NCLAT (18.11.2021) In Jitender Arora RP M/s. Premia Projects Ltd. Vs. Tek Chand [Company Appeal (AT) (Ins) No. 1069 of 2020] held that; -
In the instant appeal the initiation of CIRP has been ordered only against the Corporate Debtor (developer) but at this stage there is neither any application for initiation of CIRP against the landowner/ landholder nor there is any order regarding initiation of the CIRP against the landowning company M/s Solitaire Infomedia Pvt. Ltd.
A joint CIRP would be possible only if there is an application for admission of CIRP under the IBC against the landowning entity and there is a strong case for undertaking joint CIRP.
There is no provision in the IBC for a joint CIRP. In State Bank of India and Anr. versus Videocon Industries Limited and Others (supra), a consolidated CIRP has been ordered in view of the fact that there are admission orders for insolvency resolution against 15 companies that has already been given, and prayer was made for undertaking consolidated CIRP since the assets of all the 15 companies were inter-linked and interwoven.
In the instant case, the shares of the Corporate Debtor in the Respondent No. 2 company are not shown as pledged or secured with any creditor. But the basic point is that the shares of the Corporate Debtor in Respondent No.2 company should be considered as part of total assets of Corporate Debtor in the Resolution Plan.
The landowning company M/s Solitaire Infomedia Pvt. Ltd. is not under CIRP, hence it would not be possible to include in the CIRP of the Corporate Debtor the asset of land on which the Corporate Debtor is developing the housing project but which is owned by the Respondent No. 2 company without following the due procedure as enumerated in law.
Excerpts of the order;
This Judgment relates to the appeal filed by Jitender Arora, Resolution Professional (RP) of the Corporate Debtor (CD) M/s Premia Projects Limited, who is aggrieved by the impugned order in I.A. No. 4132 of 2020 in CP (IB) No. 104/PB/2018, passed by the Adjudicating Authority (NCLT, Delhi) on 29.10.2020 (hereinafter called Impugned Order).
# 3. It is stated by the Appellant that a plot of land was allotted by Greater Noida Industrial Development Authority(GNIDA in short) by allotment letter dated 11.3.2009 to the landowning company M/s Solitaire Infomedia Pvt. Ltd.(Respondent No.2). Thereafter, a Collaboration Agreement was entered into on 1.10.2012 by the Corporate Debtor Premia Projects Limited with Respondent No. 2, the landowning company. At this time Mr. Tarun Sheinh was the Director and major shareholder of the Corporate Debtor Company. Mr. Tarun Sheinh became a director in the Respondent No.2 company too, soon after executing the aforementioned Collaboration Agreement. In the landowning company (Respondent No. 2), Tarun Sheinh and his wife Rekha Sheinh held a total of 98,000 equity shares of Rs. 10 each and, which accounted for 49% of the total share capital of Respondent No.2 company (refer Additional Affidavit of the Appellant filed vide diary No. 26753 dated 12.4.2021), and the Corporate Debtor Premia Projects Limited held 1,02,000 number of shares of Rs. 10 each accounting for 51% of the total share capital of Respondent No.2 landowning company. The transaction audit report dated 28.9.2019 submitted by the Appellant (pg. 279 of the Appeal Paperbook Vol II) mentions that the Corporate Debtor Premia Projects Limited purchased all the shares held by Tarun Sheinh and his wife Rekha Sheinh in R-2 company on 5.10.2015 and only 100 equity shares were retained by the Tarun Sheinh..Thus from 5.10.2015, Corporate Debtor M/s Premia Projects Limited started to hold 1,99,900 shares in Respondent No.2 company and only 100 shares were held by Tarun Sheinh. Thus, the Corporate Debtor Premia Projects Limited had almost total control over the Respondent No. 2 landowning company. Simultaneously, on 31.3.2015, Tarun Sheinh held 47,500 equity shares out of 50,000 shares in the Corporate Debtor Premia Projects Limited. Thus, he effectively controlled both the corporate debtor as well as Respondent No. 2 landowning company and he was director in both the companies.
# 4. The RP filed I.A. No. 4132 of 2020 before the Adjudicating Authority claiming that Tarun Sheinh, director in both the companies has, through the Collaboration Agreement dated 1.10.2012 entered into between the CD and the Respondent No. 2 landowning company and Memoranda of Understanding entered into with home-buyers for booking and sale of flats constructed on it, defrauded and cheated the home buyers who had booked flats in the project being developed by the Corporate Debtor. Through this IA No. 4132 of 2020, the RP sought the following directions from the Adjudicating Authority: –
(i) Allow RP to take charge of assets of the subsidiary company M/s. Solitaire Infomedia Private Limited, or
(ii) Allow RP of the Corporate Debtor to initiate joint CIRP of both the holding company and its subsidiary (i.e. the Corporate Debtor and its subsidiary Respondent No.2).
By the impugned order dated 29.10.2020 (attached at page 55 of the Appeal Paperbook) the Adjudicating Authority denied the prayed relief holding that there was no provision in the IBC to grant such relief.
# 5. The Collaboration Agreement provided that the Respondent No. 2 will hand over the possession of land to developer after receiving a valuable consideration, and the CD will develop the project and have exclusive right of sales and marketing of 90% of the constructed area and the owner of the land (Respondent No.2) will be entitled to ownership and right to sell 10% of the constructed area apart from receiving Rs. 4.5 Crores as cash both being part of consideration as contained in the Collaboration Agreement.
# 10. The main issue in this appeal is whether the corporate debtor M/s. Premia Projects Limited and Respondent No.2 M/s. Solitaire Infomedia Limited should either be considered for joint CIRP so that the land can be considered as an asset in the joint CIRP of the Corporate Debtor and Respondent No. 2. This issue is significant because while the Corporate Debtor received the booking amounts from the home buyers, it is the allegation of the RP and home buyers that the ex-director of the CD Tarun Sheinh siphoned off the amounts so received in other companies controlled by Tarun Sheinh and hence no significant monies are available with the CD for its meaningful insolvency resolution. The issue assumes significance since the land on which the project was to be developed is an integral constituent of the project through which the flats were being constructed and this asset of land could be instrumental in insolvency resolution of CD if a joint CIRP for the CD and Respondent No. 2 is undertaken.
# 25. When we read the definitions of ‘property’, ‘transaction’, ‘transfer’ along with the provisions of section 29 (regarding provision of Information Memorandum) in a constructive manner and consider meaning along with the spirit and letter of the IBC as contained in the preamble of IBC, it becomes clear that such assets, which are transferred to or from the Corporate Debtor, and which are germane to the insolvency resolution of the Corporate Debtor and are part of the assets of the Corporate Debtor, even if held by another company, such assets should be included in the Information Memorandum das well as insolvency resolution. It is only with such consideration and meaning of assets/property that the creditors of the Corporate Debtor can get their rightful dues as is required and provided under the IBC. Moreover, the Collaboration Agreement between the Corporate Debtor and its partly or statutory, the land owing company Respondent No. 2 transfers assets of land to the Corporate Debtor, whereby the Corporate Debtor on the strength of this asset is able to enter into MoUs with home buyers. Therefore, the Collaboration Agreement is very organic to the entire process of insolvency resolution of the Corporate Debtor, and the asset of land which is transferred and given in possession by the land owner company Respondent No. 2 also becomes an ‘asset’ of the Corporate Debtor.
# 28. The Insolvency and Bankruptcy Code, 2016 provides for the resolution of insolvent companies for the revival of those companies and for the benefit of financial and operational creditors. The preamble of the IBC states that the reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons is the prime objective of this legislation. Taking a cue from such an objective and the detailed framework provided under IBC, there is no gainsaying the fact that the interests of creditors which doing an effective resolution of an insolvent company are the primary objectives of the IBC. Therefore, if a Corporate Debtor has intricate financial relationship with another company which is controlled in an overwhelming manner by the same set of directors, as the corporate debtor and their businesses are inter-related, intertwined and interwoven, it stands to reason that such companies should be looked at jointly, for matters related to insolvency resolution, as the financial revival of one company will be closely linked to the financial health of the other company.
# 29. There is no provision in the IBC for a joint CIRP. In State Bank of India and Anr. versus Videocon Industries Limited and Others (supra), a consolidated CIRP has been ordered in view of the fact that there are admission orders for insolvency resolution against 15 companies that has already been given, and prayer was made for undertaking consolidated CIRP since the assets of all the 15 companies were inter-linked and interwoven. The Adjudicating Authority has given a 14 point test in para 80 of this judgment for deciding whether consolidation of individual CIRPs should be done to yield maximum benefits to stakeholders. Para 80 of State Bank of India and Anr. versus Videocon Industries Limited and Ors (supra) gives the essential ingredients of the 14 point test which is reproduced hereunder:- . . . . . . . .
We find that in the instant appeal, the two companies – Corporate Debtor Premia Projects Ltd. and the Respondent No. 2 landowning company M/s Solitaire Infomedia Private Limited broadly satisfy the points enumerated in the 14-point test.
# 30. In the matter of Mrs. Mamatha versus AMB Infrabuild Private Limited and Ors. (supra), the NCLAT has held that the developer and the land owner should be treated jointly for the purpose of initiation of CIRP against them. Hence, the Appellant remitted to the Adjudicating Authority for admission of the case after notice to the parties. The important point to note in this matter is that an application for initiation of CIRP jointly against ‘developer’ and the ‘landowners’ was filed, which was rejected by the Adjudicating Authority. In the instant appeal the initiation of CIRP has been ordered only against the Corporate Debtor (developer) but at this stage there is neither any application for initiation of CIRP against the landowner/ landholder nor there is any order regarding initiation of the CIRP against the landowning company M/s Solitaire Infomedia Pvt. Ltd.
# 31. In the situation as obtains in the matter related to the present appeal, a joint CIRP would be possible only if there is an application for admission of CIRP under the IBC against the landowning entity and there is a strong case for undertaking joint CIRP. We have found, upon piercing of corporate veil, that both the Corporate Debtor and Respondent No.2 have common Director Tarun Sheinh and their assets are intricately interwoven in their business operations. In addition, we have also seen that the corporate debtor. M/s. Premia Projects Limited has controlling shares in the landowning company (Respondent no.2). Thus, it is quite clear that their assets have been taken together for the development of the housing project. Therefore, there appears to be a strong case for considering the assets of both the companies jointly.
# 32. The Hon’ble Supreme Court, in the matter of Jaypee Kensington Boulevard Apartments Welfare Association and Ors. versus NBCC (India) Limited and Ors (2021 SCC Online SC 253) has among other issues looked at the assets of a 100% subsidiary Jaypee Healthcare Limited (JHL) of the corporate debtor Jaypee Infratech Limited (JIL) for a proper resolution and taking care of resolution of the Corporate Debtor in order to take care of the interests of the creditors of the Corporate Debtor, who are among others homebuyers allotted flats by the Corporate Debtor. The relevant portion of this judgment is reproduced below –
“137. Indisputably, the corporate debtor JIL owns 100% equity shareholding in JHL which is having three operational hospitals in the State of Uttar Pradesh………
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142. In view of the above, we do not consider it necessary to render any other finding in this point for determination except the observation that the resolution plan essentially deals with the assets of the corporate debtor JIL and not that of its subsidiary JHL. Differently put, what the resolution plan deals with are the shares in JHL, which are regarded as assets of the corporate debtor JIL. As observed, no further comments are required and we leave this aspect of the matter at that only.”
Viewed from the angle clarified in the above mentioned paragraph, the shareholding of the Corporate debtor in the Respondent No. 2 Company, is over 97% in the asset of the Corporate Debtor and should therefore be part of Information Memorandum. Thus there exists a cogent case of undertaking joint CIRP.
# 33. As is evident from the above referred portions of the Jaypee Kensington (supra) judgment the asset of the Corporate Debtor JIL were considered in the resolution plan. Inter- alia the 100% shares held by the corporate debtor JIL in JHL were also considered, wherein a lender of JHL Yes Bank raised objection about its interests being harmed in case the shareholding of the Corporate Debtor JIL is considered as an asset in the overall corporate insolvency resolution of JIL. The Hon’ble Supreme Court has taken note of the objection and held that the shares of JIL and JHL, which are regarded as assets of the Corporate Debtor JIL would be considered in the resolution plan, of course after giving due consideration to the lenders of JHL, to whom the share of JIL have been pledged. In the instant case, the shares of the Corporate Debtor in the Respondent No. 2 company are not shown as pledged or secured with any creditor. But the basic point is that the shares of the Corporate Debtor in Respondent No.2 company should be considered as part of total assets of Corporate Debtor in the Resolution Plan.
# 34. The basis for considering land as a necessary asset in the insolvency resolution of the corporate debtor is evident from the manner of costing of a flat in an apartment complex. Since IBC does not provide any indication about costing of flats in a housing project, we turn our attention to the Real Estate (Regulations and Development) Act, 2016 which relates to real estate projects and connected matters. As the project is located in Uttar Pradesh we consider the Uttar Pradesh Real Estate Regulatory Authority (General) Regulations, 2019 (hereinafter called ‘Regulations’). The costing of the flat is covered in the Section 4(l)(D) of the Real Estate (Regulation and Development) Act, 2016, whereby the developer is required to submit in Form 3 provided in the Regulations through a Chartered Account.
# 35. As is evident from the Form 3 extracted above, the cost of the project includes cost of land and cost of development. This total cost of the project forms the basis of the cost of each flat. Each home buyer pays for the proportionate share of land along with the cost of development and construction. Therefore, in considering their rightful interest in the resolution of the corporate debtor company, it is reasonable and logical to factor in the connected land parcel in the total assets base.
# 36. In view of the aforementioned discussion, we consider it just, fair and proper that the land held by Respondent No.2 M/s. Solitaire Infomedia Pvt. Ltd., is an integral part of the housing development project, and should be considered as a part of the total asset base for the insolvency resolution of the Corporate Debtor M/s. Premia Projects Limited. The inter-woven nature of the assets of the two companies is amply clear from the provisions of the ‘Collaboration Agreement’ and the ‘MOU’ respectively. The Corporate Debtor has provided valuable consideration to Respondent No.2 and also taken possession of the land in question for developing the housing project through the Corporate Debtor. Hence, the asset of land is effectively transferred to the Corporate Debtor, on whose strength it has entered into Memoranda of Understanding with various homebuyers. On the basis of these MOUs the CD has collected monies from the home buyers. Moreover, in the costing of flats offered to homebuyers, the cost of land that proportionately is attached with each flat is a part of the total cost of each flat. In such a situation, it would not be fair and just to the creditors of the Corporate Debtor, which include the homebuyers, if the land in question is considered as part of the overall CIRP process and included in the information memorandum. In such a situation, a meaningful resolution plan could be proposed by an applicant.
# 37. In the instant matter the CIRP of the corporate debtor M/s Premia Projects Ltd. is under consideration. The landowning company M/s Solitaire Infomedia Pvt. Ltd. is not under CIRP, hence it would not be possible to include in the CIRP of the Corporate Debtor the asset of land on which the Corporate Debtor is developing the housing project but which is owned by the Respondent No. 2 company without following the due procedure as enumerated in law. We, therefore, direct that the matter be remanded to the Adjudicating Authority with further direction that an admission application for the landowning company M/s. Solitaire Infomedia Pvt. Ltd. be considered by the Adjudicating Authority, and a consolidation of CIRP be thereafter considered so that the combined assets of land and flats may be considered together to provide fair, just and proper relief to the creditors of the Corporate Debtor Premia Projects Limited.
# 38. With these directions, the matter is remanded to the Adjudicating Authority to complete the process as directed above at an early date, preferably within two months, and pass appropriate orders. No order as to costs.
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