2025 (9) TMI 134 - AT - IBC

Decision affirms CIRP initiation against land-owning subsidiary despite pending developer CIRP; consolidation via Section 7 permissible to protect home buyers

Radha Buildtech (India) Pvt. Ltd. Versus Solitaire Infomedia Pvt. Ltd. Through Jalesh Kumar Grover, Interim Resolution Professional & Ors. And Harish Kumar & Ors. Versus Jalesh Kumar Grover & Ors.

Radha Buildtech (India) Pvt. Ltd. Versus Solitaire Infomedia Pvt. Ltd. Through Jalesh Kumar Grover, Interim Resolution Professional & Ors. And Harish ... ISSUES PRESENTED AND CONSIDERED 1. Whether an application under Section 7 of the IBC for initiation of CIRP against a land-owning subsidiary can be admitted while CIRP of the developer/holding company is ongoing and a resolution plan for the developer (containing a merger of the subsidiary) has been approved by the Committee of Creditors but is pending adjudicatory approval. 2. Whether the Adjudicating Authority was obliged to refuse admission of the Section 7 petition on account of (a) pendency of CIRP of the related company, (b) existence of an approved (but not yet sanctioned) resolution plan for the related company proposing merger, or (c) potential duplication/overlap of claims and CoCs. 3. Whether the same class of financial creditors (homebuyers) who participated in and approved the developer's resolution plan could validly file and maintain a Section 7 petition against the land-owning subsidiary. 4. The effect and scope of an earlier appellate direction to consider initiation of CIRP against the land-owning company first and thereafter consolidation/joint CIRP - whether that direction bound the Adjudicating Authority and justified admission of the Section 7 petition. 5. Whether the Successful Resolution Applicant (SRA) and/or Resolution Professional of the developer had locus to challenge the admission of the Section 7 petition and whether equity or the pending resolution plan constrained initiation of CIRP against the subsidiary. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Admissibility of Section 7 petition against land-owning subsidiary while CIRP of related developer is ongoing and a developer's resolution plan (providing merger) is pending approval Legal framework: Section 7 IBC requires the Adjudicating Authority to ascertain existence of a 'financial debt' and 'default' and, if satisfied, to admit the petition; the inquiry at admission is limited (Innoventive/authoritative exposition): the authority must satisfy itself that default has occurred from records of information utility or evidence produced. The Code contains no absolute prohibition on multiple simultaneous proceedings against related entities; consolidation/joint CIRP is a judicially evolved remedy (Videocon 14-point test) applied where assets/liabilities are interwoven. Precedent treatment: The appellate jurisprudence (Videocon 14-point framework, state of authority in subsequent decisions) recognises consolidation where common control, inter-woven assets and pooling of resources appear. Supreme Court and tribunal precedents (Innoventive; M. Suresh Kumar Reddy) emphasise narrow scope at admission stage. Authorities also caution that assets of a subsidiary are distinct; subsidiary's assets cannot automatically be included in holding's resolution (leading decisions recognise limits to including third-party/subsidiary assets in a plan). Interpretation and reasoning: The Tribunal applied the settled rule that Section 7 admission is governed by proof of debt and default and the tribunal has little discretion beyond checking completeness. Given earlier appellate direction that the land-owning company should be considered for CIRP first to enable consolidated/joint CIRP, and the factual findings of common control/interwoven assets that satisfy the Videocon factors, initiation of CIRP against the land-owning subsidiary was legally permissible. The existence of a pending but unsanctioned resolution plan for the developer that proposes merger does not negate the statutory threshold for admission under Section 7; equity concerns or commercial convenience do not displace the limited statutory test for admission. Ratio vs. Obiter: Ratio - At admission stage, the Adjudicating Authority must ascertain legally payable debt and default; if established, admission follows and pendency of CIRP or a pending resolution plan elsewhere is not a bar. Obiter - Observations on the desirability of consolidated CIRP as best recourse in such factual matrix and commentary on practical advantages (maximisation of value, protection of homebuyers) are persuasive but factual. Conclusion: Admission of Section 7 against the land-owning subsidiary was correct in law where threshold ingredients were satisfied and in light of earlier appellate direction; the pending developer plan did not preclude admission. Issue 2 - Whether the Adjudicating Authority erred by admitting Section 7 because consolidation/merger in the developer's resolution plan made subsidiary CIRP unnecessary or would derail the developer's CIRP Legal framework: The Code contemplates time-bound, statutory admission mechanics; consolidation/joint CIRP is not statutorily automatic and requires factual justification. A resolution plan approved by CoC becomes binding upon sanction under Section 31, but until judicial sanction, it is not a completed statutory outcome. Authorities establish that once default is proved, the adjudicatory power to admit follows; commercial or equitable considerations do not override statutory admission). Precedent treatment: Innoventive and M. Suresh Kumar Reddy: narrow admission test. Videocon and related authorities: consolidation is fact-specific and requires application/admission of CIRP of the other entity. Decisions that emphasise distinct legal personality of subsidiaries (recent Supreme Court authority) caution against treating subsidiary assets as automatically part of holding's CIRP absent proper procedure. Interpretation and reasoning: The Tribunal emphasised that the CoC-approved plan was pending before the Adjudicating Authority and thus could not be said to have foreclosed initiation of CIRP against the subsidiary. The earlier appellate direction (to admit CIRP of land owner first, then consolidate) reinforced the correctness of admitting the Section 7 petition. Concern that parallel CIRPs could complicate resolution was weighed against statutory duty to admit where default and debt exist; the RP of developer had an obligation to pursue consolidation in accordance with prior directions, but failure to do so did not provide legal ground to deny admission to the subsidiary petition. Ratio vs. Obiter: Ratio - Pending resolution plan approval does not operate as bar to admission of a valid Section 7 petition against a distinct corporate debtor; the Adjudicating Authority must admit if conditions of debt and default are met. Obiter - Practical concerns about duplication of processes and suggested administrative measures to achieve consolidation are instructive but not binding legal constraints on admission. Conclusion: The Adjudicating Authority did not err in admitting the Section 7 petition; the admitted petition is consistent with statutory scheme and prior appellate direction. Issue 3 - Validity of same class creditors filing Section 7 against subsidiary after having participated in and approved the developer's resolution plan Legal framework: The IBC allows financial creditors to initiate proceedings when the statutory threshold is met; there is no categorical bar preventing the same creditor(s) from invoking Section 7 against related entities where a separate legally payable debt and default are alleged. The settled principle is that once debt and default are proved, admission is mandatory unless application defective. Precedent treatment: Authorities confirm that multiple proceedings against co-borrowers, guarantors, or related debtors can be maintained (subject to avoidance of double recovery) and that simultaneous CIRPs are permissible where facts warrant (Supreme Court and tribunal jurisprudence). Section 60 provisions and subsequent case law permit simultaneous or transferred proceedings where necessary. Interpretation and reasoning: The Tribunal noted chronology: the Section 7 petition by homebuyers against the subsidiary predated approval of the developer's resolution plan by the CoC; therefore the contention that the same creditors could not file was factually misplaced. Further, the Code permits such petitions; there is no principle that CoC approval of a plan (not yet sanctioned) extinguishes the creditors' right to file Section 7 against another corporate debtor on separate debt. Concerns about duplication and common CoC composition do not negate admissibility; mechanisms exist to prevent double recovery. Ratio vs. Obiter: Ratio - Members of a class of financial creditors who have participated in one CIRP can validly file Section 7 petitions against a distinct corporate debtor if statutory ingredients are satisfied; prior participation in a CoC does not ipso facto oust their right. Obiter - Remarks about estoppel of a petitioner who earlier pursued and failed on same cause (as to one appellant) are factual and not general rule. Conclusion: The same class creditors' Section 7 petition was maintainable; their prior involvement in the developer's CIRP did not preclude filing against the subsidiary. Issue 4 - Legal effect and binding nature of earlier appellate direction to consider CIRP of land-owner first and then consolidation - did it mandate admission of Section 7? Legal framework: Directions of a coordinate bench that are not challenged attain finality as between parties; appellate directions may guide lower tribunal exercise of jurisdiction. Where an appellate direction explicitly requires consideration of initiation of CIRP against a particular entity, the Adjudicating Authority is bound to examine such application in accordance with law. Precedent treatment: Prior order (reproduced and analysed) held assets interwoven and directed remand to consider admission against land-owner and thereafter consolidation. Courts respect final appellate directions; they do not circumvent statutory tests for admission but must implement directions consistent with law. Interpretation and reasoning: The Tribunal held that the earlier directions required the Adjudicating Authority to consider admission of CIRP against the land owner and then consider consolidation; that direction was not challenged and thus binding. Consequently, admission of Section 7 against the land-owning company was consonant with that direction and not an error. The Tribunal emphasised that consolidation is feasible only once the subsidiary is in CIRP; thus the appellate direction endorsed initiation against the subsidiary as the condition precedent. Ratio vs. Obiter: Ratio - An earlier unchallenged appellate direction to consider initiation of CIRP against a specified entity is binding on the Adjudicating Authority and justifies adjudicatory consideration of an operative Section 7 petition in accordance with statutory tests. Obiter - Observations on the manner in which RPs should have acted to implement the direction are advisory. Conclusion: The admission aligns with the earlier appellate direction; the Adjudicating Authority acted within its duty to give effect to that direction while applying the statutory Section 7 test. Issue 5 - Locus and rights of the SRA and the developer's RP to challenge initiation of CIRP against the subsidiary and the limits of equity when a plan proposes merger Legal framework: Any aggrieved person with locus may challenge an adjudicatory order by appropriate appeal, but the statutory admission test remains the controlling legal standard. A CoC-approved resolution plan becomes binding only upon sanction under Section 31. Equity or commercial expectations of an SRA do not displace statutory admission criteria. Precedent treatment: Ebix and other authorities discuss binding nature of an approved plan post-sanction; until sanction, the plan does not conclusively foreclose other statutory remedies. Jurisprudence also recognises protection against double recovery and the distinct legal personality of companies. Interpretation and reasoning: The Tribunal held that the SRA could not claim a new, unforeseen situation - the information memorandum and prior appellate direction were on record and known. The SRA's expectation of merger in the plan did not legally immunise the subsidiary from separate CIRP if statutory conditions were met. The RP's procedural inaction did not estop admission. Remedies exist to address conflicts at consolidation or plan-sanction stages, but they do not negate the Adjudicating Authority's obligation under Section 7. Ratio vs. Obiter: Ratio - SRA and RP cannot prevent admission of a valid Section 7 petition by reliance on a CoC-approved plan proposing merger absent sanction; locus to challenge lies in appellate remedies but cannot alter statutory admission obligations. Obiter - Critique of RP's conduct and recommendations for proactive compliance with appellate directions are advisory observations. Conclusion: The SRA and RP lacked legal ground to prevent admission of the Section 7 petition on equity or commercial grounds; their interests can be protected through adjudicatory processes (consolidation applications, opposition to plan at sanction stage) but not by denying admission where statutory criteria are met. OVERALL CONCLUSION The Adjudicating Authority correctly admitted the Section 7 petition against the land-owning subsidiary because the statutory threshold of a legally payable debt and default was established; admission is not defeated by (i) pendency of CIRP of a related developer, (ii) a CoC-approved but unsanctioned resolution plan proposing merger, or (iii) membership of the same creditors in the developer's CoC. The earlier appellate direction to consider initiation of CIRP against the land owner and thereafter consolidation provided a binding and appropriate framework that supported admission and future consolidation proceedings. Practical concerns about duplication and delay are material for consolidation and plan-sanction stages but do not displace the mandatory admission test under Section 7.