AI TextQuick Glance (AI)Headnote
Parent company liability for subsidiary operational debt does not follow automatically from corporate ownership, a unilateral letter or part-payment.
Separate corporate personalities mean that a parent company is not liable for its subsidiary's operational debt merely because of their corporate relationship. A unilateral letter does not itself novate the underlying contract. Assessment of an alleged debt transfer may involve contractual exclusions of pre-closing liabilities, contracts not novated by closing, and subsequent letters, part-payments and cheques. Section 9 of the Insolvency and Bankruptcy Code cannot substitute for recovery or adjudication of a disputed commercial claim.
Separate corporate personality - Holding company's liability for subsidiary's operational debt - Business transfer-Novation of pre-closing operational liabilities Separate corporate personality - Holding company's liability for subsidiary's operational debt - Attribution to a holding company of operational debt arising from supplies under a memorandum of understanding executed only by its subsidiary - HELD THAT: - A subsidiary and its holding company are separate legal persons with independent commercial interests. The subsidiary's liability cannot be treated as that of its parent unless it acts as the parent's agent. The memorandum of understanding was executed by the subsidiary alone; the corporate debtor was neither a signatory nor shown to have received the supplies underlying the operational creditor's claim. [Paras 10, 11, 12] The subsidiary's operational liability could not be fastened on the corporate debtor merely because of their holding-subsidiary relationship. Business transfer - Novation of pre-closing operational liabilities - Effect of a unilateral letter on assumption of the subsidiary's pre-closing operational liabilities excluded by the business transfer agreement, and on admission under Section 9 of the IBC - HELD THAT: - The business transfer agreement excluded liabilities accruing before closing and retained with the transferor liabilities under contracts not novated by then. The debit note for price re-evaluation charges concerned supplies in financial years preceding closing and was addressed to the transferor. The subsequent letter likewise referred to the transferor's outstanding dues, rather than acknowledging the corporate debtor's own liability, and could not itself effect novation. The dispute therefore concerned the very existence and enforceability of the alleged operational debt. Section 9 cannot substitute for recovery or adjudication of a disputed commercial claim. [Paras 15, 16, 17, 18, 19] The unilateral letter did not novate the memorandum of understanding or make the corporate debtor liable for the excluded dues; admission under Section 9 was unsustainable. Final Conclusion: The appeal was allowed and the order admitting the corporate debtor to CIRP was set aside. The corporate debtor was released from CIRP and permitted to function independently through its board of directors.