Joint CIRP Permissible Under IBC Where Corporate Entities Are Intrinsically Linked: Supreme Court

Joint CIRP Permissible Under IBC Where Corporate Entities Are Intrinsically Linked: Supreme Court

Introduction

The Supreme Court has held that a single insolvency application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) is maintainable against multiple corporate entities where such entities are intrinsically linked in the execution and marketing of a real estate project. The Court clarified that the IBC does not mandate filing separate insolvency proceedings against each corporate entity when their business operations are deeply intertwined.

Factual Background

The dispute arose from a real estate project in which homebuyers had invested in commercial units but were not handed possession despite substantial delays. The project was developed by Bhasin Ltd., while Grand Venezia Ltd. was later granted marketing rights for the sale of units in the same project.

Evidence on record showed that both entities shared common directors, issued interchangeable communications to allottees, and operated in a coordinated manner. Demand notices, possession letters, and payment receipts were issued interchangeably by both companies, creating the impression of a single integrated project structure.

Procedural Background

The homebuyers filed a joint insolvency petition under Section 7 of the IBC before the National Company Law Tribunal (NCLT), seeking initiation of Corporate Insolvency Resolution Process (CIRP) against both companies. The NCLT admitted the petition, a decision that was subsequently affirmed by the National Company Law Appellate Tribunal (NCLAT).

Aggrieved by these orders, the developers and their directors approached the Supreme Court, challenging the legality of initiating a joint CIRP against two separate corporate entities.

Issues

1. Whether a single insolvency application under Section 7 of the IBC can be maintained against more than one corporate entity.

2. Whether corporate entities that are operationally and functionally intertwined can be subjected to a joint CIRP under the IBC.

Contentions of the Parties

The appellants contended that the IBC does not contemplate initiation of a joint CIRP against multiple corporate debtors and that each corporate entity must be proceeded against independently. It was argued that permitting a joint insolvency proceeding would amount to judicial overreach and dilute the corporate separateness recognised under company law.

The homebuyers, on the other hand, submitted that both companies functioned as a single economic unit for the purposes of the project. They relied on documentary evidence showing common directors, interchangeable correspondence, and coordinated execution and marketing of the project to argue that forcing separate insolvency proceedings would defeat the object of the IBC.

Reasoning and Analysis

The Supreme Court, in a judgment authored by Justice Sanjay Kumar, rejected the appellants’ objections and upheld the findings of the NCLAT. The Court noted that Bhasin Ltd. was the principal developer of the project and that Grand Venezia Ltd. was subsequently brought in for marketing purposes. The two companies shared common directors for a considerable period and dealt with allottees in an interchangeable and integrated manner.

The Court observed that demand notices, possession letters, and payment receipts were issued by both companies without distinction, clearly indicating that the project was presented to homebuyers as a single composite venture. On these facts, the Court held that the two entities were intrinsically connected in the execution and marketing of the project.

Relying on earlier NCLAT decisions, including Edelweiss Asset Reconstruction Company Limited v. Sachet Infrastructure Private Limited and Mamatha v. AMB Infrabuild Pvt. Ltd., the bench of Justices Sanjay Kumar and K Vinod Chandran reaffirmed the application of the group of companies doctrine in insolvency proceedings. It endorsed the principle that where corporate entities collaborate to develop and allot premises as part of a single project, a joint insolvency application is legally maintainable.

The Court emphasised that insisting on separate insolvency proceedings in such cases would undermine the remedial and time-bound framework of the IBC, particularly in real estate insolvencies involving homebuyers.

Decision

The Supreme Court dismissed the appeals and upheld the initiation of a joint CIRP against both corporate entities. It held that a single insolvency petition under Section 7 of the IBC is maintainable where corporate debtors are intrinsically linked in the execution and marketing of a real estate project.

In this case the appellant was represented by Mr. Shyam Divan, Sr. Adv. Ms. Neeha Nagpal, Mr. Malak Manish Bhatt, AOR Mr. Vishal Gosain, Mr. Nikunj Mahajan, Mr. Praney Sharma, . Mr. Adith Deshmukh, Mr. Arpith Jacob and Mr. Gurdeep Singh, Advocates.