Lifting Of Corporate Veil and Group Insolvency
The creditors might
have given loan to a company based on the credentials of the group, and the
management might have siphoned the funds into related entities, causing
insolvency of the borrower company. In such a situation, the creditors of the
borrower insolvent company will suffer huge financial loss. Further, in some
cases, there may be practical difficulties in carrying out the insolvency
proceedings of one or more entity within a group due to intermingling of assets
of the group entities. There is, therefore, a need to carve an exception to the
concept of separate legal entity, and pierce the corporate veil by bringing the
assets of the solvent entities within the purview of the insolvency proceedings
of its associate or subsidiary.
In India, the concept
of group insolvency gained prominence in the case of Videocon Industries
Limited[1],
wherein the Hon’ble National Company Law Tribunal, Mumbai Bench held that in
the corporate insolvency resolution process of Videocon Industries Limited, the
assets of the entire Videocon Group, including any assets held by the foreign
subsidiary, will be considered to a part of the property of Videocon Industries
Limited. Thereafter, the Insolvency and Bankruptcy Board of India constituted a
working group to develop a draft framework on group insolvency.
The working group has
submitted its report highlighting the key concerns and has also provided
recommendations on the same, however, the insolvency law has still not
incorporated separate provisions for group insolvency. In this paper, the
author has tried to gain insights from the legislations and rulings in other
jurisdictions, analysed the various factors which can be considered in piercing
the veil in group relationships, and attempted to evaluate how the same can be
adapted in the Indian context.
As a general rule, every company has a separate
legal personality, however, there may be situations where the fate of two or
more companies are linked to each other. For instance, it is common business
practice for group entities to regularly engage in related party transactions
such as cross collateralisation, guarantee comforts, tunnelling or significant influence arrangements. While
such structures largely respect the separate legal status of the group
companies, practice suggests such inter-linkages in business, operations and
management often raise significant challenges when any one or more entity in
the group become insolvent[2].
Business entities
having complicated organisational structures, with network of subsidiaries and
investment vehicles, leads to convoluted insolvency problems. Considering this
situation, certain difficulties arise in adjudicating the company's insolvency
through bankruptcy proceedings, the resultant resolution of insolvency through
liquidation of properties/assets and distribution of the proceeds thereof to
the various creditors and contributors. Further, fraudulent practices of
insolvent debtors such as concealing or transferring assets to group companies,
has aggravated, both in terms of frequency and magnitude[3].
Other problems include selection of forum and conflict of debtor and creditor
rights. In these kind of instances, for value maximisation on behalf of the
stakeholders and for a successful resolution, lenders request consolidation.
With reference to the insolvency law, it is understood that courts generally
lift the corporate veil where one company in the group could be held liable for
the debts of the other company/ies or if a group of companies functioned
collectively[4].
All- inclusive
approach would level out the losses or inequitable gains that occur to lenders.
Nevertheless, reorganizing assets for rehabilitation of company might not
always be a viable option. Internationally, legal systems have been thriving to
developed laws to handle the consequences of business failures, including an
orderly and equitable distribution of the assets left to the failed business
creditors.[5] As
far as India is concerned, it has recently adopted the Insolvency and
Bankruptcy Code, 2016 (IBC) with a view to provide an effective framework for conduct
of insolvency proceedings. However, it is difficult to say whether the
legislation stands effective without having considered the inevitable aspect of
group insolvency.
In this paper, the
author has analysed the existing legal framework dealing with this issue, the
emerging trends and problems faced due to insufficiency of laws in India.
Further, after a study of the scenario abroad, an attempt has been made to
provide a solution to the current situation.
With the aim to promote the principles of a social, economic and
political justice enshrined in the Preamble to the Indian Constitution,
the state strives to provide an effective system for dispensation of
justice. As far as insolvency resolution is concerned, the Indian Constitution
empowered both the Parliament and State Legislature to enact laws relating to
bankruptcy and Insolvency.[6] Consequently,
a number of overlapping legislative acts and regulations on this subject made
the insolvency, liquidation and reorganisation process not only very chaotic
but led to delays and conflicts between these various laws and legal forum.[7]
The current legal framework does not provide for a comprehensive policy in resolving group insolvency matters. Though the revamping has been initiated with introduction of IBC in 2016, which provides for restructuring a company undergoing insolvency proceedings, in a time bound manner, rather than having focus on liquidation. Additionally with the assistance of insolvency professionals, by bringing in investors and the support of consulting creditors, a resolution plan is formulated and negotiated upon. Finally, a legally compliant plan is approved and implemented in accordance with IBC. But the law is practically silent on group insolvency issues. Therefore, this chapter focuses on the existing laws in India and how they have been rather irrelevant in comprehending the intricacies of group insolvency.
Before proceeding to the landscape of the insolvency laws in India, it
is pertinent to understand their origin. The century old statues i.e. the
Presidency Town Insolvency Act 1909 and the Provincial Insolvency Act 1920 are
the two statues that are still dealing with insolvency of individuals or
partnerships. Enacted over a century ago, under the British regime, these are
severely out dated laws and consequently inadequate to address the emerging
complications of group insolvency.
Post-independence, the economic and
political landscape led to phenomenal lending at subsidised rates to boost
industrial development, thereby lacking focus on efficient bankruptcy system.[8]
The Industries Development and
Regulation Act of India, 1951 empowered Central Government to take over the
control and management of the companies in liquidation.[9] This
Act was much before privatization policy, therefore, liquidation proceedings
aligned with the primary objective of the Act i.e. policy of industrial
licensing and government control.
Eventually the Companies Act was
enacted in 1956 (“1956 Act”), which provided for three categories of
proceedings for winding up a company- (i) voluntarily winding up; (ii)
compulsory winding up; (iii) winding up subject to court supervision. Section
433 of the 1956 Act clearly stipulated that a company that is unable to fulfil
its obligations towards outstanding debts maybe wound up by the Court or
Tribunal.
Thereafter, the revival and
rehabilitation of sick companies was attempted under the Sick Industrial
Companies (Special Provisions) Act, 1985, which though was the central law
governing corporate rescue but it was only applicable to industrial companies.
This law also did not comprehend the need to address any issue regarding group
insolvency.
In the Debt Recovery Tribunals under
the Recovery of Debts Due to Banks and Financial Institutions Act of 1993 also,
the focal point remained recovery of debts due to banks and financial
institutions. Therefore, individuals and corporations could not obtain any
relief under this statute.[10] This
statue had another glaring issue. The applications under this law could only be
made by creditors and not by special purpose vehicles for securitization,
designed to save the company through additional investments, resulting in the
application of traditional but time-consuming methods of foreclosure to these
entities.[11]
Faster economic growth also triggered
an increase in bad loans and non-performing assets, and in 2002, the government
introduced the Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest Act to authorize secured creditors to enforce
receivable loans by attaching or selling security, without court intervention[12].
However, this was merely a debt recovery procedure rather than a solution to
insolvency[13] let
alone group insolvency.
Even the Companies (Amendment) Act,
2002 did not incorporate the suggestions of Justice Eradi Committee with regard
to adoption of Model Law. [14]
The position was not altered much, with respect to group winding up, even after
introduction of Companies Act 2013.
In view thereof, India was in dire need to revamp its insolvency law in order to come at par with the international standards.
Advent of IBC:
Finally, IBC paved
way for a comprehensive liquidation and reorganisation process in India.
Interestingly, when the Bill was first introduced in Lok Sabha in 2015, the
issue of group insolvency was not even addressed.
While a formal legislation on group insolvency is yet to be formulated, however, in several matters, National Company Law Tribunal has taken cognizance of the functioning pattern of group entities while determining group insolvency issues. This chapter seeks to analyse, through elaborate discussion of case laws, the judicial filling of this absent legislation in India and the impact thereof.
Jurisdiction of Indian Courts in Insolvency/
Liquidation Proceedings:
Following were some instances where the Indian
judiciary lifted the corporate veil in insolvency of an entity, where it was
seen that the corporate debtor is only a shell company and did not have any
assets or net worth for the creditors to recover their dues, or there was no
likelihood for any resolution applicant to submit any resolution plan, or there
was high possibility that insolvency/ liquidation of corporate debtor might
reach a dead end.
i) In the insolvency process of Videocon Industries
Limited, the assets of the entire Videocon Group, including those held by its
foreign subsidiaries, were considered to be a part of Videocon Industries
Limited[15].
ii) Supreme Court held as follows:
“where a statute itself lifts the corporate veil,
or where protection of public interest is of paramount importance, or where a
company has been formed to evade obligations imposed by the Law, the
court will disregard the corporate veil. Further, this principle is applied
even to group companies, so that one is able to look at the economic entity of
the group as a whole….the Court may pierce the corporate veil for the purpose
and only for the purpose of depriving company or its controller of the
advantage that they would otherwise have obtained by company’s separate legal
personality”[16].
(iii) NCLT, Mumbai consolidated the insolvency processes
of Lavasa Group, observing that since the subsidiary companies are financially
dependent on the holding company, the insolvency process of subsidiary
companies are also by far dependent on the insolvency process of the holding
company[17].
(iv) In Bikram Chatterji vs. Union of India[18], the Supreme Court froze the bank accounts of the holding entity.
(v) In Chitra Sharma vs. Union of India[19], the Supreme Court directed the parent company to deposit money, and also attached its assets.
(vi) In Edelweiss Asset Reconstruction Company Limited vs. Sachet Infrastructure Pvt Ltd.[20], since several group entities where working to develop a common township, the National Company Law Appellate Tribunal consolidated their insolvency process for the benefit of the homebuyers.
(vii) In Sanghvi Motors Limited vs. Albanna Engineering (India) Pvt. Ltd.[21], NCLT, Kochi directed invocation of bank guarantees provided by the parent of the debtor company.
Unresolved and Beyond Judicial Reach:
Indian courts
have adopted a rather progressive attitude while dealing with cases involving
group companies. But however there are certain practical issues that remain
unresolved and beyond judicial authority of India in absence of strong
legislative backing. For instance, in case of group insolvency of companies
involving foreign associates/ subsidiaries/ holding companies, giving example
of assets of Videocon Oil Ventures Ltd. which are located in Brazil, Indonesia
and East Timor, it can be said that there is glaring incompetency in the
existing regime. Gaps in the legislation not only question its efficacy but
also doubts whether the resolution plans would work if profit making assets are
hived off the business by the indebted debtor.
When a company goes into insolvency, it is required to pay off its debts
by way of selling its assets or similar methods, however, if the assets of the
company are insufficient to meet all the claims, in several instances, the
courts have pooled in the assets of related/ associated/ group companies. One
might also contend that one entity may be held accountable for the liability of
another entity considering the fiduciary relationship that exists between the
companies, especially in the case of holding- subsidiary. In case the
subsidiary entity is adjudged insolvent and it is proved that the parent entity
had information of the same, or if the parent entity is company was aware or
reasonably believed to have known about the same, the said parent entity may
also be held accountable for the claims made against the subsidiary[22].
To gain a better perspective on the working of the group insolvency, this
chapter seeks to analyse the implementation and enforcement of group insolvency
law in other jurisdictions.
UNCITRAL Legislative Guide on
Insolvency Law:
The UNCITRAL Legislative Guide provides for extension of liabilities and
contribution orders. It stipulates different circumstances in which liability
might be extended:
(i) Exploitation or abuse by one group member of its control
over another group member, including operating that group member continually at
a loss in the interests of the parent;
(ii) Operation of a group member as the parent’s agent, trustee or partner[23].
The UNCITRAL Legislative Guide, however, further stipulates as follows:
“98. Generally, the
mere incidence of control or domination of a group member by another group
member, or other form of close economic integration within an enterprise group,
is not regarded as sufficient reason to justify disregarding the separate legal
personality of each group member and piercing the corporate
veil.[24]”
The carve out from the concept of separate legal entity as envisaged in
the Solomon case should not be done as a general principle,
and the judiciary will have to look into several factors, analysing the facts
of the case at hand, to deviate from the doctrine. In Woolfson vs.
Strathclyde Regional Council[25],
it was held that the veil of incorporation would be upheld unless it was a
façade[26].
In Re a Company (1985), the Court of Appeal stated:
“In our view the
cases before and after Wallersteiner vs. Moir (1974) 1 WLR 991 show that court
will use its power to pierce the corporate veil if it is necessary to achieve
justice irrespective of the legal efficacy of the corporate structure under
consideration[27].”
This was the landmark case wherein the court intervened and held that
while generally each of the companies have a distinct identity, the same should
not serve as a constraint on justice.
In Limpus vs. London General Omnibus Co. Ltd.[28],
the following factors were laid down for considering piercing of veil in
subsidiary and group relationships:
(i) The personnel deployed by holding company and its subsidiaries
and are distinct and the parent company has no power to decide on the
appointment/ termination of any employees of the daughter entity;
(ii) The holding company has not given any corporate guarantee or
has not pledged any of its properties, for the debts availed by its
subsidiaries;
(iii) The equipment and other goods of the parent and subsidiary are
separate;
(iv) The two companies do not exchange assets or liabilities;
(v) There exists no exclusive dealing arrangement or any similar
contract between the parent and daughter entity;
(vi) The holding company is not a supervisor to the operations of
its subsidiaries;
(vii) The holding company has no special or distinguished power by which
it can control or undertake significant commercial matters of its subsidiaries;
(viii) The functional/ operational areas for the holding
company and its subsidiaries is distinct, and not similar.
Where Two or More
Entities Function as Single Economic Entity:
On several occasions, the courts have pierced the veil between companies
in a group on the basis that, while legally distinct, economically they exist
as one single, interdependent unit. Where Company A not only owns controlling
interest in Company B, but is also involved in the operations of Company B,
such that the companies ceased to represent separate enterprises and have
become more or less indistinguishable from the larger enterprise.
In DHN food distributors’ Ltd vs. Tower Hamlets LBC[29], the veil between three companies in a group was pierced for fair and equitable purposes.
Fiduciary Duty of
Parent Towards Subsidiary:
In Cape vs. Chandler[30], the Court of Appeal held that a parent company has a direct duty of care towards its subsidiary. The court further held that in appropriate circumstances, law may impose on a parent responsibility for its subsidiary.
In United States vs. Best Foods[31], the US Supreme Court, succinctly restated the law and provided much needed direction for anticipating parent-subsidiary liability. Accordingly, mere involvement in subsidiary’s general affairs will not make a parent company liable for breaches of subsidiaries, subject to two exceptions:
(i) If the legal structure has been abused, consequent to which,
the subsidiary has been left with insufficient funds, thereby depriving the
creditors of their money (creditor protection);
(ii) If the holding company was actively involved in running the business of its subsidiaries, such that the insolvency of the subsidiaries can be attributable to the holding company.
Again, in United States v. Kayser-Roth Corporation[32], the United States Court specifically ruled that where the parent company exercised pervasive control over its subsidiaries, the former can be accountable for the acts of the latter.
In Pauley Petroleum Inc. vs. Cont'l Oil Co.[33],
the court asserted that separate entities of parent and subsidiary may be
disregarded if there is proper showing of fraud, public wrong or in interest of
justice.
Alter Ego Or
Fraudulent Conduct:
When the conception of a corporate entity is employed to defraud
creditors, to evade an existing obligation, to circumvent a statute, to achieve
a perpetual monopoly, or to protect knavery or crime, the courts will draw
aside the web of entity, will regard the corporate company as an association of
live, up-and doing, men and woman shareholders, and will do justice between
real persons[34].
In Harper vs. Del. Valley Broadcasters, Inc.[35] , it was held that the purpose of allowing the corporate veil to be pieced on an alter ego theory is to hold the party actually responsible for the inequitable conduct accountable and to prevent that corporation from using another corporation to shield itself from liability[36]. [See also Official Comm. of Unsecured Creditors of Sunbeam Corp. vs. Morgan Stanley & Co, Inc. (In re Sunbeam Corp.)[37]]
In Geyer vs. Ingersoll Publ'n Co.[38], it was held that court can pierce the corporate veil of an entity where there is fraud or where a subsidiary is a mere instrumentality or alter ego of its owner[39].
In Morris vs. NYS Dep't of Taxation and Fin.[40], it was observed that piercing the corporate veil requires a showing that:
(i) owners exercised complete domination over the corporation
in respect to transaction attacked; and
(ii) that such domination was used to commit fraud or wrong
against plaintiff which resulted in plaintiff's injury[41].
Fortunately, India has already taken the first step to reform the
insolvency system. In this chapter, an attempt has been made to dissect the
draft and analyse the recommendations suggested in the report of the Working Group on Group Insolvency[42].
The Working Group has suggested “a ‘corporate
group’ may include holding, subsidiary and associate companies, as defined
under the Companies Act, 2013. However, an application may be made to the
Adjudicating Authority to include companies that are so intrinsically linked as
to form part of a ‘group’ in commercial understanding, but are not covered by
the definition of corporate group above, as well”.
The Working Group has further suggested that for now, the focus will
only be on domestic entities, however, in the era of rapid globalization,
entities transact throughout the globe, and therefore, exclusion of foreign
companies might be a drawback. Group insolvency framework backed by a
cross-border insolvency framework is the need of the hour.
(i) Procedural coordination wherein the focus shall be on
harmonising and synchronising the insolvency processes
of multiple entities in a group, without pooling together the properties held
by each entity;
(ii) Substantive consolidation wherein the assets and liabilities of companies in a group will be
consolidated, such that they are treated as a single entity;
(iii)Rules dealing with perverse behaviour of companies in corporate
groups wherein if the insolvency entity had entered into any
preferential, undervalued, extortionate or fraudulent transactions, the
assets which have been parted with by way of such avoidance transactions will
be repossessed, and the related undertakings
will be held accountable for the liabilities of each other.
The Working Group has recommended that while (i)
aforementioned may apply on all insolvent entities against whom insolvency
resolution process have been initiated, however, (iii) shall apply even if an
entity is solvent.
Mechanics for Group Insolvency:
(i) Unified petitions: A
unified/ joint petition may be filed by creditors (financial as well as
operational) or corporate debtors to initiate insolvency resolution process for
multiple entities. This significantly reduces the cost as compared to
litigation expenses incurred if separate petitions are filed for each entity.
Further, if the insolvency petition is admitted, the NCLT may order that a
unified public announcement be published with respect to the group entities.
There may be, however, certain drawbacks in case of joint petitions, which may have to be considered while formulating the group insolvency law. For instance, one or more creditor may not agree on filing a joint petition. To resolve this, a percentage threshold may have to be fixed for moving a joint petition, wherein, if say, 66% creditors agree, a joint petition may be filed.
Also, it is relevant to understand what will be relief that may be granted in case of a petition for initiation of group insolvency, i.e. can the adjudicating authority admit the petition against any one company, while disposing off the petition against other companies in a group or the petition has to admitted/ dismissed in its entirety only. In the author’s opinion, both the options should be included as part of the relief while preparing the petition.
(ii) One forum for adjudication of all disputes: With respect to adjudication of group entities, the Working Group has laid down the following:
(a) To save judicial time, and to bring
down the cost involved in pursuing separate litigation proceedings for separate
entities, the Working Group has suggested that multiplicity of
jurisdictions should be avoided.
(b) In case, insolvency proceeding
against one entity of a group has been admitted prior to admission of
insolvency of other entities in the same group, the adjudicating authority
which has first admitted the insolvency might take up the applications with
respect to other entities in the group as well.
(c) If circumstances warrant
that separate adjudicating authorities should cater to the insolvency of
separate entities, then all the adjudicating authorities should share data,
coordinate and communicate with one another.
(iii) Single resolution professional for group entities: The Working Group suggests that a common insolvency professional might take care of the insolvency proceedings of all the entities in the group. However, if the said insolvency professional is unable to cater to the needs of all the entities, may be due to lack of adequate resources or otherwise, then separate insolvency professionals might be appointed for separate entities, however, all the insolvency professionals should communicate, collaborate and share data with one another.
Separate insolvency professionals for
separate companies may prove to be fatal since there will be discretion on
sharing of information, and one insolvency professional may limit his
communication with the other insolvency professionals, especially when there
are chances of intra group litigation, which may be impair the value of the
entity under his control[43].
Therefore, in the author’s view, appointment of single resolution professional
should be the first priority to avoid any possible conflict of interest.
(iv) Unified meeting of the creditors: The Working Group suggests that if the creditors of the entities may decide to form a common committee of creditors to facilitate better coordination amongst themselves. The said understanding/ arrangement between the creditors, including terms relating to who shall bear the expenses of the group creditors’ committee, mechanics to exit from the group procedures, etc, may be agreed in a framework agreement. The Working Group has endowed upon the creditors the power and responsibility to decide the level of coordination that they are willing to do with each other.
(v) Subordination
of claims of related entities: The Working Group suggests that virtue
of an order, the adjudicating authority may subordinate related party claims to
that of others, in case of fraud or diversion of funds. However, such
subordination should be applied only as an exemption to the general rule, where
solid proof of wrongdoing has been submitted before the adjudicating
authority.
We already have one case law in India,
wherein the Hon’ble NCLT, Allahabad Bench[44] observed
that a related party claim ought to rank below other claims, and held that the
related party creditors be treated as equity shareholders for the purpose of
determining the distribution priority during the insolvency process[45],
however, a specific guideline as to when, how and under what circumstance
subordination should be done will be useful.
(vi) Extension of liability: Working Group also talks about contribution orders, whereby liability may be extended on parent entities or its officers. From the Indian insolvency context, in case there are any avoidable transactions, the general relief that is being granted is reversal of such transactions, or the relevant parties are being asked to compensate the creditors for the loss suffered by them. The Working Group has stipulated that IBC already has relevant provisions with respect to avoidance transactions, and therefore, no further provision with respect to extension of liability or contribution order is required. It has, however, failed to consider that the consolidation of group entities might be an advanced relief which may be sought by the creditors in case an application against avoidable transactions is being filed. Further, if after the initiation of insolvency process of one entity, there seems to be plausible reasons that the holding company was aware of or was responsible for the said situation of the debtor company, then also the creditors should have an option of pooling in the assets of the holding company. More so, if the initial loan disbursal was made by evaluating the group as a whole. It seems that the Working Group has not considered such instances, and has restricted its approach to the UNICTRAL Law, which was devised long back in 2005.
The draft framework
requires much more clarity before it can be adopted into a formal legislations.
While the Working Group has made a comparison with other jurisdictions to
understand the impact, recommendations have stipulated certain modifications to
the complete adoption of UNICTRAL Law, such as wide discretion has been given to
committee of creditors to decide whether they want to go for procedural
coordination or substantive consolidation. India must not stretch the modifications so
as to defeat the purpose of adopting UNICTRAL Law.
Conclusion:
It has been established from the discussions above that Indian framework
is a chaos in terms of predictability. On the other hand, it is also important
to acknowledge and address the situation of growing non-performing assets in
India. While a number of high ticket companies have been swept into the
insolvency storm started under IBC, the allegations of financial
irregularities, fraud and diversion of funds have been pouring in. Also, the
number of cases filed for group insolvencies are relatively less at this point.
While adopting an entirely new regime which directly impacts the authority of
courts may not be an easy transition. Especially considering the peculiarities
of Indian society, which treats their traditions with utmost sanctity,
resistance is bound to occur. However, it must be appreciated that adoption of
group insolvency is an opportunity for India to revamp its insolvency laws to
pace up to international standards.
In the current scenario, the conflict
still lingers and confusion persist, and therefore, concrete steps should be
taken to revolutionise group insolvency laws, and only then can the motivating
factors of uniformity and predictability truly come to fruition.
Summarising from the precedents
discussed, in Indian context, the following indicative factors may be helpful
in determining whether the case is fit for group insolvency or not:
(i) There are several
instances where the resources, including human resources, is being shared
amongst group entities. For example, it is common for group entities to appoint
a group legal personnel or a common accountant. It is also common to have a
shared registered office amongst group entities. However, in case the cost is
not distributed evenly between the entities making use of such resources, and
is being accounted in books of any one entity, the same may drain the resources
of the latter entity, which may consequentially impact the creditors of the
said entity. In such cases, courts should not shy away from lifting the
corporate veil.
(ii) There may also be instances
of intra group dealings, or business linkages between two or more entities. For
example, a company’s final product may be used by its group company as raw
material, however, it is to be seen that an entity is not functioning as a
puppet in hands of the other. Further, if the companies engage in any
fraudulent practice to keep its assets beyond the reach of the creditors,
whether by making priority payment to the group company in the garb of
“ordinary course of business” or otherwise, the “unclean hands” doctrine will apply.
(iii) Again, in case there
are instances of diversion of funds from one entity to another, the veil may be
lifted. This may occur in various ways. On such example is when there is a
hypothetical book entry showing that a loan or advance has been given by one
entity to the other, and then actual transfer of money from the latter entity
to the former for the supposed repayment.
(iv) If there are common
shareholders or directors in two entities, considering the functioning of the
entities, it may be contended that one of the entity is a sham, and is
merely functioning to defeat the provisions of law.
[1]State Bank of India
vs. Videocon Industries Limited 2018 SCC OnLine NCLT 13182.
[2] Richa Saraf,
‘Videocon Ruling: Setting a Benchmark for Group Insolvency’ (Vinod Kothari
Consultants, 28 February 2020) <https://vinodkothari.com/2020/02/videocon-ruling-group-insolvency/>
accessed 28 December 2021.
[3] United Nations
Commission on International Trade Law- Legislative Guide on Insolvency Law 2005
<https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf>
accessed 28 December 2021.
[4] Ian M Ramsay,
‘Holding Company Liability for the Debts of an Insolvent Subsidiary: A Law and
Economics Perspective’ (1994) 17(2) UNSW Law Journal 520-545 <https://www.unswlawjournal.unsw.edu.au/wp-content/uploads/2017/09/17-2-10.pdf>
accessed 28 December 2021.
[5] Philip R
Wood, Principles of International Insolvency (2nd Ed,
Sweet & Maxwell, 2007).
[6] ‘Bankruptcy and Insolvency’ is an item
specified in Entry 9, List III of the Constitution of India. List I, Entry 43
provides ‘incorporation, regulation and winding up of trading corporations,
including banking, insurance and financial corporations, but not including
co-operative societies’ and Entry 44 stipulates ‘incorporation, regulation and
winding up of corporations, whether trading or not, with objects not confined
to one State, but not including universities.’ State can under, List II, Entry
32, enact laws relating to ‘incorporation, regulation and winding up of
corporations, other than those specified in List I…’
[7] Paul J. Omar,
‘Landscape of International Insolvency Law’ (2002) 11 Int. Insolv. Rev. 173-200
<https://www.iiiglobal.org/sites/default/files/landscapeofinternationalinsolvencylaw.pdf>
accessed 28 December 2021.
[8] Nimrit Kang
& Nitin Nayar, ‘The Evolution of Corporate Bankruptcy Law in India’ ICRA
Bull.: Money and Fin. (October 2003) at 37, 38.
[9] IDR Act, S
18FA, provides for Central Government to take charge of companies under
liquidation, if it is of opinion that such company could be revived.
[10] Ministry of
Finance, Interim Report of the Bankruptcy Law Reform Committee (February
2015) recommends that the Model law should be adopted only after understanding
its effectiveness in India. Also, suggests that other alternative approaches
such as the EC Regulation on Insolvency Proceedings, American Law Institute’s
NAFTA Transnational Insolvency Project and the International Bar Association
Cross-Border Insolvency Concord should be considered <https://www.finmin.nic.in/sites/default/files/Interim_Report_BLRC_0.pdf>
accessed 28 December 2021.
[11] Nidhi Shetye,
‘International Insolvency: An Indian Perspective on Cross-Border Treatment of
Cases’ (2016) 39 Fordham Int’l L.J. 1045, 1050 <https://ir.lawnet.fordham.edu/ilj/vol39/iss4/3/>
accessed 28 December 2021.
[12] Transcore
vs. Union of India 2006 (12) scale 585, the Supreme Court upheld the
concept of complete autonomy of specified creditors and lenders for
classification of asset and recovery of outstanding dues.
[13] Ibid see note
21, See Nidhi Shetye at p. 1045.
[14] Justice Eradi
Committee, Report of the High Level Committee, Law Relating to
Insolvency and Winding up of Companies (2000) para 7.9 <http://reports.mca.gov.in/Reports/24-Eradi%20committee%20report%20of%20the%20high%20level%20committee%20on%20law%20relating%20to%20insolvency%20&%20winding%20up%20of%20Companies,%202000.pdf>
accessed 28 December 2021.
[15] Ibid see note
1.
[16] Arcelor
Mittal India (P) Ltd. vs. Satish Kumar Gupta (2019) 2 SCC 1.
[17] Axis Bank
Limited vs. Lavasa Corporation Limited. C.P.(IB)-1765, 1757
& 574/MB/2018, 26 February 2020 <http://www.lavasa.com/pdf/Lavasa-Corporation-Limited-MA-3664-2019-in-CP-1765-1757&574-2018-NCLT-ON-26.02.2020.pdf>
accessed 31 October 2021.
[18] 2021 Latest
Caselaw 259 SC
[19] Writ
Petition(s)(Civil) No(s).744/2017, 11 September 2017 <https://indiankanoon.org/doc/118903856/>
accessed 31 October 2021.
[20] Company Appeal
(AT) (Insolvency) No. 377/ 2019, 20 September 2019 <https://ibbi.gov.in/uploads/order/e43157f60f13a1679d4efb03b8d3a908.pdf>
accessed 31 October 2021.
[21] MA/ 25/ KOB/
2020, 20 April 2020; Order was later set aside in appeal; Albanna
Engineering Llc vs. Sanghvi Movers Ltd. Company Appeal (AT)
(Insolvency) No. 481 of 2020, 17 March 2021 <https://nclat.nic.in/Useradmin/upload/4593551946051f241c9fe6.pdf>
accessed 31 October 2021.
[22] Australian
Corporations Act 2001, S 588V, 588W
[23] Ibid see note
3.
[24] Ibid.
[25] (1978) UKHL 5
[26] Natasha Danielle
Paxton Smith, ‘Veils, Frauds, and Fast Cars- Looking Beyond The Fixation On
Piercing To The Illusory Protection Provided By Incorporation’, A dissertation
submitted in partial fulfilment of the degree of Bachelor of Laws (Honours) at
the University of Otago, Dunedin (October 2013) <https://www.otago.ac.nz/law/research/journals/otago065269.pdf>
accessed 28 December 2021.
[27] Ibid.
[28] (1862) 1
H&C 526
[29] (1976) 1WLR 852
[30] (2012) EWCA CV.
525 CA
[31] 524, F. Supp.
842, 54 USLW 2586
[32] 20 ELR
20349.No. 88 – 0325B. 724 F. Supp. 15/301 ERC 2001
[33] 239 A.2d 629,
633 (Del. 1968)
[34] Maurice
Wormser, ‘Piercing the Corporate Veil of Corporate Entity’ (1912) 12 Colum. L.
Rev. 496, 517 <https://archive.org/details/jstor-1110931/page/n3/mode/2up>
accessed 28 December 2021.
[35] 743 F. Supp
1076, 1085 (D. Del. 1990)
[36] Timothy E.
Graulich, ‘Substantive Consolidation- A Post-Modern Trend’ (2006) 14 Am. Bankr.
Inst. L. Rev. 527 <https://www.davispolk.com/sites/default/files/files/Publication/0410d3a6-774c-460c-b8c0-1b41c3fd13ca/Preview/PublicationAttachment/3ab385c3-f706-4cd6-a6ad-c8c293988b28/graulich.substantive.consolidation.article.may10.pdf>
accessed 28 December 2021.
[37] 284 B.R. 355,
365 (Bankr. S.D.N.Y. 2002)
[38] 621 A.2d 784,
793 (Del. Ch. 1992)
[39] Ibid see note
39
[40] 623 N.E.2d
1157, 1161 (N.Y. 1993)
[41] Ibid see note
39.
[42] Insolvency and
Bankruptcy Board of India, ‘Report of the Working Group on Group Insolvency’
(23 September 2019) <https://www.ibbi.gov.in/uploads/whatsnew/2019-10-12-004043-ep0vq-d2b41342411e65d9558a8c0d8bb6c666.pdf>
accessed 28 December 2021.
[43] Ilya Kokorin,
‘Conflicts of interest, intra-group financing and procedural coordination of
group insolvencies’ (2020) 29 Int Insolv Rev. 32-60 <https://onlinelibrary.wiley.com/doi/epdf/10.1002/iir.1370>
accessed 28 December 2021.
[44] J.R. Agro
Industries P. Limited v. Swadisht Oils P. Ltd. C.A No. 59/ 2018, 24
July 2018 <https://ibbi.gov.in/webadmin/pdf/order/2018/Jul/24th%20Jul%202018%20in%20the%20matter%20of%20Swadisht%20Oils%20Pvt.%20Ltd.%20(J.R.%20Agro%20Industries%20P%20Ltd.%20Vs.%20Swadisht%20Oils%20Pvt.%20Ltd.)_2018-07-27%2017:16:08.pdf>
accessed 28 December 2021.
[45] Richa Saraf,
‘Concept of Related Party: Interpretation by Letter or Spirit of the IBC?’
(India Corp Law Blog, 11 August 2018) <https://indiacorplaw.in/2018/08/concept-related-party-interpretation-letter-spirit-ibc.html>
accessed 28 December 2021.
Comments
Post a Comment