The Supreme Court Wednesday restored the National Company Law Tribunal (NCLT) order directing Jaiprakash Associates Ltd (JAL) to return 758 acres of land, which was pledged with several banks, to its debt-laden subsidiary firm Jaypee Infratech Ltd (JIL).
The NCLAT had allowed the pleas of all banks as well as JAL and held that the transactions were genuine and the allegation of undervaluation was not justified.
The top court, while deciding a batch of appeals filed by Interim Resolution Professional of JIL and others, set aside the decision of the National Company Law Appellate Tribunal (NCLAT) passed on August 1, last year.
The NCLAT had quashed the verdict of NCLT, Allahabad, which on May 16, 2018, had held that the mortgage of properties of JIL, which was facing insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), in favour of the lending financial institutions of holding firm JAL cannot be countenanced.
The NCLT had also held that the lenders of JAL do not fall in the category of the "financial creditors" of corporate debtor JIL just because of the mortgage of JIL's properties in favour of JAL.
The Allahabad bench of the NCLT had asked the holding firm JAL to return 758 acres of land to its subsidiary JIL, declaring the transfer of the land as "fraudulent" and "undervalued".
It had also directed JAL to release and discharge interest created over the patch of land to lenders.
A bench comprising Justices A M Khanwilkar and Dinesh Maheshwari, in its 174 judgement, considered various provisions of the IBC and reversed the verdict of the NCLAT.
"The impugned order dated August 1, 2019, as passed by NCLAT in the batch of appeals is reversed and is set aside.
"...consequently, the order dated May 16, 2018, so passed by NCLT is upheld in regard to the findings that the transactions in question are preferential within the meaning of Section 43 of the Code," Justice Maheshwari, who wrote the judgement, said.
The bench said that the mortgage of properties of JIL in favour of the lenders of JAL are "denuded of their value and worth" by the order of the NCLT which has been approved by us.
"To be more specific, the security interests created by the corporate debtor JIL over the properties in question stand discharged in whole," the bench said.
It held that the lending banks of JAL "cannot claim any status as creditors of the corporate debtor JIL and there could arise no question of their making any claim to be treated as financial creditors as such."
The top court was to deal with two "major issues" and one was "whether the transactions in question (mortgages) deserve to be avoided as being preferential, undervalued and fraudulent, in terms of Sections 43, 45 and 66 of the Code.
"And second, as to whether the respondents (lender of JAL) could be recognised as financial creditors of the corporate debtor JIL on the strength of the mortgage created by the corporate debtor, as collateral security of the debt of its holding company JAL."
The bench held that the mortgages of plots of land of debt-ridden JIL to the lending banks of JAL cannot be countenanced and the FIs of JAL cannot held to be the financial creditors of JIL.
The banks, involved in the case, are: Axis Bank, Standard Chartered, ICICI Bank, SBI, Bank of Maharashtra, United Bank of India, Central Bank of India', ‘UCO Bank', 'Karur Vyasa Bank, L&T Infrastructure Finance Company, ‘Canara Bank, Karnataka Bank, IFCI, Allahabad Bank, Jammu & Kashmir Bank and The South Indian Bank Ltd.Banks have given loans to Jaiprakash Associates, JP Group's flagship firm against the land bank owned by Jaypee Infratech.