2021 (4) TMI 144 - AT - Insolvency and Bankruptcy

Appellate Tribunal permits consolidation of CIRPs, stressing benefits for insolvency proceedings.

The Appellate Tribunal allowed the consolidation of the Corporate Insolvency Resolution Processes (CIRPs) for two companies based on meeting the ... Consolidation of corporate insolvency resolution processes - common control and common directors - common assets and inter-dependence of corporate debtors - common liabilities, guarantees and pari passu security - associate company (Companies Act definition applied) - common financial creditors and pooling of resources - balance of convenience and protection of secured creditors' rights - locus of operational creditor to seek consolidationConsolidation of corporate insolvency resolution processes - common control and common directors - common assets and inter-dependence of corporate debtors - common liabilities, guarantees and pari passu security - associate company (Companies Act definition applied) - common financial creditors and pooling of resources - balance of convenience and protection of secured creditors' rights - locus of operational creditor to seek consolidation - Application for consolidation of the CIRPs of Respondent Nos. 1 and 2 is allowed and the impugned order rejecting consolidation is set aside. - HELD THAT: - The Tribunal applied the parameters for ordering consolidation and held that the two corporate debtors satisfy the criteria for consolidation. It found common control and ownership by the same family with substantial overlapping shareholding; common directors; factual inter dependence because Respondent No.2 owned land and warehouse on which Respondent No.1 ran its bottling/distillery unit; common liabilities including corporate guarantees and pari passu charges over the same immovable property; pooling of resources and mutual support for sanction of loans; and common financial creditors. The Tribunal treated Respondent No.2 as an 'associate company' of Respondent No.1 by reference to the Companies Act definition of 'associate company' and the admitted significant influence of the common promoters. Having concluded that these factors were fully met, the Tribunal rejected the Adjudicating Authority's reasoning that the applicant (an operational creditor) lacked locus or had suppressed facts, and held that consolidation would not prejudice the secured financial creditors whose interests would remain protected; on balance of convenience consolidation was appropriate. The Adjudicating Authority's failure to examine whether the Videocon parameters were fulfilled was held to be an error of appreciation and the application for consolidation was allowed, with a direction to appoint a single common Resolution Professional/Liquidator to carry out the consolidated process. [Paras 18, 19, 20, 21, 22]Consolidation ordered; impugned order set aside; single common Resolution Professional/Liquidator to be appointed for the consolidated CIRP.Final Conclusion: The Appeal is allowed; the Tribunal directed consolidation of the two CIRPs on findings of common control, directors, assets, liabilities, inter dependence and common creditors, set aside the Adjudicating Authority's order and directed appointment of a single common Resolution Professional/Liquidator; no order as to costs. Issues Involved:1. Consolidation of Corporate Insolvency Resolution Process (CIRP) for two companies.2. Locus standi of the Operational Creditor to seek consolidation.3. Parameters for consolidation of CIRP.4. Impact on Financial Creditors due to consolidation.Detailed Analysis:Issue 1: Consolidation of Corporate Insolvency Resolution Process (CIRP) for two companies.The Appellant, Radico Khaitan Ltd. (Operational Creditor), sought consolidation of CIRP for BT & FC Pvt. Ltd. (Respondent No. 1) and Bengaluru Dehydration and Drying Equipment Company Pvt. Ltd. (Respondent No. 2). The Appellant argued that Respondent No. 2 operates as the land-holding company for Respondent No. 1 and both companies are inextricably interlinked. The Adjudicating Authority initially rejected this application, but the Appellate Tribunal later found that the eight parameters for consolidation were fully met, including common control, common directors, common assets, common liabilities, inter-dependence, pooling of resources, intricate links, and common financial creditors.Issue 2: Locus standi of the Operational Creditor to seek consolidation.The Adjudicating Authority held that the Appellant, being an Operational Creditor, had no locus standi to file the application for consolidation. This was based on the understanding that Operational Creditors cannot form part of the Committee of Creditors (CoC). However, the Appellate Tribunal did not find this argument sufficient to deny the consolidation, especially given the interlinked nature of the companies involved.Issue 3: Parameters for consolidation of CIRP.The Appellant cited the case of State Bank of India Vs. Videocon Industries Ltd., where the Mumbai Bench laid down parameters for consolidation. The Appellate Tribunal examined whether these parameters were met in the present case and found that they were indeed satisfied. The parameters included common control, common directors, common assets, common liabilities, inter-dependence, pooling of resources, intricate links, and common financial creditors. The Tribunal noted that both companies were promoted by the same family, had common directors, shared assets and liabilities, and were interdependent.Issue 4: Impact on Financial Creditors due to consolidation.The Financial Creditors (Respondent Nos. 3 and 4) opposed the consolidation, arguing that it would prejudice their rights. However, the Appellate Tribunal found that the balance of convenience favored the consolidation and that the rights of the secured Financial Creditors would remain protected even during the consolidated insolvency process. The Tribunal emphasized that the consolidation would help achieve the objective of the Insolvency and Bankruptcy Code (I&B Code) by facilitating the resolution and rehabilitation of the Corporate Debtors as a going concern.Conclusion:The Appellate Tribunal set aside the impugned order and allowed the consolidation of the two CIRPs. It directed the Adjudicating Authority to appoint a single common Resolution Professional/Liquidator to manage the consolidated CIRP. The appeal was allowed without any order as to costs.