Oase Asia Pacific Pte Ltd vs Axis Bank Ltd & Ors

[Arising out of Order dated 26th February, 2020 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai in M.A. No. 3664 of 2019 in C.P. (IB)-1765, 1757 & 574/MB/2018]

IN THE MATTER OF: 1. Oase Asia Pacific Pte Ltd. 51, Gold Hill Plaza, 17-01 Singapore - 308900 ...Appellant. Versus 1. Axis Bank Ltd & Other Financial Creditors Through Union Bank of India With its address being: Union Bank Bhawan, 239 VidhanBhavan Marg, Nariman Point Mumbai - 400021 ...Respondent No. 1

2. LavasaCorporation Ltd. Through its Resolution Professional, Mr. ShileshVerma C/o Deloitte Touche Tohmatsu India LLP 27th Floor, Tower 3, India Bulls Finance Centre, Elphinstone, West Mumbai - 400013 ...Respondent No. 2

3. Warasgaon Assets Maintenance Ltd. Through its Resolution Professional, Mr. ShileshVerma C/o Deloitte Touche Tohmatsu India LLP 27th Floor, Tower 3, India Bulls Finance Centre, Elphinstone, West Mumbai - 400013 ...Respondent No. 3.

Present: For Appellant: Ms. Anjali Sharma, Mr. Devrajan Raman and Mr. Deepak Bashta, Advocates. For Respondent: Mr. Aakarshan Sahay and Mr. NakulSachdeva, Advocates for R-1. Mr. AmeyaGokhale, Ms. KritiKalyani, Ms. Salonee Kulkarni, Mr. SumeshDhawan and Mr. SagarDhawan, Advocates for R-2 & R-3.

JUDGMENT

(26th February, 2021)

A.I.S. Cheema, J.:

1. This Appeal has been filed against the Impugned Order 26th February,

2020 passed by the Adjudicating Authority,National Company Law Tribunal,

Mumbai Bench, Mumbai in M.A. No. 3664 of 2019 in C.P. (IB) No. 1765, 1757

and 574/MB/2018. By the Impugned Order, the Adjudicating Authority

consolidated 'Corporate Insolvency Resolution Process' (CIRP In Short) of

Respondent No. 2-Lavasa Corporate Ltd. (LCL in Short) and its hundred

percent subsidiary Companies Respondent No. 3-Warasgaon Assets

Maintenance Ltd. (WAML in short) and DasveConvention Centre Ltd. (DCCL in

short) all three of which Companies were undergoing 'CIRP'. The Impugned

Order stated that the consolidated 'Committee of Creditors' (CoC in short)

should take informed decision regarding the debt of Warasgaon Powers Supply

Ltd. (WPSL in short) and DasveRetail Ltd. (DRL in short) which were also

hundred percent subsidiaries but which companies were not under 'CIRP'. The

Resolution Professional of the LCL-Respondent No. 2 was appointed as

Resolution Professional for the consolidated 'CIRP'. Other directions were also

issued.

2. The present Appellant Oase Asia Pacific Pte Ltd. claims to be Operational

Creditor of DCCLwhich was admitted to 'CIRP' by Order dated 05th February, Page | 2 Company Appeal (AT) (Insolvency) No. 783 of 2020 2019. The Appellant claims to be part of 'CoC' in that 'CIRP'. It is stated that in

that 'CIRP' there is no Financial Creditor and only Operational Creditors

constitute 'CoC'.

3. Before start of Insolvency on 05th February, 2019 against DCCL the

'CIRP' against the Respondent No. 2-LCL was admitted on 30th August, 2018.

The Respondent No. 1 Axis Bank filed consolidated Application M.A. No. 3664

of 2019 for consolidation of the CIRPs of LCL, WAML and DCCL. The

Adjudicating Authority heard parties of the three CIRPs and relying on the

Judgment in the matter of "State Bank of India Versus Videocon Industry Ltd."

in M.A. No. 1306 of 2018 in CP (IB)-02/2018 dated 08th August, 2019 passed

by this Tribunal took into consideration the yardsticks specified and concluded

that the yardsticks/criteria substantially applied to Respondent No. 2-LCL and

its group companies and for reasons recorded in the Impugned Order directed

consolidation of the three 'CIRP' proceedings into one under the Resolution

Professional of LCL

4. We have heard Learned Counsel for the parties. The Appellant-

Operational Creditor of DCCL claims that majority decision of 'CoC' of DCCL

which was comprising only of the Operational Creditors were against the

consolidation of the 'CIRP' of DCCL with 'CIRP' of Respondent No. 2-LCL. The

Learned Counsel for the Appellant referred to the Written-Submissions filed by

her vide Diary No. 25454 to submit that the Resolution Professional of

Respondent No. 2 had in the 'CIRP' of Respondent No. 2-LCL taken over the

DCCL disregarding the 'CIRP' pending in the matter relating to DCCLby

Page | 3 Company Appeal (AT) (Insolvency) No. 783 of 2020 claiming that the Lease Agreement between Respondent No. 2 and DCCLwas

not registered and was unstamped. It is claimed that it violated Section 14 of

Insolvency and Bankruptcy Code, 2016 (IBC in short) in the 'CIRP' ofDCCL.

The Convention Centre "Dasve Convention Centre" was in possession of the

Resolution Professional of DCCL but still the Resolution Professional of

Respondent No. 2-LCLtookover. The Learned Counsel claimed that the

Resolution Professional of Respondent No. 2-LCL acted illegally in the CIRP

being held by Resolution Professional of DCCL and the concerned Resolution

Professional of DCCLfiled M.A. No. 1369 of 2019 in CP No. 574/2018 which

was still pending.

At the time of arguments, it was stated by Learned Counsel for

Respondent No. 2 and 3 that the said M.A. No. 1369 of 2019 was reserved for

Orders on 24th February, 2020 but the Orders are not yet passed.

5. The Appellant claims that the Impugned Order suffers as certain guiding

yardsticks for consolidation were absent with regard to the DCCL. The

Creditors of DCCL were entirely distinct from the Creditors of the other two

companies and thus there were no common liabilities. It is also argued that

there was no inter-lacingof finance between DCCL and the other two

companies. It is also claimed that there was no inter-looping of debts and the

Creditors of DCCL were not Creditors of the other two Companies. The Learned

Counsel further submitted that common Financial Creditors were also not

there as in the matter of DCCL. There was actually no Financial Creditor. Thus

it is tried to be argued that the yardsticks as laid down in the Judgment in the

Page | 4 Company Appeal (AT) (Insolvency) No. 783 of 2020 matter of "State Bank of India Versus Videocon Industry Ltd." were wrongly

applied while consolidating 'CIRP' of DCCL with the other two Companies.

6. Learned Counsel for the Appellant accepted that the Respondent No. 2-

LCL was lessee of Maharashtra Krishna Valley Corporation with regard to the

Property of DCCL and that Respondent No. 2-LCL in its turn had leased the

property to its subsidiary DCCL vide Deed of Lease Annexure-F at Page 109.

The document shows the Lease of 20 years was created w.e.f 15.07.2010 for a

lease premium of Rs. One Hundred and Ten Crores and yearly rent of Re. 1.

7. It has been argued by Learned Counsel for Respondent No. 1 that the

Impugned Order was passed is proper and correct and in the interest of three

companies. It is argued that DCCL is only a convention centre and subsidiary

of Respondent No. 2 and the businesses are inter-linked. The Learned Counsel

referred to Appeal Page 100 where there is copy of written-submissions which

was filed by the Resolution Professional of DCCL before the Adjudicating

Authority and the Learned Counsel referred to Paragraph 33 of the written-

submissions. Relevant part of Paragraph 33 reads as under:

"33. The CoC of DCCL has resolved that they are willing to support consolidation if they receive their entire claim amount. Otherwise they are confident that there will be enough Resolution Applicants interested in the convention Centre on a standalone basis. On the contrary they feel that in consolidation the Centre may not get the right value and it will be nowhere near the lease premium of Rs 100 Crs as indicated in the lease agreement. The view is that for the 10 year unexpired period of lease the Centre could fetch conservatively Rs. 40 Crs to Rs. 50 Crs as lease premium Page | 5 Company Appeal (AT) (Insolvency) No. 783 of 2020 which could easily cover the entire claim of Rs. 21.33 Crs received by the Resolution Professional of DCCL..............."

8. The Learned Counsel submitted that the written-submissions show that

'CoC' of DCCLwhich had only Operational Creditors was merely interested in

getting back their entire claims rather than resolution of the company which

had gone into the 'CIRP' and that aim of 'CIRP' is resolution for the Company

rather than recovery of money.

9. Perusal of the Impugned Order shows that keeping the yardsticks laid

down in the Judgment in the matter of "State Bank of India Versus Videocon

Industry Ltd." the Adjudicating Authority discussed the common control of

these hundred percent subsidiaries of Respondent No. 2; that there were

common directors; that there were common assets and liabilities. The inter-

dependence and inter-lacing of finance was also considered as well as the

pooling of resources. The Adjudicating Authority considered that DCCL's sole

business is to operate the convention center located Lavasa Hill Town Ship

built on land leased out by Respondent No. 2-LCL. The business is dependent

on the working of LCL. For such and other reasons recorded in details, the

Adjudicating Authority thought appropriate to consolidate the CIRPs. The

Learned Counsel for the Appellant has tried to search and nit-pick portions

where DCCL is not referred to say that the particular yardstick does not apply.

For example, common Financial Creditor. We find, only because DCCLdoes not

have Financial Creditors, would not be sufficient reason to say that the

yardsticks laid down in the matter of "State Bank of India Versus Videocon

Industry Ltd." were not attracted.

Page | 6 Company Appeal (AT) (Insolvency) No. 783 of 2020

10. It appears from record and the Adjudicating Authority has painstakingly

written the Impugned Judgment and succinctly put relevant facts on record.

The Adjudicating Authority found that WAML had agreed to the consolidation.

As records DCCL in Paragraph 7, Adjudicating Authority noted that DCCL was

incorporated for running and maintaining Dasve Convention Centre at the

premises leased to it by Respondent No. 2- LCL and for this purpose the Lease-

Agreement dated 30th September, 2010 was executed which was not duly

stamped and registered and was cancelled by the Resolution Professional of

Respondent No. 2. It is to be noted that the CIRP in LCL had started on 30 th

August, 2018 while CIRP in DCCL started on 05th February, 2019. The

Adjudicating Authority noted that in the three CIRPs Resolution Plans were

received only in the matter of LCL and none was received in the other two

CIRPs. It was also noticed that in the Resolution Plans submitted with regard

to the LCL, the Applicants wanted pre-condition that entire group debt with

respect to LCL group of Companies should be extinguished instead of stand-

alone debt of LCL. There is no dispute that LCL has about 49 subsidiaries or

joint-ventures. The Adjudicating Authority observed that with the cancellation

of the un-registered lease DCCL could not have any business or revenue

stream or any resolution on stand-alone asset. In Paragraph 18.1, the

Adjudicating Authority observed as under:

"18.1 It appears form the facts mentioned above that lack of consolidation of the CIRPs of these Corporate Debtors viz. WAML and DCCL which are already under Insolvency and Resolution of the Debt of WPSL and DRL can only happen

Page | 7 Company Appeal (AT) (Insolvency) No. 783 of 2020 along with the LCL, who is the Corporate Debtor and owner of the Township. Any stand-alone Resolution does not seem to be possible and would therefore defeat the objective of the Code, which is to maximize the value of the Corporate Debtor. In case of DRL and WPSL, Resolution of its Debt is directly linked to the Resolution of LCL. The Debt of DRL and WPSL on a stand-alone basis can never happen and only when it is consolidated with LCL, that Resolution may happen. However, this Bench is aware that DRL and WPSL is not undergoing Insolvency."

Thus, inter-linkagesand synergies between the Companies to keep LCL

as a running Township was found. After examining the yardsticks in the matter

of State Bank of India Versus Videocon, the Impugned Order shows that the

Adjudicating Authority found that the yardsticks were substantially applying.

11. In paragraph 19, the Learned Adjudicating Authority observed as under:

"19. As far as LCL and WAML are concerned, the CoC of both the Companies have agreed for consolidation. However, the CoC of DCCL Limited (DCCL) consists only of Operational Creditors. DCCL is a 100% subsidiary of LCL and the assets belongs to LCL only. The DCCL was incorporated for running and maintaining of the Convention Centre belonging to LCL. A Lease Agreement dated 30.09.2010 was executed between LCL and DCCL, however, the Agreement was not duly stamped and was unregistered. The Resolution Professional of LCL mentions that in the Lease Deed dated 23.09.2002 signed between Maharashtra Krishna Valley Development Corporation and Corporate Debtor (the Lessee) i.e. LCL it was decided as per Clause 18 of the Deed of Lease that LCL does not have right to assign the Lease-hold rights to any other

Page | 8 Company Appeal (AT) (Insolvency) No. 783 of 2020 person. Therefore, the sub-Lease dated September, 30, 2010 of the property, to DCCL (Deed of Sub-Lease) by the Corporate Debtor LCL without permission of the lessor, i.e. Maharashtra Krishna Valley Development Corporation and by way of unregistered instrument without payment of adequate stamp duty is in contravention of applicable laws and therefore, vests no rights, interest, or title whatsoever in DCCL pursuant to Deed of Sub-Lease. Besides, as has been mentioned in the previous paragraphs the DCCL is 100% subsidiary of LCL and is part of Lavasa group and is not amenable to Resolution on a stand-alone basis. Therefore, this Bench is of the view that DCCL Resolution be consolidated and clubbed with the parent Company."

12. In paragraph 22, it was observed as under (Page 60):

"It is clear from the above that the fate of each of the 100% subsidiaries of LCL viz. WAML, DCCL, DRL and WPSL depends on the outcome of LCL's CIRP. Looking at the substantial inter-dependence, this Bench is of the view that without consolidation of LCL group companies no Resolution of Insolvency of LCL and its 100% subsidiaries is possible and would result into a loss of huge value to all stakeholders and thereby defeating the objective of the Code."

(Emphasis Supplied) Consequently, consolidation was ordered.

13. We find substance in the reasonings and findings recorded. Having heard

Learned Counsel for both sides, we do not find any error in the Impugned

Order consolidating the three CIRPs. The subsidiary DCCLappears to have

been created for running the Convention Centre and it does appear to be linked

with the business of Respondent No. 2-LCL with annual rent of token Re. 1.

Page | 9 Company Appeal (AT) (Insolvency) No. 783 of 2020 The Appellant who is only an Operational Creditor of DCCLis trying to find

fault with the consolidation Order the object of which is Resolution of the

Companies while the Appellant appears to be more concerned that its money

as Operational Creditor should be protected. The Resolution Professional of

DCCLappears to have filed M.A. No. 1369 of 2019 (Page 141) seeking handing

back the possession of the convention centre. That order is still tobe passed by

the Adjudicating Authority. As such, we would not like to comment on that

aspect.

There is no substance in the Appeal. The Appeal is dismissed. No order

as to costs.

[Justice A.I.S. Cheema] Member (Judicial)

[Dr. Alok Srivastava] Member (Technical)

New Delhi Basant B. Page | 10 Company Appeal (AT) (Insolvency) No. 783 of 2020