No Separate IBC Petitions Needed for Closely Linked Companies, Rules Supreme Court
The Supreme Court of India has given relief to homebuyers by clarifying that a single insolvency petition can be filed against more than one corporate entity under Section 7 of the Insolvency and Bankruptcy Code (IBC), if those entities are closely connected with each other.
The ruling was delivered on February 2 by a Bench of Justice Sanjay Kumar and Justice K Vinod Chandran. The Court upheld an earlier decision of the NCLAT, which allowed a joint Corporate Insolvency Resolution Process (CIRP) against two companies involved in the same real estate project.
The case arose after homebuyers were not given possession of their commercial units despite long delays. The allottees filed an insolvency petition, which was admitted by the NCLT and later confirmed by the NCLAT.
The developers challenged this before the Supreme Court, arguing that the IBC does not permit a joint insolvency process against multiple corporate entities. However, the Court rejected this argument.
Justice Sanjay Kumar noted that the two companies—Bhasin Ltd., the developer, and Grand Venezia Ltd., the marketing company—were deeply intertwined. They had common directors, issued communications interchangeably to homebuyers, and jointly handled payments and possession letters. Because of this close operational and managerial connection, the Court held that both companies were intrinsically linked in executing and marketing the project.
The Supreme Court also relied on earlier NCLAT rulings, including Edelweiss Asset Reconstruction Company Ltd. v. Sachet Infrastructure Pvt. Ltd. and Mamatha v. Amb Infrabuild Pvt. Ltd., where the group of companies doctrine was applied. These cases recognised that when companies function as a single economic unit, a joint insolvency process is legally valid.
Quoting from the Mamatha judgment, the Court reiterated that when two corporate debtors jointly develop a project and allot premises, a single insolvency application under Section 7 of the IBC is maintainable against both entities together.
In view of these findings, the Supreme Court dismissed the appeals and confirmed that separate insolvency petitions are not required when corporate entities are closely connected in a real estate project.
