Group Entity Insolvency In India

Group Entity insolvency is a need for the hour to increase the recovery where the subsidiary is highly profitable company and the parent or other company of the group which is under financial distress and faces insolvency. The cost incurred on the brand value, advertisement and other mutual expenses which has been encashed by the group companies should also be made liable for the repayment of the debts of Group entity. The concept of piercing of corporate veil and separate legal existence should be taken into consideration. Corporation depends on a legal process to obtain its legal personality and, once formed, will be subject to the regulatory regime applying to entities so formed. Promote procedural convenience and cost-efficiency; it may not only facilitate the obtaining of comprehensive information on the business operations of the group members subject to the insolvency proceedings, but also assist in the valuation of assets, in the identification of creditors and other parties in interest and in avoiding duplication of effort. Enterprise groups are ubiquitous in both emerging and developed markets, with a common characteristic of operations across a large number of sometimes unrelated industries, often with family ownership in combination with varying degrees of participation by outside investors. Procedural coordination refers to what in practice may be varying degrees of coordination with respect to the conduct and administration of multiple insolvency proceedings commenced with respect to two or more enterprise group members involving one adjudicating authority. NEED FOR GROUP ENTITY INSOLVENCY The group entity insolvency is a much-needed reform in order to culminate the threat of filing insolvency application with a malicious intent. Carrying out the guarantee given by company overseas has been a problem always for execution. In one jurisdiction, cross-guarantees may operate to reduce the regulatory burden on companies by bestowing accounting and auditing relief on companies that are party to the arrangement. There are several instances in India even on the absence of group insolvency provision the judiciary has given appropriate decision based general principles. Obviously in SBI vs Videocon[1] is a landmark case for group insolvency in other than that there are plenty of cases where the NCLT and NCLAT has set a landmark for group insolvency also for its implementation in India through a proper code. Even in the case of Radico khaitan ltd vs BT&FC pvt. ltd the NCLAT Delhi had the issues for a typical group insolvency case where the assets hold by the subsidiary is on the behalf of the parent company and it doesn’t have its own business to run and business of Corporate Debtors is inextricably interlinked and intertwined. The shareholding pattern of the Corporate Debtor shows that the Corporate Debtors promoted, owned and controlled Corporate Debtors had common shareholders and directors and the control of both the companies was in the hand of the same persons and it was prayed for the assets and liabilities of the Corporate Debtors to be interlinked also the CIRP of the Corporate Debtors ought to be consolidated. The NCLT of Bengaluru has rejected this prayer and it went for an appeal to NCLAT where the appeal was allowed and single RP/liquidator to be appointed and perform functions under the code[2]. In the matter of Edelweiss asset reconstruction company limited vs Sachet Infrastructure private limited NCLAT Delhi case was that there were 9 corporate debtors and formed a consortium with nine by therein decided to develop the area by constructing flats/ shops for allottees. According to them, lands of all the nine ‘Corporate Debtors’, in question, have been consolidated for the purpose of construction of the housing projects the Agreements were signed by 9 CD for the construction and the lead borrower also availed Rs. 170 Crores from FC for such development and executed corporate guarantee for the loan. Later EARC who brought loan from financial creditor and filed a Sec-7 application against all 9 corporate debtors together in single application but the AA rejected the facts for group insolvency when later went for appeal NCLAT “held Adjudicating Authority has failed to appreciate the relevant fact that in the facts and circumstances, a group insolvency is to be initiated and in absence of simultaneous ‘Corporate Insolvency Resolution Process’ against five ‘Corporate Debtors’ the Adjudicating Authority will admit the applications under Section 7 filed by ‘Edelweiss Asset Reconstruction Company Limited’ is completed in one go by initiating a consolidated ‘Resolution Plan(s)’ for total development”[3]. In the case of Axis bank vs Lavasa corporation. The financial creditors of Lavasa Corporation Limited (“LCL)” seeks ‘consolidation’ of the respective insolvencies of LCL and two of its wholly-owned...

Group Entity Insolvency In India

Hariharran.G And Aakash Sai Gundu

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