Supreme Court asks JP Associates to return 858 acre to JIL

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Published: February 27, 2020 12:15:41 AM

While quashing the NCLAT stay order, the SC went by the original order of the NCLT and termed the whole transaction as “preferential”.

sc, supreme courtThe SC rejected the JAL lenders’ argument that the transactions were made in the ordinary course of business and there was nothing to show that they were made to defraud the JIL creditors.

The Supreme Court on Wednesday asked Jaiprakash Associates (JAL) to return the 858-acre parcel to its subsidiary firm, Jaypee Infratech (JIL), which is currently undergoing insolvency. In doing so, the SC upheld the original order of the Allahabad bench of the National Company Law Tribunal (NCLT) in the matter and quashed the National Company Appellate Law Tribunal order, which had stayed the direction subsequently.

While quashing the NCLAT stay order, the SC went by the original order of the NCLT and termed the whole transaction as “preferential”.

In May 2018, the Allahabad bench of the NCLT had said, “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 order was on a petition, by the resolution professional of JIL, which had alleged that the transfer of the land amounted to asset stripping.

The RP had alleged that that said land of JIL, which was 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 when the banks had started classifying JIL a non-performing asset due to loan defaults.

The RP’s contention was that the land could have been sold or mortgaged by JIL to raise funds and complete the construction of flats.

By mortgaging the land, JAL had secured a loan of `20,510 crore from a consortium of around 20 banks, including State Bank of India, Axis Bank, ICICI Bank and Standard Chartered Bank.

A Bench comprising justices AM Khanwilkar and Dinesh Maheshwari while setting aside the NCLAT’s August 1, 2019, order held that the lender banks of JAL cannot be regarded as financial creditors of JIL, and thus cannot be included in the committee of creditors of JIL.

It said that the debts in question are in the form of third-party security given by JIL to secure the loans obtained by JAL and such a ‘debt’ is not and cannot be a ‘financial debt’ within the meaning of Section 5(8) of the IBC, hence, the JAL lenders, the mortgagees, are not the ‘financial creditors’ of the corporate debtor.

The SC rejected the JAL lenders’ argument that the transactions were made in the ordinary course of business and there was nothing to show that they were made to defraud the JIL creditors.

Last year, the apex court had also barred JAL from bidding for JIL’s assets, and allowed only the state-owned construction firm National Buildings Construction Corporation and Suraksha Realty to submit their revised bids for takeover of stalled residential projects. As of now, the NBCC’s resolution plan has been approved by the committee of creditors with a majority vote of 97.36% on December 16.

The IDBI Bank-led consortium had initiated insolvency proceedings against JIL for failing to repay a debt of around `24,000 crore. The NCLT, Allahabad, had admitted the consortium’s plea.

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