LI Network
Published on: 29 September 2023 at 12:38 IST
The National Company Law Appellate Tribunal (NCLAT) has ruled that the consolidation of Corporate Insolvency Resolution Processes (CIRPs) is not an exercise in equity jurisdiction but rather a legal concept designed to optimize asset value.
This decision came as the NCLAT Chennai permitted the simultaneous consolidation and initiation of the Corporate Insolvency Resolution Process for corporate debtors associated with the now-defunct wind turbine manufacturer, Regen Powertech Pvt Ltd, and its wholly-owned subsidiary, Regen Infrastructure and Services.
In a recent ruling issued by the Chennai division of the NCLAT, the judicial member Justice Venugopal M and technical member Shreesha Merla overturned a November 2021 order from the National Company Law Tribunal (NCLT) that had rejected several petitions seeking the consolidation and simultaneous initiation of the Corporate Insolvency Resolution Process.
Regen’s Resolution Professionals were represented by senior counsel, who opposed the requests for consolidation.
They argued that combined CIRP was not mandated by the Insolvency and Bankruptcy Code (IBC) and asserted that this case did not warrant invoking equity jurisdiction. They contended that the appellants did not qualify as operational creditors since they were service purchasers.
The NCLAT clarified that, in this particular case, the consolidation of CIRPs could be authorized “not as a matter of its equity jurisdiction” but rather with the aim of “maximizing the value of assets and value addition,” which aligns with the primary objective of the IBC.
The NCLAT further stated, “Consolidation is based on the principle that the Holding and the Subsidiary Units would be regarded as a ‘Single Unit’ owing to the nature of business activity and this cannot be construed as a principle in ‘Equity’ but a ‘Legal principle’. For these ongoing reasons, this Tribunal is of the earnest view that there is no exercise of ‘Equity Jurisdiction’ in ordering Consolidation in the facts of the attendant case.”
