The NCLAT, New Delhi opined that the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) separately recognizes the assets of the Corporate Debtor and the assets of the subsidiary of the Corporate Debtor. Section 18(1) Explanation unequivocally provides that assets of the Corporate Debtor cannot include assets of the subsidiary company. It was expounded that assets of the subsidiary company cannot be dealt with in the CIRP of a holding company as both companies have separate legal statuses.
It was also propounded that the assets of the landholding companies (subsidiaries of the Corporate Debtor) cannot be treated as assets of the Corporate Debtor. Lastly, it was ruled that the resolution plan cannot deal with lease land and have a provision for the transfer of leasehold right without prior permission of the lessor.
Brief Facts:
The three appeals have been preferred against the orders passed by the NCLT, Delhi Bench in the same Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) initiated against the Corporate Debtor Earth Infrastructure Limited.
- Company Appeal (AT)(Insolvency) No. 180 of 2022 has been preferred against the order vide which the application of the Successful Resolution Applicant regarding the transfer of the leased land in favour of the Successful Resolution Applicant (“SRA”), was allowed.
- Company Appeal (AT)(Insolvency) No. 630 of 2022 has been preferred against the order vide which the resolution plan submitted by Roma Unicon Designex Consortium was approved.
- Company Appeal (AT)(Insolvency) No. 629 of 2022 has been preferred against the order vide which the application of Resolution Professional allowing the resolution plan of M/s Alpha Corp Development Pvt. Ltd. regarding 2 projects was allowed.
Brief Background:
Greater Noida Industrial Development Authority (“GNIDA”) vide allotment letter allotted some area to a Consortium including M/s Earth Infrastructure Limited, Raus infra Ltd. And M/s Shalini Holdings Limited. As per the Builders scheme, the Consortium was to form a separate company, hence, M/s Earth Towne Infrastructures Pvt. Ltd. (“Earth Townee”) Was incorporated.
Several lease deeds were executed by GNIDA and the development agreements were entered into, as per which Earth Infrastructure Limited was to develop on lands owned by
Earth Townee, M/s Neo Multimedia Ltd., and M/s Nishtha Software Pvt. Ltd.
There was a total of 3 projects in which many homebuyers booked residential flats.
Thereafter, an application under Section 7 of the IBC was preferred by a Financial Creditor against M/s Earth Infrastructure Limited (“Corporate Debtor”) which was admitted and CIRP was initiated.
Contentions of the Appellant:
It was submitted that the CIRP was only initiated against Earth Infrastructure Limited, which was the owner of the subsidiary company. The dues sent by the Appellant regarding the subsidiary companies were not considered by the Resolution Professional.
It was contended that the lands leased by the Appellant to the land-owning company could not have been made part of the assets of the Corporate Debtor as the Corporate Debtor neither had ownership nor leasehold rights. The Resolution Plan approved deals with the lands of the Appellant which should not be allowed as it was beyond the jurisdiction of the Resolution Professional.
It was further alleged that a shareholder of the company does not own assets of the company. Therefore, the Corporate Debtor being the majority shareholder cannot claim ownership of the project Earth Townee.
Contentions of the Resolution Professional:
It was asserted that Earth Townee is an alter ego of the Corporate Debtor as all payments regarding the lease deed was being made by the Corporate Debtor.
Contentions of the SRA (Roma Unicon Designex Consortium):
It was contended that the land belonged to the investors and not GNIDA. Further, the Appellant sent claims post approval of the resolution plans.
Contentions of the SRA (Alpha Corp Development Pvt. Ltd):
It was submitted that a Lessee has a right to sell under the Lease Deed. Further, the land under which the projects for which Alpha Corp submitted its resolution plan was leased by the Appellant in favour of the subsidiary companies of the Corporate Debtor.
Contentions of the Earth Towne Flat Buyers Welfare Association:
It was submitted that Section 3(27) of IBC provides an expansive definition of “property” so that it includes development rights as well.
Further, the Appellant was aware that Earth Infrastructure Ltd. was carrying out the development on the land. Many times, flat owners approached the Appellant praying to intervene and ensure that construction does not stop.
It was asserted that as per flat buyers, there was no distinction between Earth Infrastructure Ltd and Earth Towne Infrastructure.
Observations of the Tribunal:
It was noted that as per the Information Memorandum, the land of the three projects was leased by GNIDA and M/s Earth Infrastructure Ltd. was the developer.
The primary issues framed by the Tribunal for adjudication were:
- Whether in CIRP proceedings, the assets of landholding companies (subsidiaries of the Corporate Debtor) can be treated as assets of the Corporate Debtor.
- Whether the resolution plan can deal with lease land and have a provision for the transfer of leasehold right without prior permission of the GNIDA.
- Whether assets of a subsidiary company can be dealt with in CIRP proceedings of the holding company.
The Tribunal noted that the allotment of the land initially was in favour of a Consortium of which Earth Infrastructure Ltd was the lead member. Further, it was as part of the scheme of allotment that a land holding company was incorporated as a special purpose company for the development of the land. As per the lease deed, the Lessee, who was the subsidiary company of the Corporate Debtor was to carry out all the obligations towards the Appellant.
It was observed that the IBC separately recognizes the assets of the Corporate Debtor and the assets of the subsidiary of the Corporate Debtor. Section 18(1) Explanation unequivocally provides that assets of the Corporate Debtor cannot include assets of the subsidiary company. Therefore, the assets of Earth Townee were not to be considered when dealing with the assets of the Corporate Debtor. It was expounded that assets of the subsidiary company cannot be dealt with in the CIRP of a holding company as both companies have separate legal statuses.
After examining the information memorandum as a whole, the Bench noted that it did not represent that Corporate Debtor was the owner of the Project land. The lease deed executed by the Appellant in favour of the land holding company made it clear that the contractual agreement was between the lessor and lessee. Without prior permission of the lessor, the resolution plan sought to transfer the development rights along with the title of the land in favour of a third party, which cannot be allowed.
It was further propounded that since the Appellant was neither a creditor nor a stakeholder in the CIRP, the resolution plan could not have been made binding on it. Moreover, the development agreement which transferred right in favour of the developer was unregistered and the Appellant was not made a party to it, therefore, the same would also not be binding.
The Appellate Authority opined that without the approval of the Appellant, the leased land could not have been included in the Resolution Plan and hence, the NCLT could not have directed for the transfer of the said lease land.
The answers to the issues framed by the Tribunal:
- Assets of the landholding companies (subsidiaries of the Corporate Debtor) cannot be treated as assets of the Corporate Debtor.
- The resolution plan cannot deal with lease land and have a provision for the transfer of leasehold right without prior permission of the Lessor.
- Assets of a subsidiary company cannot be dealt with in CIRP proceedings of the holding company without the permission of the Lessor.
Noting that the allottees have spent huge money on the said projects and have been waiting for the possession of flats for the last several years, the Tribunal ruled that the Resolution Professional along with the Flat Buyer Association can file an application before the Appellant to seek transfer of land in favour of the proposed applicant.
To balance the interests of the allottees and the Appellant, it was also held that any resolution plan shall only be considered once the dues of the Appellant are paid.
The decision of the Tribunal:
Based on the above-mentioned findings and conclusions, the orders of the NCLT were set aside and accordingly, the appeals were disposed of.
Case Title: Greater Noida Industrial Development Authority (GNIDA) v. Roma Unicon Designex Consortium and other connected matters
Coram: Justice Ashok Bhushan, Dr. Alok Srivastava, Mr. Barun Mitra (Technical Members)
Case No: Company Appeal (AT)(Insolvency) No. 180 of 2022 and other connected matters
Advocates for Appellant: Advs. Mr. U.N. Singh, Md. Faisal Masood, Mr. Krishnendu Datta, Mr. Manish Kumar Srivastava, Manpreet Kaur, Ms.Varsha Himatsingka, Mr. Kartik Pandey, Mr. Sagar Arora, Mr.Aditya Mishra
Advocates for Respondents: Advs. Mr. G.P. Madaan, Mr. Ashish Makhija, Ms. Akanksha Vasedeva, Aditya Madaan, Harimohana, Aishwarya Adlakha, Mr. Abhishek Anand, Mr. Prateek Kushwaha, Mr. Nipun Gupta, Mr. Sajal Jain, Mr. Vivek Kohli, Mr. Sandeep Bhuraria, Mr. Parajit Singh, Mr. Arinjay Singh, Mr. Arshdeep Singh Khurana, Mr. Hitesh Rai, Mr. Harsh Mittal, Mr. Akshya Makhija, Mr. Shashank Raghav, Ms. Shubhangini Yadav, Mr. Abhijeet Sinha, Ms. Charu Sangwan, Mr. Krishna Raj, Mr. Saikat Sarkar
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