NCLAT upholds insolvency proceedings against Alok Industries subsidiary

The Mumbai Bench of NCLT had admitted insolvency proceedings against Alok Infrastructure, a subsidiary of Alok Industries, while Corporate Insolvency Resolution Process (CIRP) against Alok Industries is still underway. In an appeal filed against the said order, the NCLAT has upheld the admission order passed by the NCLT.

CIRP was initiated against Alok Infrastructure in October 2018, while its parent company Alok Industries has been under CIRP since July 2017. Alok Industries happens to be one of the dozen companies referred for insolvency by the Reserve Bank of India in June 2017. Alok Industries by itself has had an eventful CIRP. While it was due to be liquidated for not having secured 75% votes, the IBC Ordinance 2018 lowered the voting threshold to 66%, and after being given a second chance, the resolution plan was approved.

The admission proceedings against Alok Infrastructure were challenged on the grounds that since CIRP for its parent company has not yet been completed, admission against the subsidiary is not allowed under the IBC. In the proceedings before the NCLT, Alok Infrastructure relied on Section 60(5) of the IBC according to which, “any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India” will vest with the NCLT.  While proceedings against the parent are pending before the Ahmedabad Bench, admission against the subsidiary was passed by the Mumbai Bench.

Alok Infrastructure, therefore, further argued before the NCLT that 1) only Ahmedabad Bench would have the jurisdiction to determine any claim against itself and; 2) an admission order cannot be passed against the subsidiary of a parent that is under CIRP, in view of Section 60(5) of the IBC. The Mumbai Bench, however, noted Section 60(1) of the IBC to rule it has territorial jurisdiction to entertain the application against Alok Infrastructure and initiated CIRP against it.

On hearing the same arguments in an appeal filed by the director of Alok Infrastructure, the NCLAT held,

” Such submission cannot be accepted as a separate Corporate Insolvency Resolution Process has been initiated against another Corporate Debtor which is separate from the Corporate Insolvency Resolution Process initiated against ‘Alok Infrastructure Ltd.’, of which the Appellant is the Director “

Both, the NCLT and NCLAT have ruled that since the subsidiary is an entity distinct from its parent, the moratorium provisions under IBC will not apply to the subsidiary and it can be proceeded against separately.

Trilegal team, comprising of Padmaja Kaul, Yugank Goel and Aishwarya Choudhary along Krishnendu Datta, had represented Alok Infrastructure.

(Read NCLAT judgment)