Spelling more trouble for Jaiprakash Associates (JAL), the parent of insolvency-hit Jaypee Infratech, and its lenders, the National Company Law Tribunal (NCLT) has said that the mortgage of over 750 acres to secure the interests of the parent was “fraudulent, preferential and undervalued” and has asked for a reversal of these transactions.
Going by the current market rate, the value of these land tracts will work out to Rs 1,500-2,000 cr and will help generate a better value for Jaypee Infratech. The resolution professional had put a price tag of Rs 5,000-6,000 cr for the land parcels stretching all the way from Noida to Agra.
On February 8, it was reported that NCLT-appointed resolution professional Anuj Jain had approached the bankruptcy tribunal, with the allegation that 858 acres was “fraudulently and wrongfully” mortgaged to secure loans of Jaiprakash Associates.
In a 77-page judgment, NCLT’s Allahabad bench was critical of not just the Jaypee management, which mortgaged the land to lenders of JAL without any consideration in an act that “appears to have been committed to defraud the creditors (of Jaypee Infratech)”, but also of lenders to JAL such as IDBI, ICICI Bank and State Bank of India.
The tribunal observed that the transactions could not be considered to have been done in ordinary course of business and classified it as a “preferential transaction” under the Insolvency & Bankruptcy Code as it amounted to transfer of interest in Jaypee Infratech’s property for the benefit of its creditor JAL, and put it at a beneficial position compared to other creditors.
Jaypee Infratech, which had been classified as a nonperforming asset by entities such as LIC when the transactions took place, did not even get a clearance from the joint lenders forum before mortgaging the land, NCLT noted.
Putting the role of the JAL lenders under the scanner, the tribunal said that in two transactions, after the creation of fresh mortgage, additional facility worth Rs 41,718 cr was granted to the company. Before the spotlight on Jaypee Infratech, it was the parent which was forced by the lenders to fix its problems, including the sale of several assets such as cement and power plants and the mortgage of over 750 acres was meant to secure the interests of JAL.
Jaypee Infratech has turned into one of the most high profile insolvency cases and exposed several lacunae in the law as the interests of over 30,000 home buyers are not adequately secured, prompting the apex court to look into the matter.