NCLAT Holds Subsidiary and Foreign Assets Cannot Form Part of Holding Company CIRP under IBC
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The National Company Law Appellate Tribunal delivered a significant ruling clarifying the scope of asset inclusion in corporate insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. The judgment reaffirmed that assets belonging to subsidiary entities, including foreign subsidiaries, cannot automatically form part of the Corporate Insolvency Resolution Process of the holding company. The ruling further strengthens the jurisprudence surrounding the commercial wisdom of the Committee of Creditors and the sanctity of pre-existing contractual rights during insolvency resolution.
A Bench comprising Justice Yogesh Khanna (Judicial Member) and Mr. Ajai Das Mehrotra (Technical Member) set aside the NCLT order dated 12.02.2020 and upheld the separate CIRP structures of Videocon Industries Limited and Videocon Oil Ventures Limited. The Appellate Tribunal held that subsidiary assets could not be consolidated into the holding company’s CIRP merely on the basis of shareholding or guarantee arrangements, and further upheld the Committee of Creditors’ decision to honour Right of First Refusal obligations to ensure implementability of the resolution process.
The Appellant, an erstwhile promoter, challenged multiple aspects of the insolvency proceedings involving separate CIRPs of a holding company and its subsidiary engaged in foreign oil and gas operations. The core grievance revolved around the exclusion of foreign oil and gas assets from the CIRP of the holding company and the alleged failure to consolidate CIRPs of group entities.
The Tribunal observed that the Insolvency and Bankruptcy Code clearly recognises the separate legal identity of corporate entities and does not permit automatic inclusion of subsidiary assets into the CIRP of the holding company. Relying on Vodafone International Holdings BV v. Union of India, it reaffirmed that a holding company does not own the assets of its subsidiary despite complete shareholding. Further, the principle of co-extensive liability under guarantee arrangements, as recognised in BRS Ventures Investment Limited v. SREI Infrastructure Finance Limited and Another, REEDLAW 2024 SC 07589, does not justify asset pooling across distinct legal entities.
On the issue of consolidation, the Tribunal held that such decisions fall squarely within the commercial wisdom of the Committee of Creditors and cannot be imposed by judicial intervention. The Tribunal also relied on Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Others, REEDLAW 2019 SC 11505 and India Resurgence ARC Private Limited v. Amit Metaliks Limited and Another, REEDLAW 2021 SC 05523, to reiterate that distribution of resolution proceeds and structuring of plans are commercial decisions immune from judicial review unless they violate statutory mandates.
With respect to the Right of First Refusal (ROFR), the Tribunal upheld the actions of the Resolution Professional and CoC in honouring pre-existing contractual rights to ensure implementability of the resolution plan. Reliance was placed on Ebix Singapore Private Ltd. v. Committee of Creditors of Educomp Solutions Limited and Another, REEDLAW 2021 SC 09523, emphasising that once a resolution plan is approved, it must be capable of implementation without legal impediments. The Tribunal clarified that Section 238 of the IBC does not override valid third-party contractual rights in all circumstances.
The Tribunal also took note of the inconsistent conduct of the Appellant, including prior representations and actions acknowledging the separate nature of the entities and assets. It held that repeated attempts to re-agitate settled issues amounted to abuse of process.
Ultimately, the Tribunal concluded that both CIRPs were conducted in accordance with law, the CoC acted within its commercial domain, and there was no ground for interference. The impugned order directing the inclusion of foreign assets was set aside, and the approval of the resolution process involving ROFR was upheld.
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