TaxTMI 
TaxTMI 
2019 (8) TMI 1654
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..... Mr. Simil Purohit, for Marathwada Industrial & General Workers Union of Trend Electronics Ltd. Mr. Ankit Lohia a/w Disha Kunder i/b Lodha Legal, for ATC Telecom Infrastructure Private Limited ORDER M. K. Shrawat, J. ORDER 1. There are as many as 15 applications, some are in favour of the 'Consolidation' and some are opposing the 'Consolidation' of insolvency process of the Videocon group Companies, therefore, a summary at the outset shall be useful to deal all of them in this combined order. It is also worth to mention at the beginning itself that the facts and circumstances as narrated in these applications are conjoint and linked with each other, therefore, a common order is passed herein below. A bird eyed view of the applications under consideration is as under: a. MA 1306/2018 in CP No.02/2018, CP No. 01/2018, CP No. 543/2018, CP No. 507/2018, CP No. 509/2018, CP No. 511/2018, CP No. 508/2018, CP No. 512/2018, CP No. 510/2018, CP No. 528/2018, CP No. 563/2018, CP No. 560/2018, CP No. 562/2018, CP No. 559/2018, CP No. 564/2018 (a common application applicable to all main petitions of various Corporate Debtors). This application is filed by SBI seeki....
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....018 Avil Menezes 9. Techno Kart Admitted II 25.09.2018 Divyesh Desai 10. Century Appliances Admitted II 25.09.2018 Dushyant Dave 11. KAIL Admitted III 08.06.2018 Mahender Khandelwal 12. Millennium Appliances Admitted III 31.08.2018 Avil Menezes 13. SKY Appliances Admitted III 31.08.2018 Mahender Khandelwal 14. PE Electronics Admitted III 31.08.2018 Divyesh Desai 15. Techno Electronics Admitted III 31.08.2018 Divyesh Desai 3. Mr. Venugopal N. Dhoot, ex-director/promoter had filed an application (CA/1022(PB)/2018) before the Principal Bench, NCLT New Delhi praying that all the matters relating to the Corporate Debtors must be heard by one and the same court of Mumbai Bench of NCLT. Likewise, another application was filed by the State Bank of India before the Principal Bench seeking the same reliefs as were sought in the said Application i.e. consolidation of CIRPs of all the Corporate Debtors. The Hon'ble Principal Bench disposed of both the applications vide a common order dated 24.10.2018. In the said Order dated 24.10.2018, the Hon'ble Principal....
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....ead matter namely Videocon Industry Limited being CP No. (IB)-02(MB) /2018 is posted for hearing before Bench 2 which is headed by Hon'ble Mr. M.K Sehrawat, Member (Judicial). Likewise, 5 other matters are also pending before the same Bench. It has also pointed out already that another petition namely Videocon Telecommunication Limited being CP No. (IB)-0 1(MB) /2018 is also pending consideration before another Bench. The prayer made in the application is that all these matters shown in the table, para underneath the table and CP No. (IB)- 01(MB)/2018 be listed before one Bench. 3. In the second application, the prayer made is for consolidation of all these petitions and issue further directions to treat the Corporate Insolvency Resolution Process as one in respect of all the Videocon group of companies. 4. Notice of the applications to the non-applicant. Notice accepted by the learned counsel for non-applicants. 5. We have heard the learned counsel for the parties, there appears to be consensus amongst the counsels for all the parties that all the petition be placed before one bench. Accordingly, we find that the lead case and majority of the matters are....
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....dicate Bank xii. Infotel Business Solution Ltd. xiii. UCO Bank xiv. ICICI Bank xv. Corporation Bank xvi. IFCI xvii. Central Bank of India xviii. Punjab National Bank xix. Andhra Bank xx. Vijaya Bank 6. Hence, the SBI, pursuant to the order dated 24.10.2018 passed by the Hon'ble Principal Bench, NCLT, New Delhi, has filed this Application seeking the following reliefs: ".... (a) Order and direct substantive consolidation of the Corporate Debtors into a single proceedings solely for the purposes of CIRP in accordance with the provisions of the Code, including but not limited to the acceptance, confirmation and all other actions with respect to the resolution plan for the Corporate Debtors and any and all amendments or modifications thereto, in such consolidated proceedings. (b) Order and direct that solely for the purpose of the consolidated proceedings, all assets and liabilities of the Corporate Debtors are merged and are deemed to be the assets and liabilities of all the Corporate Debtors on a consolidates basis; (c) Order and direct that solely for the purpose o....
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....ayers Etc in Aurangabad. e. Techno Kart owns India's Largest Electronics Retail chain and is involved in organised retailing of consumer electronics, home appliances and IT products. f. KAIL is engaged in manufacturing and trading various consumer electronic goods and home appliances in Kolkata. g. Applicomp is involved in manufacturing consumer electronic goods and home appliances in Bangalore; h. SKY Appliances is manufacturing all sorts of consumer electronics and home appliances in Gujarat. i. Techno Electronics is manufacturing Electrical and Electronic Appliances at Uttarakhand. j. Millennium Appliances is manufacturing and trading consumer electronic goods and home appliances at Telangana. k. Century Appliances is manufacturing and trading consumer electronic goods and home appliances at Maharashtra. l. Evans Fraser is an investment Vehicle/Real Estate Arm for the Videocon Group of Companies. m. PE Electronics brings together two premium brands Philips and Electrolux, under exclusive brand licensee agreements, which complement each other as a single entity and PE Electronics Markets and Trade in....
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....rt of the collective-action-plan by the combined JLF in its meeting held on June 04th 2016, it was decided to release proceeds received by VTL upon sale of Unified Access Services Licenses from the relevant escrow account and utilize the amount for servicing existing debt of VTL and the RTL obligors. 13. The lenders/banks have also agreed that security available to the lenders under the RTL Agreement will be shared on pari-passu basis with the lenders under the VTL agreement and further, the security available to the lenders under the VTL Agreement will be shared on pari-passu basis with lenders under the RTL Agreement. 14. VTL agreed by way of a Confirmation Agreement dated June 20, 2016 that it shall be deemed to be "Co-obligor" under the RTL Agreement. The RTL obligors agreed that each of the RTL obligors shall be deemed to be a "Co-obligor" under the VTL Agreement. 15. It is further noticed that on account of 'inter-linkage' and 'interdependence' in business and operations of the Corporate Debtors, they used to prepare 'consolidated financial statements' so as to give the overall financial position of the RTL obligors as a whole for the benefit of the v....
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....n of the Corporate Debtors, chart is reproduced below:- 21. The claims of the lenders arising out of the RTL Agreement and the VTL Agreement both respectively dated 08.08.2012 and 30.08.2010 against each of the Corporate Debtor on account of the obligor/Co-obligor structure (which is in excess of Rs. 20,000 Crores) is required to be resolved in case of each Corporate Debtor as each Corporate Debtor jointly and severally liable to pay the outstanding amounts under the RTL Agreement and the VTL Agreement. Consequently, based on the claims filed by the lenders against the Corporate Debtors, the total debt that will have to be resolved in the absence of the substantive consolidation of the CIRP of the Corporate Debtors will be a huge sum. However, the total principal amount of debt that has been granted is approximately Rs. 20,000/- Crores under the RTL Agreement and the VTL Agreement. It is the apprehension of SBI that on account of interdependence in business and operations of some of the Corporate Debtors on each other, few of the Corporate Debtors may not be able to get any resolution plans, much less, Resolution Plans dealing with the entire claims of all the creditors of such ....
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....lidated financial statements; c. the profitability of consolidation at a single physical location; d. the commingling of assets and business functions; e. the unity of interests and ownership between the various corporate entities; f. the existence of parent and inter corporate guarantees on loans; and g. the transfer of assets of without formal observance of corporate formalities. 25. The Ld. Counsel for the SBI has suggested some of the ways in which substantive consolidation of CIRP of the Corporate Debtors may be achieved, given below; a. By pooling together the assets of all the Corporate Debtors; b. By appointing a common Resolution Professional for all the Corporate Debtors; c. By constituting a common COC for all the Corporate Debtors; d. By commonizing the Insolvency commencement date for calculating the maximum period available for completing the CIRP. The Counsel suggests the 25th September 2018 as the date of CIRP commencement; 26. The Ld. Counsel for the SBI finally argues that lack of substantive consolidation may result in lesser value being derived for the Corporate Debtors which are expec....
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....ecedent of group Insolvency and consolidation under UNCITRAL model law, USA, Germany and European Union. C) MA No. 1416/2018 27. Another Application MA 1416/2018 is filed by the promoter of the Videocon group of companies Mr. Venugopal Dhoot seeking the similar relief of 'Consolidation' of CIRP i.e. commencement of Insolvency Process under Insolvency Code of all the group companies of Videocon which are undergoing insolvency. 28. Mr. Venugopal Dhoot is a guarantor, shareholder and also the ex-managing Director/Chairman of the Videocon Group of Companies. The relief sought in this application is similar as was in the previous application MA 1306/2018 i.e. for the 'substantive consolidation' of the CIRP of the above stated 15 Corporate Debtors for a successful resolution and restructuring of Videocon Group of Companies. The facts of this case and arguments supporting the consolidation of CIRP of the Corporate Debtor in this application are no different than as stated in MA 1306/2018 (supra). Hence both these applications can be disposed of cumulatively. ARGUMENTS AGAINST THE CONSOLIDATION D) MA No. 393/2019 29. This application is filed on 24.01.2019 by Infotel Busi....
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....entage of share was 40.21% and; (ii) Claims admitted under a "co-obligor structure", where although the money was not lent to KAIL but to certain other group companies, KAIL assumed an obligation to repay such loans as a co-obligor--- the aggregate claims under this head amounted to INR 21,100 Crores, of which the Infotel's percentage of share was reduced to 2.1%. 33. So, the grievance of the Applicant is that the RP had aggregated the 'financial debt' of KAIL to include those loans which were availed by its group companies in respect of which KAIL was a "co-obligor". Due to this structure KAIL's over all financial debt was increased to INR 21,100 Crores, whereby the Infotel's voting percentage is reduced merely to 2.13% as against 40.21% if the loan of INR 1,119 Crores is considered as the actual debt of KAIL Limited. 34. One of the grievance of Infotel in this application is that the RP has not served them proper documents of the loan agreements despite repeated requests of Infotel to verify the same. It is stated that Infotel has not been given an opportunity to review corporate resolutions/decisions of KAIL to ascertain whether KAIL has adhered to legal requi....
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.... insolvency, however, it was suggested by the committee that it may be too soon for the introduction of the group insolvency regime in India. He added that substantive consolidation of CIRPs of the 15 Videocon Group companies will be prejudicial to the interests of all creditors of each of these companies. Further, upon the enquiring if consolidation of the CIRPs of the companies would be better in respect of verification of claims, process etc., Mr. Sancheti stated that creditors like Infotel would be facing discriminatory treatment and inequity, because if the assets are pooled, then the voting share of the creditors, not part of the common loan agreements, would come down, and this would impact the decision making process during the CIRP. 37. Hence the Infotel prays that its share be considered as 40.21% in the COC meetings of KAIL Limited and direct that "co-obligor" obligations be declared un-enforceable in law. Thus, in a way it is pleaded that the separate applications filed by SBI against each Co-obligors independently by itself was a wrong approach of SBI as a Financial Creditor due to the reason that the insolvency code do not prescribe such approach i.e. when....
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....solvency resolution process begins. Default is defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, which includes non-payment of even part thereof or an instalment amount. For the meaning of "debt", we have to go to Section 3(11), which in turn tells us that a debt means a liability of obligation in respect of a "claim" and for the meaning of "claim", we have to go back to Section 3(6) which defines "claim" to mean a right to payment even if it is disputed. The Code gets triggered the moment default is of rupees one lakh or more (Section 4). The corporate insolvency resolution process may be triggered by the corporate debtor itself or a financial creditor or operational creditor. A distinction is made by the Code between debts owed to financial creditors and operational creditors. A financial creditor has been defined under Section 5(7) as a person to whom a financial debt is owed and a financial debt is defined in Section 5(8) to mean a debt which is disbursed against consideration for the time value of money. As opposed to this, an operational creditor means a person to whom an operational debt is owed and an operational d....
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....ion 7 stands in contrast with the scheme under Section 8 where an operational creditor is, on the occurrence of a default, to first deliver a demand notice of the unpaid debt to the operational debtor in the manner provided in Section 8(1) of the Code. Under Section 8(2), the corporate debtor can, within a period of 10 days of receipt of the demand notice or copy of the invoice mentioned in sub-section (1), bring to the notice of the operational creditor the existence of a dispute or the record of the pendency of a suit or arbitration proceedings, which is pre-existing - i.e. before such notice or invoice was received by the corporate debtor. The moment there is existence of such a dispute, the operational creditor gets out of the clutches of the Code. 30. On the other hand, as we have seen, in the case of a corporate debtor who commits a default of a financial debt, the adjudicating authority has merely to see the records of the information utility or other evidence produced by the financial creditor to satisfy itself that a default has occurred. It is of no matter that the debt is disputed so long as the debt is "due" i.e. payable unless interdicted by some law or has no....
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....proved by a vote of not less than 75% of the voting share of the financial creditors and the adjudicating authority is satisfied that the plan, as approved, meets the statutory requirements mentioned in Section 30, that it ultimately approves such plan, which is then binding on the corporate debtor as well as its employees, members, creditors, guarantors and other stakeholders. Importantly, and this is a major departure from previous legislation on the subject, the moment the adjudicating authority approves the resolution plan, the moratorium order passed by the authority under Section 14 shall cease to have effect. The scheme of the Code, therefore, is to make an attempt, by divesting the erstwhile management of its powers and vesting it in a professional agency, to continue the business of the corporate body as a going concern until a resolution plan is drawn up, in which event the management is handed over under the plan so that the corporate body is able to pay back its debts and get back on its feet. All this is to be done within a period of 6 months with a maximum extension of another 90 days or else the chopper comes down and the liquidation process begins." (Emphasis Suppli....
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....e matter and S stands in its place). (4) As a corollary of (3) above, S's liquidator cannot prove in D's liquidation in any way that is in competition with C; though S has a contingent claim against D (in the event of C being paid off by S) S may not make that claim if it has not in fact paid off C." 43. The Ld. Counsel for the SBI has tendered certain English case laws on the issue of consolidation of CIRPs of the group companies. The list of the same is given herein below: a. Continental Vending Machine Corp. vs. Irving L. Wharton' in United States Court of Appeals, Second Circuit decided on June 5, 1975 . b. Vecco Construction Industires ,INC and others; decided June 9,1980 c. Auto-Train Corporation , Inc. Florida Corporation ; decided on Jan.30,1987 d. Donut Queen Ltd. Debtor ; In re BAPAJO Ltd. Debtor order dated August 3, 1984 e. Food Fair Inc. Debtor ; Unites States Bankruptcy Court , S.D. New York ( bankruptcy no. 78 B 1765); order dated March 18, 1981 f. Donut Queen Ltd. Debtor ; In re BAPAJO Ltd. Debtor order dated August 3, 1984. These case laws will be further dealt with in detail in the succeeding paragraphs. ....
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....nd consequently, the obligations owing to such Lender under the Financing documents are still owing and/or un-discharged". (Emphasis Supplied) Clause 2.4 of the RTL agreement: Utilisation of the proceeds (i) the obligors hereby agree that the proceeds of the Rupee Term Loan shall be utilized for the following purposes: (a) Capital expenditure in relation to the Ravva Field and the capital expenditure in relation to the consumer electronics and home appliances business of the obligors, for an amount not exceeding Rs. 684 Crores incurred or to be incurred by the Obligors between the current year 2012 and till 2014; (b) Refinancing of existing Rupee Loans listed in part A of schedule 9 for an amount not exceeding Rs. 19,511 Crores; and (c) Such other end use as may be permitted by the lenders in writing. (ii) Without prejudice to the obligations of the Obligor to so apply such proceeds, the lenders shall not be under any obligation to monitor the purpose for such proceeds have been utilized......" (Emphasis Supplied). 46. It is further submitted that KAIL has been disclosing the fact of the RTL Agreement in its standalo....
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....f the specified companies of the Videocon Group" dated 15.09.2017 provides as follows: "2. Our engagement was undertaken in accordance with the Standard on related services (SRS) 4400. "Engagements to Perform agreed upon procedures regarding Financial Information", issued by the Institute of Chartered Accountants of India. These Consolidated Financial Statements of the Group has been prepared by the VIL and the procedures were performed to enable you to evaluate and analyze the financial position of the group. These statements are intended to present financial information about the group as a single economic entity to show the economic resources controlled by the Group, the obligations of the Group and results of the Group achieved with its resources." Further Note 33 of the Notes forming part of the financial statements are as follows: " The Companies in the group executed Facility Agreement with the consortium of existing domestic rupee term lenders (RTL Lenders), under the obligor/co-obligor structure, where all the Rupee Term Loans of the Obligors are pooled together........ ..... It has been agreed between the RTL lenders and VTL lenders to ....
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....cluding KAIL) have joint and several liability under the agreements and such obligation is in the nature of "joint promisor" under section 43 of the Indian Contract Act, 1872 and for argument sake may not be in the nature of "guarantee" under section 126 of the said act. In the matter of B. R. Nagendra Iyer & Ors. V. R.V. Subburamchari & Anr. [AIR 1935 Mad 1055], it was held that: "The question is, does a demand upon one of several joint and several promisors act as a demand upon the others? I can see absolutely no warrant for such a proposition as one of law. The promisee has his cause of action against all the joint promisors. He can, if he chooses, file a suit impleading all the joint and several promisors as co-defendants or he can file a suit against any one of them and obtain judgement against him. But unless that judgment is satisfied it does not operate as a bar to his claim against the other joint promisors and he has his right of action against them. This means, that not only the suit against one joint promisor, but any step taken in the suit cannot in any way affect the rights against the other promisors and that a demand upon a joint promisor cannot be deemed to be a de....
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....apprehension or allegation of malafides or fraudulent etc. Admittedly, the appellant is not a party to those agreements. It is tenable to raise apprehensions before the Adjudicating Authority to adjudicate. The Courts usually adjudicate issue basing on cause of action arisen in a particular case. The Adjudicating Authority cannot enter into roving enquiry on mere apprehension, baseless allegations. 67. ........As long as the assignment agreement deeds are valid and legally enforceable, the appellant has no locus standi to question its object, modus operandi" 55. Moreover, in the matter of Dr. Vishnu Kumar Agarwal Vs. M/s Piramal Enterprises Limited, in Company Appeal (AT)(Insolvency) 346/2018, dated 08.01.2019, while quoting the Hon'ble Supreme Court in the matter of "Bank of Bihar v. Damodar Prasad and Anr.− (1969) 1 SCR 620", the NCLAT observed as follows: "22. In "Bank of Bihar v. Damodar Prasad and Anr.− (1969) 1 SCR 620" the Hon'ble Supreme Court held: "3. The demand for payment of the liability of the principal debtor was the only condition for the enforcement of the bond. That condition was fulfilled. Neither the principal debtor nor....
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....plications under Section 7 against the 'Principal Borrower' as well as the 'Corporate Guarantor(s)' or against both the 'Guarantors'. However, once for same set of claim application under Section 7 filed by the 'Financial Creditor' is admitted against one of the 'Corporate Debtor' ('Principal Borrower' or 'Corporate Guarantor(s)'), second application by the same 'Financial Creditor' for same set of claim and default cannot be admitted against the other 'Corporate Debtor' (the 'Corporate Guarantor(s)' or the 'Principal Borrower'). Further, though there is a provision to file joint application under Section 7 by the 'Financial Creditors', no application can be filed by the 'Financial Creditor' against two or more 'Corporate Debtors' on the ground of joint liability ('Principal Borrower' and one 'Corporate Guarantor', or 'Principal Borrower' or two 'Corporate Guarantors' or one 'Corporate Guarantor' and other 'Corporate Guarantor'), till it is shown that the 'Corporate Debtors' combinedly are joint venture company" The aforesaid order was challenged before the Hon'ble Supreme Court and is sub-judice. The Hon'ble Supreme Court vide order dated 01.02.2019 stayed the operation of the ....
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....nics Ltd., are listed companies. M/s Trend Electronics is a going concern and is in the business of manufacturing and selling the dish antenna and set top box which are made mandatory pursuant to the compulsory digitalisation by Ministry of Information and Broadcasting. 61. It is stated that Trend Electronics is an independent legal entity and is not dependent on the businesses of other group companies. The employees of Trend Electronics are not the employees of other 14 companies and their bread and butter come from the operation of Trend electronics. Trend electronics is self sufficient, its products are in demand and its business is also not dependent on the other group companies. It is capable to maintain itself as a going concern on its own. 62. It is stated that if the consolidation is allowed then the dues of employees will not be able to be paid despite Trend Electronics being fully able to pay its dues in case of its independent resolution/liquidation. It would be an unnecessary burden on Trend Electronics to pay the dues of other workers of other entities from its revenues in case the consolidation is allowed. Hence, the applicant herein prays that consolidation of ....
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....will be treated at par with the other companies which have lesser asset value. M/s KAIL Ltd. is a separate independent entity and the employees of all the 15 Videocon group companies cannot be treated as belonging to one Company. Hence, by this application the Applicant seeks that CIRP of M/s KAIL Ltd. should not be consolidated with the CIRPs of other group companies. I) MA No. 1574/2019 68. This application has been filed on 24.04.2019 by ATC Telecom Infrastructure Pvt. Ltd, an 'Operational Creditor' having dues more than 10% of the total dues of Videocon Telecommunications Ltd. (VTL). The Applicant opposes the consolidation of CIRP of the Videocon group Companies through this Application. 69. The Applicant is a registered "Telecom Infrastructure Service Provider" with the Department of Telecommunications which provides infrastructure for the licensees of DOT including cellular mobile telephone operators on Pan India basis. 70. The Applicant submits that if the CIRP of Videocon Group Companies is not consolidated then the likelihood of some other company having business similar to that of VTL, acquiring its asset on standalone basis, will be more than that if ....
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....nder section 396 of the Companies Act, 2013, the compromise or arrangement are not outside the scope of judicial review. And the same is applicable in insolvency context also, pleaded by the Counsel. In this case, Hon'ble Bombay High Court had approved the Central Government's order of merger of a debt ridden 100% subsidiary of a listed entity into the holding company. The Hon'ble Supreme Court had set aside the Hon'ble High Court's order in appeal as the order was ultra vires section 396 of Companies Act, 1956 and violative of Article 14 of the Constitution of India for certain reasons stated therein. It is stated that in a situation where Insolvency Code is silent on a particular aspect (such as the present issue in hand, first of it's kind) , whether the consolidation of CIRP of the Corporate Debtors is beneficial to all the stakeholders or not ?, the Companies Act, being a wider legislation, can be referred to and a skin can be given by the Adjudicating Authority to the skeleton legislation which is I&B Code. When the question arises that consolidation of CIRPs of the Corporate Debtors is causing prejudice to one or more of the stakeholders or is not aiming at achieving the obj....
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....on or problem resurface so fast so that it compels to deal urgently leaving no scope for avoidance or any more deferment. Thus leaves no alternative but to tackle the 'bull by the horns'. Reason for making this observation at the very start of the Findings arose because of an observation made in the "Report of The Insolvency Law Committee" dated 26th March 2018" on Page 83 a part of Annexure II- [Summary Response to Comments] at Sr. No. 17 given as under: "It was noted that the treatment of group companies within insolvency laws is a complicated subject. The current system of insolvency law is new, and it may be too soon to introduce a complex subject, like the present issue. The UNCITRAL Legislative Guide on Insolvency Law also provides that the treatment of group companies is a very complex subject in relation to insolvency law and has multiple different approaches in different jurisdictions. Since lifting of the corporate veil in insolvency may affect corporate debtor entities significantly, this issue may be dealt with in the long-term once the present system is well established." 76. At that point of time the Hon'ble Members of the Insolvency Law Committee have tho....
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....Consolidation' , the existence of certain ingredients are necessary to be examined, viz ; (1) Common control, (2) Common directors, (3) Common assets, (4) Common liabilities, (5) Inter-dependence, (6) Inter-lacing of finance, (7) Pooling of resources, (8) Co-existence for survival , (9) intricate link of subsidiaries 10) inter-twined of accounts, 11) inter-looping of debts, 12) singleness of economics of units, 13) cross shareholding, 14) Inter dependence due to intertwined consolidated accounts, 15) Common pooling of resources, etc. This is not an exhaustive list and cannot be. These are the elementary governing factors, prima-facie to activate the process of 'consolidation'. At first glance the existence of these rudimentary points are required to be seen to examine whether in a particular case the question of 'consolidation' is worth consideration or not? It is also necessary to put it on record at this juncture when entering to start the investigation that it is a cumbersome exercise which require time and patience. Whether the case in hand can fit into these basic criterion is to be scrutinised in the following paragraphs. 79. The reason to venture into this cumbersome exer....
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....ness. A major point was under consideration, that due to improvement of some creditors' position was in a way inherent in a consolidation, it would be unfair and inequitable to permit such unsecured creditors to improve their position, but to deny the secured creditors such improvement. The second major point for adjudication was that the security agreements had given Talcott (secured creditor) a lien for "any and all obligations no matter how and when arising and whether under this or any agreement or otherwise..." applied to permit the Apco lien to cover the Continental's deficit. An observation on facts was made that Talcott had no lien on the Apco's surplus for the Continental's deficiency under any of its security agreements. Nonetheless, validity of a lien does not depend upon the existence of a contemporaneous debt. Coming to the point of question of consolidation, an observation was that the power to consolidate is one arising out of equity, enabling a bankruptcy court to disregard separate corporate entities, to pierce the corporate veil in order to reach assets for the satisfaction of debts of a related corporation. A contrary argument of the appellant w....
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.... entities were having consolidated financial reports and the individual statements as well as operation of accounts were also consolidated into one account. As per the facts, Vecco had acquired all the assets of its subsidiaries as well as assumed the liabilities. The entities i.e. Vecco and subsidiaries were having identical directors and also utilising the same office space. They were also having common administrative employees. There was a common consolidated account through which all receipts and disbursements were made. There were inter company transactions through the accounts. The debtor subsidiaries have sought approval of the Court for the consolidation of their applications into the petition filed by Vecco. There stand was that the consolidation was essential to ensure the development and implementation of a meaningful "plan of arrangement". The question was that should the court approve the debtor's application, all claims filed in the separate proceedings of each company, to the extent valid, would be considered a claim in the consolidated proceeding. Almost identical was the situation that, quote "due to the organizational make-up evidenced by the now common-p....
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....ty or interdependence on ownership between the various corporate entities, existence of inter-corporate guarantees on loans. The extent to which assets of the corporate entities are found to be hopelessly commingled must necessarily be decided on a case-by-case basis. The continued profitability of corporate entities operating on a consolidated basis was seen as an important consideration in allowing consolidation. An another aspect advocating the consolidation was that where there existed a unity of interests, common ownership, could be a good basis for consolidation especially if adhered to separation of accounts or separation of corporate entities resulting into injustice to a bankrupt's creditors. While many of the considerations are laid down in several decisions but a substantial reason is required to be examined that on consolidation the realization of asset would not get any adverse effect and that the consolidation would ensure a fair treatment to all creditors and that a consolidation would save administrative expense to conduct CIRP proceedings. c) In the case of Auto-Train Corporation, Inc. Florida Corporation ; decided on Jan.30,1987 & as amended March 19,1987....
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....rt were that certain entities (stated to be 17) (the debtors), each one of them filed a petition for an arrangement. The Court had authorised "procedural consolidation and joint administration". The issue before the Hon'ble Court was that should it be "substantatively consolidated" so that a single plan of arrangement of assets and liabilities be carried out. The debtors have filed a notice of motion which was duly served upon all the creditors who have filed their claims to the representatives of the consolidated creditors' committee. According to an observation, consolidation in bankruptcy is not merely an instrument of procedural convenience, but a measure which vitally affects substantive rights. By an order of consolidation, the separate proceedings merge into a single proceeding as well as merging all assets and liabilities. The need for substantive consolidation is a direct result of proliferation of an entity. The court went on to summarize the factors to be weighed in determining whether the motion to consolidate should be granted by the bankruptcy court under its equity power. It has long been recognized that, as no statutory authority grants the court the authority to di....
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....led in the individual proceedings of any of the debtors is deemed filed against the Consolidated Debtors in the Consolidated proceedings; (f) The debtors' filing of the Plan is ratified and approved, and the Consolidated debtors are authorised to take all lawful action in connection with the plan and any and all amendments or modifications thereto; (g) In the event of a termination of the Consolidated proceedings for any reason other than by reason of the confirmation of a plan in the Consolidated Proceedings, subject to further order of this court, this order of substantive consolidation shall, without further order of this court, be of no further force and effect and the Consolidated proceedings shall be deconsolidated for all future proceedings; (h) In the further event that any of the debtors is adjudicated bankrupt, this order of substantive consolidation shall, without further order of this court, be deemed amended so as to exclude such debtor from the Consolidated Proceedings, and this order shall be deemed to have no further application as to such debtor and the future proceedings with respect to such debtor shall be deemed deconsolidated" unquote....
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....r, quote "As can thus be expected, the parties seeking consolidation bears the burden of proof to demonstrate that any prejudice resulting from consolidation is outweighed by the greater prejudice posed by the continued separation of the estates........ A necessary corollary of this proposition is that it is incumbent upon the party seeking consolidation to demonstrate that it would be prejudiced if the estates were to remain as separate." In this line of thought, many factors have been considered in determining a motion for consolidation. Discussing the facts, it was noticed that "Donut Queen" and Bapajo does not maintain consolidated financial accounts. An accountant had testified that he prepared separate financial statements for each company, including separate books of accounts. It has also been testified that neither of the said two entities have ever paid expenses incurred by the other. Quote "Dunkin Donuts (the creditor) has not demonstrated the existence of a commingling of assets and business functions by the debtors in their business operations. As noted above, Donut Queen and Bapajo were established with different corporate purposes. The evidence adduced before this cou....
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....ion of triggering of 'consolidation' of Insolvency process. Undisputedly, and also laid down by the courts, before ordering consolidation, a preliminary searching inquiry be ensured that whether consolidation yields benefits to stakeholders by offsetting the harm if not consolidated. Areas of inquisition and our finding on the facts of this case are :- i) Common Control : These companies are promoted by Dhoot Family. ii) Common directors : The family members of V.N. Dhoot are directors in all the Videocon group companies. iii) Common assets : There are many instances of interdependency between the group companies and the assets are common to such an extent that, for instance, one company has leased its land to another group company to carry on manufacturing. iv) Common liabilities : The clauses of the VTL and RTL Agreements have demonstrated that "all guarantees thereof executed by one or more of the other Corporate Debtors are deemed to be one obligations of all the Corporate Debtors. "The company along with 12 other affiliates/entities (collectively referred to as "Obligors" and individually referred to as "Borrower") executed facility agreemen....
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....ue feature visible in Videocon group. ix) Intricate link of subsidiaries : Consolidated accounts, pooling of resources, commingling of assets and business functions are the examples of intricate link among subsidiaries. x) Inter-twined accounts : The consolidated accounts of 15 months is one of the evidence to demonstrate that on demand by the lenders, all the subsidiaries have prepared a common position of their assets and liabilities, thereafter, prepared consolidated accounts, stated to be duly approved by an auditor. xi) Inter-looping of debts : On perusal of the agreements, it is evidenced that the clauses have made a provision of securing the debts owed by subsidiaries of Videocon group. For example, Clause 2.4 of the RTL Agreement states about the Utilisation of the proceeds i.e. : "(i) the obligors hereby agree that the proceeds of the Rupee Term Loan shall be utilized for the following purposes: (a) Capital expenditure in relation to the Ravva Field and the capital expenditure in relation to the consumer electronics and home appliances business of the obligors, for an amount not exceeding Rs. 684 Crores incurred or to be incurre....
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....e satisfied up to large extent against the value of common pooled assets, which are otherwise in control of a single entity . In this group Licenses , Good-will, Permits, Trade-marks etc. are valuable but scattered all over the group entities. One more valuable asset is ' Oil & Gas field' acquired through joint venture and duly taken as a valuable property by the banks while granting loan. So all are to be consolidate which shall create a high value cumulative asset, going attract an equally high value Resolution Plan. Singly it is a far sight. Therefore apart from all other reasons inter-alia, the existence of Reeva oil-field in the common pool of assets is a good reason for propounding ' Consolidation'. 82. Decisively, the above discussion has deciphered cases of this group into two categories. Rather it is absolutely necessary to place my view with humility that if at all a question of ' Group Insolvency' is to be answered in such type of group of cases, then in that situation, a blanket view is not possible to declare that the entire Group is fit to be CONSOLIDATED simply being connected or controlled by common management. Although, these two factors are necessary for determ....
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....iew can be taken for not granting consolidation. This Bench has therefore, gone further in detail to examine the financial position of each such entities, albeit having inter-connected accounts. However, noticed that for the purposes of carrying on the business they are not inter-dependent. The cases for which this Bench is of the view that consolidation is neither beneficial nor advisable are listed below after due diligence remarks : a. KAIL Ltd. : An application u/s 9 against the Corporate Debtor KAIL Ltd. was submitted by an Operational Creditor Cooltech Appliances, which was admitted vide an order of 08.06.2018. KAIL is engaged in the business of manufacturing and trading various consumer electronic goods and home appliances, such as washing machines, air conditioners, air coolers, television and other electric appliances. Manufacturing facilities are stated to be located in West Bengal. This entity has annual turnover of more than Rs. 400 Crore and had been allegedly dragged into the common debts, thus facing insolvency proceedings. This company has nearly 350 workers in a factory which is undisputedly owned by the Company. In one of the applications submitted by Wor....
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....Infrastructure Pvt. Ltd. is concerned, Videocon Telecommunications Ltd. (VTL) cannot be allowed to stand outside the CIRP. This application is filed by an operational creditor with a sole concern that the share of the operational creditor would be reduced if the CIRP of VTL is consolidated with that of other companies. It is hereby held that this is not a reason enough to keep this company out of consolidation keeping in view the financial position of this company. The judgement of the Apex Court, tendered by the Ld. Counsel in this application, i.e. 63 Moons Technologies (supra) has no relevance in the insolvency arena as the same was in respect of mergers under the Companies Act. As against that, presently having a completely different issue in hand. What is adjudicated here is the consolidation of CIRPs of the Corporate Debtors and not the consolidation / merger of all the group companies. Hence, MA 1574 of 2018 is hereby rejected. 85. The consequence of the above decision is that out of the 15 entities, CIRPs of 13 entities namely: 1. Videocon Industries Limited 2. Videocon Telecommunications Limited 3. Evans Fraser & Co. (India) Ltd. 4. M....
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....ed , those are to be ascertained independently and for that a simple calculation method i.e. proportionate to the value of assets of these two Corporate Debtors, be computed for preparation of Information memorandum. The RP being a professional and expert of preparation of Statement of Accounts, hence, hereby given a liberty to adopt any other method through which the nexus between the liabilities of the Financial Creditors be established with the assets of the debtor company so that the asset-liabilities evaluation be precisely computed. It is expected that after ascertainment of true and correct picture of assets and liabilities of these two Corporate Debtors and on advertisement of EoI, some legitimate and serious Resolution Applicants may appear with a Resolution plan. 89. Commencement of CIRP period : The directions as listed above are to be carried out as well as to be completed within the period of 180 days as prescribed under Sec. 12 of the statute. However, from the date of admission of several applications/petitions filed by Financial Creditors, the period cannot be calculated on account of the fact that an order was pronounced on 05.10.2018 (MA 1092/2018 in CP 02/IBC/....