Business

Relief for Jaypee Associates, NCLAT directs Jaypee Infra’s pledged assets to remain with lenders

Updated : May 25, 2018 06:33 AM IST

Jaypee Associates is the parent company of Jaypee Infratech and enjoys a 100% stake in the latter.

The three lenders – Axis Bank, ICICI Bank, Standard Chartered – argued that such transactions were par for course.

In what comes as a relief to Jaypee Associates, National Company Law Appellate Tribunal (NCLAT) has stayed the operation of an National Company Law Tribunal (NCLT) order that had directed for three private lenders to return a 758 acre land parcel back to Jaypee Infratech.

Jaypee Associates is the parent company of Jaypee Infratech and enjoys a 100% stake in the latter.

Also, the 758 acre land parcel in question, belongs to Jaypee Infratech.

As a part of financing operations, Jaypee Associates had mortgaged the 758 acre land parcel, belonging to its subsidiary Jaypee Infratech, with Axis Bank, ICICI Bank and Standard Chartered Bank.

The land parcel had been mortgaged to secure loans that had been extended to the parent company – Jaypee Associates.

In effect, Jaypee Associates had used an asset of its subsidiary to secure a loan to itself.

On May 18, the Allahabad-bench of the NCLT, hearing the insolvency plea against Jaypee Infratech, had taken objection to this transaction terming it as "fraudulent, preferential and undervalued" transaction.

The NCLT expressed concern on assets being stripped from Jaypee Infratech.

The NCLT also observed that Jaypee Infratech's 758 acre unencumbered asset was used to secure loans for the parent company – Jaypee Associate – at a time when Jaypee Infratech was being classified as a non performing asset.

The three lenders in question moved the NCLAT, challenging the NCLT order.

The three lenders – Axis Bank, ICICI Bank, Standard Chartered – argued that such transactions were par for course.

They argued that it's not uncommon to have promoter companies use assets of fully owned subsidiaries to secure the loans of the former.

The insolvency resolution professional (IRP), meanwhile, objected to the stance taken by the lenders, arguing that such transactions took assets off the books of Jaypee Infratech at a time, when home buyers were looking for relief.

After hearing all parties, NCLAT has allowed the mortage to continue to rest with the lenders.

This effectively stays the operation of the NCLT order, which had sought the shifting of the land from the books of the lenders to Jaypee Infratech.

The order by the NCLAT, staying the transfer of the mortgaged land comes as a relief to Jaypee Associates.

Under the NCLT order, the lenders are required to transfer the land back to Jaypee Infratech.

And subsequently, cash-strapped Jaypee Associates has to cough up a a fresh security of the same amount, to be mortgaged before the lenders.

The land is estimated to be worth over Rs 5,000 crore.

NCLAT, meanwhile, has issued notice on the lenders plea. The bench fixed July 13 as the next date of hearing.

Relief for Jaypee Associates, NCLAT directs Jaypee Infra’s pledged assets to remain with lenders

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