Jaiprakash Associates (JAL) has been asked by the National Company Law Appellate Tribunal (NCLAT) to not transfer 760 acres, mortgaged to its lenders, back to its subsidiary firm, Jaypee Infratech (JIL), till further orders.
The Allahabad bench of the National Company Law Tribunal (NCLT) had ordered the land be transferred back to JIL as it had found the move to be “fraudulent, preferential and undervalued”. The resolution professional (RP) for JIL, in his petition to the NCLT, had alleged the transfer of land from JIL to JAL amounted to asset stripping.
The RP had alleged the land, valued around Rs 5,000-6,000 crore, was mortgaged to secure loans taken by JAL from State Bank of India, ICICI Bank, IDBI Bank and Standard Chartered Bank. The transfer took place at the time when the banks started classifying JIL as a non-performing asset (NPA) due to loan defaults.
The RP’s contention was the land could have been sold or mortgaged by JIL to raise funds and complete the construction of flats. The company was required to deliver around 33,000 flats of which more than 25,000 are yet to be completed.
However, the appellate tribunal on Thursday, while staying the NCLT’s order, admitted the petition of the lenders — Axis Bank, ICICI Bank, and SCB — against the NCLT’s order.
The appellate tribunal observed that the NCLT did not have the jurisdiction to declare any instrument illegal. It added that such powers, to declare any instrument illegal, vested with the civil courts.
While issuing notices to the RP of JIL, the NCLAT fixed July 13 as the next date of hearing. The NCLT had passed the order, on the transfer of the land, last week in response to a petition filed by JIL’s RP Anuj Jain who had sought direction over transactions entered into by the company’s promoters creating a mortgage on 858 acres to secure borrowings for JAL.
“We have found that corporate debtor (Jaypee Infratech) has by way of mortgage of unencumbered land created security interest in favour of lenders of JAL, which happens to be the holding company of JIL, without any consideration. We have also found that the corporate debtor was facing liquidity crunch and their accounts were declared NPA and even after formation of Joint Lender Forum, without obtaining approval from the JLF, unencumbered land of the corporate debtor has been mortgaged in favour of lenders of JAL,” the NCLT order said.
As is known, the NCLT had ordered the initiation of insolvency proceedings against JIL in August 2017. In response to the NCLT’s order, JAL said earlier this week it had raised loans against the security of its own assets and the impugned land was mortgaged only as a collateral security as desired by the lenders. “There is no undervaluation or stripping off of the assets of JIL and no preferential treatment has been given to any creditor of JIL against others. Further, since the impugned transaction was done in accordance with the legal provisions in vogue much before the coming into force of the provisions of IBC and the relevant look back period, that too, transparently and with full disclosures, the same cannot be termed as fraudulent and would not amount to carrying on business for a fraudulent purpose,” JAL said.
JAL also said it was only at the instance of its lenders that the mortgage on part of the unencumbered land of JIL was being provided as additional collateral security from time to time since 2009 in line with normal banking practice and much before coming into force of the provisions of Insolvency & Bankruptcy Code, 2016 (IBC) in December 2016. “Corporate Insolvency Resolution Process (CIRP) for JIL was commenced vide order dated 09.08.2017 by Hon’ble NCLT,” it added.