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2019 (8) TMI 1654 - Tri - Insolvency and BankruptcySeeking ‘Consolidation’ of insolvency process of 15 Corporate Debtors - It is submitted by the Applicant is that the business activities of each of the Corporate Debtors are inextricably interlinked and intertwined - Section 60(5) of the IBC. HELD THAT:- A preliminary question arises that under what circumstances an order of ‘Consolidation’ can be demanded or suo-moto be passed by a court / tribunal. Answer is that when the promoters/ directors of a company diversify the business in various field by creating several independent entities , call it subsidiaries, having cross share-holding with the constitution of common directors and at some point of time the Group gets financially stressed due to default in repayment of debt , at that juncture a right recourse is required to be adopted. That is why, in my humble opinion, the right recourse shall be to examine the necessity of ‘Consolidation’. The UK / USA courts have dealt with the process of consolidation along with the jurisdiction of the Authority by pronouncing that equity and fairness ought to be a yardstick by lifting the corporate veil. Consolidation is to be utilized as a mechanism to maximise the value of financially stressed group of companies. Economic benefit ought to be the purpose and for that a preliminary searching enquiry is suggested which would yield benefit to stakeholders by off-setting any harm, if inflicted, if not consolidated. On due reading of all these judgements, one proposition of law emerges that the motion of ‘consolidation’ depends upon the facts and circumstances of each debtor/debtors. It is appropriate and suitable to give a ruling at this occasion that there is no single yardstick or measurement on the basis of which a motion of consolidation can or cannot be approved. With humility, this Bench herein below sets-out a list of examples, based upon reading the history of ‘group insolvency’, so that the presence of them can lead to a decisive conclusion of triggering of ‘consolidation’ of Insolvency process. Undisputedly, and also laid down by the courts, before ordering consolidation, a preliminary searching inquiry be ensured that whether consolidation yields benefits to stakeholders by offsetting the harm if not consolidated. While discussing bankruptcy law in US, we have noticed that under certain circumstances, consolidation request can be denied. A view was expressed that determination for consolidation hinges on a balancing of the equities favouring consolidation against the equities favouring continued debtor separateness. If the consolidation is not equitable or more disadvantageous to stakeholders, the request for consolidation denied. Therefore, the burden is on the party objecting consolidation to demonstrate that prejudice be posed if consolidation be granted. Although in all 15 cases, the accounts are inter-mingled and due to the existence of agreements, there is a relationship of obligor and/or co-obligors among all these entities. This application is filed by an operational creditor with a sole concern that the share of the operational creditor would be reduced if the CIRP of VTL is consolidated with that of other companies. It is hereby held that this is not a reason enough to keep this company out of consolidation keeping in view the financial position of this company. Out of the 15 entities, CIRPs of 13 entities are directed to be ‘Consolidated’ - Application allowed in part.
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