of Holding Company. A parcel of land was leased by Greater NOIDA Authority to the subsidiary of Corporate Debtor (Holding Company). In the CIRP of Corporate Debtor, the approved Resolution Plan proposed to transfer the subsidiary’s land to the Successful Resolution Applicant, without obtaining Greater NOIDA Authority’s consent. The Bench has set aside the orders approving the resolution plan of the Successful Resolution Applicant.
Background Facts
On 19.03.2010 Greater Noida Industrial Development Authority (“GNIDA”) allotted Group Housing Plot No.GH-04 situated in Sector 01, Greater NOIDA (“Land”) to a Consortium consisting of – (i) M/s Earth Infrastructures Limited (“Corporate Debtor”); (ii) Raus Infras Ltd.; and (iii) M/s. Shalini Holdings Limited.
The Consortium formed a Special Purpose Company (SPC) named M/s Earth Towne Infrastructures Pvt. Ltd. (“Earth Towne”) for the purpose of lease of the allotted Land. The SPC Earth Towne consisted of the Corporate Debtor as a Lead Member and M/s Raus Infrastructure and M/s Shalini Holdings Ltd. as Members.
Accordingly, Lease Deed dated 01.09.2010 was executed by GNIDA in favour of Earth Towne for development and marketing of the Project on the Land.
Subsequently on 09.09.2010 the development rights of the Land were given to the Corporate Debtor through an unregistered Development Agreement. Three projects commenced on the Land namely – Earth Towne Project, Earth Techone and Earth Sapphire Court.
On 06.06.2018 Corporate Debtor was admitted into Corporate Insolvency Resolution Process (“CIRP”) and a Resolution Professional was appointed.
GNIDA addressed a letter dated 18.09.2019 to the Resolution Professional, claiming dues on the subsidiary of the Corporate Debtor, namely Earth Towne, for an amount of Rs.148,37,46,148/-, arising out of the Lease Deed dated 01.09.2010.
Roma Unicon Designex Consortium submitted a Resolution Plan for the Earth Towne Project. The Resolution Plan was approved by the Committee of Creditors (“CoC”) with 100% voting share and subsequently by the Adjudicating Authority on 05.04.2021.
Alpha Corp Development Pvt. Ltd. also submitted a Resolution Plan, which was approved by the CoC and by the Adjudicating Authority on 08.06.2021 for two projects namely Earth Sapphire Court and Earth Techone.
The Resolution Plan proposed to transfer the development rights as well as the title of the Land to the Successful Resolution Applicant, without payment of dues of GNIDA or seeking its approval.
The Adjudicating Authority passed an order dated 07.12.2021 for implementation of the resolution plan. GNIDA filed appeals before the NCLAT against the orders dated 05.04.2021, 08.06.2021 and 07.12.2021.
Contentions Of Appellant
GNIDA argued that the Resolution Plan does not take any liability of GNIDA despite noticing its dues. The Land leased by GNIDA to Earth Towne could not be considered in CIRP of its Holding Company, the Corporate Debtor, since the latter is neither the Lease Holder nor has any right, title, or interest in the said Land. It was contended that the CoC is not competent to consider and vote on the property which does not belong to the Corporate Debtor, specially without seeking the Lessor’s consent.
Issue
Whether assets of the subsidiary companies can be dealt with in the CIRP of holding Company?
NCLAT Verdict
The Bench observed that Explanation to Section 18(1)(f) of IBC contemplates that assets of subsidiary company are entirely different from assets of the holding company.
Reliance was placed on the Supreme Court judgment in Embassy Property Developments Private Limited vs. State of Karnataka and Ors., (2020) 13 SCC 308, wherein it has been held that assets owned by third party, which is in possession of the Corporate Debtor under contractual arrangements, is specifically kept out of the term of “assets” under the explanation to Section 18 of IBC. The asset which is not the asset of the Corporate Debtor, there will be no jurisdiction with the NCLT to deal with lease hold rights.
Reliance was further placed on NCLAT judgment in Bhavik Bhimjyani vs. Uday Vinodchangra Shat, Company Appeal (AT) (Insolvency) No. 182 of 2018, wherein it has been reiterated that Resolution Professional has no jurisdiction to take over any assets of the subsidiary Company of the Corporate Debtor.
The Bench observed that when the Information Memorandum did not include the Project Land as the asset of the Corporate Debtor, there was no occasion to include the Project land in the Resolution Plan.
“51. The Resolution Plan does not confine itself to the development rights, which were granted by the land owning company in favour of the Corporate Debtor on an unregistered Agreement, but also contemplates transfer of title of land in favour of Successful Resolution Applicant/ Special Purpose Company as contemplated in the Resolution Plan, which is an impermissible. The Development Agreement, which was unregistered document, could not have dealt with any right in the Project land and the lease hold right as per Development Agreement continued with the Lessee. Hence, the Resolution Plan could not have provided for transfer of the lease land in favour of Successful Resolution Applicant/ Special Purpose Company.”
The Bench held that assets of a Subsidiary Company cannot be dealt with in the CIRP of Holding Company, without the permission of the Lessor.
Further, Resolution Plan submitted by Roma Unicon Designex consortium and Alpha Corp Development Pvt. Ltd. could not have dealt with the Project Land, which was leased out by GNIDA in favour of the Corporate Debtor’s subsidiary.
The Bench set aside the Impugned Orders whereby resolution plans were approved. The Resolution Professional has been directed publish a fresh Form-G, containing a condition that Resolution Plans received shall be placed for consideration after receiving prior approval of the GNIDA for transfer of land in favour of the proposed resolution applicant, subject to arrangement for payment of dues of GNIDA.
The appeal has been disposed off.
Case Title: Greater Noida Industrial Development Authority (GNIDA) v Roma Unicon Designex Consortium
Case No.: Company Appeal (AT) (Insolvency) No. 180 of 2022
Counsel For Appellant: Mr. Krishnendu Datta, Sr. Advocate with Mr. Manish Kumar Srivastava, Manpreet Kaur, Ms. Varsha Himatsingka, Mr. Kartik Pandey, Mr. Sagar Arora, Mr. Aaditya Mishra, Advocates. Mr. U. N. Singh with Md. Faisal Masood, Advocates.
Counsel For Respondents: Mr. G.P. Madaan, Mr. Ashish Makhija, Ms. Akanksha Vasudeva, Aditya Madaan, Harimohana, Advocates Aishwarya Adlakha, for Erstwhile RP. Mr. Abhishek Anand, Mr. Prateek Kushwaha, Mr. Nipun Gautam, Mr. Sajal Jain, Advocates for R-1/SRA. Mr. Vivek Kohli, Sr. Advocate with Mr. Sandeep Bhuraria, Ms. Parijat Singh, Mr. Arinjay Singh, Advocates for R-2. Mr. Arshdeep Singh Khurana, Mr. Hitesh Rai, Mr. Harsh Mittal, Advocates for R-3. Mr. M.P. Sahay, Ms. Awantika and Mr. Sachin Kharb, Advocates for Homebuyers. Mr. Akshya Makhija, Sr. Advocate, Mr. Shashank Raghav, Ms. Shubhangini Yadav, Advocates for Intervenor.