Impleadment of an “Additional” Corporate Debtor in an Application filed by an Operational Creditor

Background: The Hon’ble Adjudicating Authority vide its order dated 26.11.2020 allowed impleadment of Inkel Limited (“Inkel”) as an “additional” corporate debtor in an Application filed by an operational creditor for initiation of Corporate Insolvency Resolution Process of its subsidiary namely Seguro Foundations & Structures Private Limited (“Seguro”/ “Corporate Debtor”).

1. What is the genesis of the case?
The operational creditor was appointed as the Project manager by the Corporate Debtor. On account of non-payment of dues, the operational creditor sent a demand notice to the Corporate Debtor and on receiving no response, filed an Application u/S 9 of the Insolvency and Bankruptcy Code, 2016 (“IB Code”) before the Kochi Bench of the Hon’ble Adjudicating Authority.

2. What has the Hon’ble Adjudicating Authority ordered?
The Hon’ble Adjudicating Authority vide order dated 26.11.2020 allowed impleadment of Inkel basis a number of material facts pleaded by the Operational Creditor, some of which are as follows:
The Corporate Debtor failed to enter appearance despite effective service.
The Corporate Debtor is a subsidiary of Inkel which holdings a 65% stake therein.
The operations of the Corporate Debtor are being controlled by Inkel, and the erstwhile managing director of Inkel is the present managing director of the Corporate Debtor, also being a part of the minority shareholder group of the corporate debtor.

Apart from the above, the operational creditor also contended that Inkel has acquired the Corporate Debtor exclusively for the purposes of entering into agreements while limiting its own liability.

The Hon’ble Adjudicating Authority while allowing the impleadment heavily relied upon the judgment of the Hon’ble National Company Law Appellate Tribunal in Mrs. Mamatha v. AMB Infrabuild Pvt. Ltd & Ors. [Company Appeal (AT) (Insolvency) No. 155 of 2018], wherein the Hon’ble National Company Law Appellate Tribunal (“NCLAT”) held that a joint corporate insolvency resolution process is maintainable in the case of real estate companies which collaborate and jointly form one unit or entity for conducting its business.

3. Validity of a combined insolvency resolution process against multiple corporate debtors in the present regime of the IB Code
While a joint corporate insolvency resolution process of multiple corporate debtors may cause numerous complexities and challenges for its stakeholders, this concept is being follow time and again by the Hon’ble NCLAT, and now the Hon’ble Adjudicating Authority. Even though the IB Code does not contain any provision for a combined resolution process of multiple corporate debtors, the Hon’ble NCLAT first in the matter of AMB Infrabuild supra and then in the matter of Adel Landmarks Ltd. have upheld the validity of joint resolution processes, also termed as group insolvency or consolidation of insolvency resolution process of group companies.

However, such orders must be passed sparingly after looking into the facts of each case where such orders are sought.

 

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