NCLAT Allows Group Insolvency Of Group Companies For Adel Landmarks Limited [Read Judgment]
NCLAT recently allowed group insolvency of the 100 percent subsidiaries of Adel Landmarks Limited namely Sachet, Sameeksha, Mehak, Jamvant and Magadh with that of Adel. This was done while admitting the five out of the nine Appeals preferred by Edelweiss Asset Reconstruction Company against the Order passed by NCLT, Principal Bench, declining the Insolvency Petitions filed.
NCLAT directed NCLT to admit the aforesaid five companies and appoint the Resolution Professional of Adel as the common Resolution Professional.
Notably, a team from Shardul Amarchand & Mangaldas lead by Senior Advocate Mr. Arun Kathpalia represented the Financial Creditor, EARC during the proceedings before NCLAT. UKCA and Partners led by its Managing Partner Ms. Manisha Chaudhary appeared on behalf of the group companies of Adel and argued that Adel in collaboration with these companies is developing residential projects on two sets of land in Palwal, Haryana. For that reason, these companies should also be admitted for insolvency and proceeded against simultaneously in the interest of completion of these projects. Mr. Sumant Batra appearing for Resolution Professional of Adel also submitted that the resolution process of Adel will not be successful if the total township is not developed.
After noting the arguments of the Counsel for the Financial Creditor, the Corporate Debtors and Resolution Professional, Hon'ble NCLAT held as under:
"41. In view of our findings and as the 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' namely— 'Sachet Infrastructure Pvt. Ltd.'; 'Magad Realtors Pvt. Ltd.'; 'Mehak Realtech Pvt. Ltd.'; 'Sameeksha Estate Pvt. Ltd.' and 'Jamvant Estates Pvt. Ltd.', the township project of Town and Country Planning, Haryana, will not be complete, we set aside the impugned order dated 7th March, 2019 and remit the case to the Adjudicating Authority with following directions..
42. The Adjudicating Authority will admit the applications under Section 7 filed by 'Edelweiss Asset Reconstruction Company Limited' against 'Sachet Infrastructure Pvt. Ltd.'; 'Magad Realtors Pvt. Ltd.'; 'Mehak Realtech Pvt. Ltd.'; 'Sameeksha Estate Pvt. Ltd.' and 'Jamvant Estates Pvt. Ltd.' and appoint the 'Resolution Professional' of 'Adel Landmarks Limited'- (Developer) ('Principal Borrower') as common 'Resolution Professional' to ensure that the 'Corporate Insolvency Resolution Process' against 'Adel Landmarks Limited'- ('Corporate Debtor') proceed jointly and 'Information Memorandum' is prepared in a manner that the 'Residential Plotted Colony' at village Palwal at Sectors 8 & 9 in terms of the License No. 46 of 2009 and License No. 53 of 2009, is completed in one go by initiating a consolidated 'Resolution Plan(s)' for total development."
Insofar as the four companies of Adel are concerned, NCLAT was pleased to observe as under:
"43. In so far the case of 'Superlative Infrastructure Pvt. Ltd.', 'Bhisham Infrastructure Pvt. Ltd.', 'Neeleshwar Mines & Minerals (India) Pvt. Ltd.' and 'Manogayan Estates Pvt. Ltd.' are concerned, their matter are remitted back to the Adjudicating Authority. The Appellant and the 'Corporate Debtors' may produce relevant Agreements to show that the 'Adel Landmarks Limited'- ('Principal Borrower') against which the 'Corporate Insolvency Resolution Process' has been initiated is common Developer. In such case, one or other 'Corporate Debtor' if show the same, the Adjudicating Authority on hearing the parties will admit their applications so as to enable the other projects are also completed of which 'Adel Landmarks Limited'- ('Principal Borrower') is the Developer."
This case is a first of its kind where group insolvency in respect to real estate companies has been allowed and would certainly set a precedence and serve to provide a solution for other real estate companies as well those facing insolvency proceedings, for which, however, no solution had been forthcoming. Current framework of IBC does not have any provision for group insolvency. Notably, when the IBC Amendment Bill, 2019 was tabled before Rajya Sabha, Mr. Kapil Sibal also remarked that most of the insolvencies are taking place in the power and real estate sector, however, there had been no resolution plan in the real estate sector at all. Apart from that, he also pointed out that there is no provision for the resolution of insolvency of the group companies under the present framework. This judicial precedent would fill the legislative vacuum and grant some clarity on the issue of group insolvency.