Featured post

Change of PATTERN OF ASSESSMENT FROM MAY 2019 EXAMINATION

ICAI has already notified that from May 2019 examinations, pattern of assessment is going to be changed, as of till now, whole pattern was...

Monday, 3 December 2018

NCLAT triggers insolvency against an unincorporated Joint Venture

Landmark ruling under the Insolvency and Bankruptcy Code, the NCLAT has held that insolvency can be triggered against an unincorporated joint venture between two companies. Effectively, insolvency will be triggered against both companies.

The appeal was filed against an NCLT order which disallowed initiating insolvency against two corporate debtors under a single application. The question which therefore arose before the NCLAT was, whether two companies which have entered into a joint venture, can be proceeded against under a single Section 7 application.

The case pertains to the development of a commercial complex. Two companies, AMB Infrabuild Pvt. Ltd. and Earth Galleria Pvt. Ltd. entered into a collaboration agreement for developing the said complex. The former being the owner of the land and the latter being the developer. The collaboration agreement established the rights of both parties for the purposes of this project. Thereafter, a tripartite MoU was entered into between the two companies and an allottee, Mrs. Mamatha for booking a property for a sum of Rs. 3 crore.

It appears that this was a classic case of failure by the builder to allot the promised property to the purchaser. This time, however, the failure to allot was on account of two entities, the relationship between both of which was based on a collaboration agreement. While these companies formed a joint venture for developing this project, they did not register this joint venture as a separate company.

The tripartite MoU entered into between the three parties, however, expressly acknowledged that the owner and developer be collectively treated as the ‘company’. The NCLAT observed that in such a case, the developer and landowner if they are corporates, should be jointly treated to be one for the purpose of initiation of the insolvency resolution process,

“If the two ‘Corporate Debtors’ collaborate and form an independent corporate unit entity for developing the land and allotting the premises to its allottee, the application under Section 7 will be maintainable against both of them jointly and not individually against one or other.”

The NCLAT accordingly remitted the case back to NCLT for admission.

Popular Posts