Supreme Court on Lifting the Corporate Veil: A Shield for Homebuyers in Insolvency Cases
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The Supreme Court has ruled that the 'corporate veil' can be pierced to include assets of group companies within the insolvency process of a holding company. This landmark observation aims to ensure the completion of stalled real estate projects and protect the financial interests of homebuyers.
In a significant move to safeguard the interests of homebuyers, the Supreme Court of India observed that the 'corporate veil' can be lifted to include the assets of group companies within the Corporate Insolvency Resolution Process (CIRP) of a holding company. This principle, traditionally used to prevent fraud or tax evasion, is now being applied to ensure the substantive justice of completing stalled real estate projects.
The 'corporate veil' is a legal concept that separates the personality of a corporation from those who own or manage it. However, in the real estate sector, developers often create a web of subsidiary companies to hold land or assets while the parent company collects funds from buyers. When the parent company enters insolvency under the Insolvency and Bankruptcy Code (IBC), these assets often remain out of reach of the creditors. By allowing the 'piercing' of this veil, the Supreme Court ensures that the resolution professional can treat the group as a single economic entity, thereby pooling resources to satisfy the claims of homebuyers.
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