In a setback for the insolvent Jaypee Infratech, a bankruptcy court on Thursday said the transaction by which 758 acres of land had been used to secure loans for Jaiprakash Associates (JAL), its parent company, was fraudulent, preferential and undervalued.
In a 77-page verdict, the Allahabad bench of the National Company Law Tribunal (NCLT) tribunal ordered immediate release of the collateral that JAL had used to secure loans of more than Rs 21,000 crore from a clutch of lenders that included State Bank of IndiaNSE -1.42 %, ICICI Bank and Standard Chartered Bank.
“The corporate debtor entered into a transaction without even taking prior approval of the Joint Lenders Forum and mortgaged its unencumbered land in favour of lenders of Jaiprakash Associates,” the NCLT order noted. “The impugned transactions are declared fraudulent, preferential and undervalued. We pass the order for release and discharge of the security interest created by the corporate debtor in favour of lenders of Jaiprakash Associates.”
As per the NCLT order, the transactions that have been deemed fraudulent are the mortgage deeds of 335 acres in favour of Axis Trustee Services to provide additional security for terms loans given to Jaiprakash Associates.
“Instead of capitalising on this unencumbered land which could have been used to raise money and complete construction of projects, JAL decided to use this to secure its own loans, this is virtually asset stripping,” a source involved in the matter said. “At the time of taking collateral, banks never concern themselves from where the collateral is coming, whether it is owned by the parent or its subsidiaries … what is the financial situation of those subsidiaries … this NCLT order has huge implications.”
The insolvency resolution professional for Jaypee Infratech had accused it of fraudulently mortgaging 858 acres of land to secure the loans of JAL. The IRP had claimed that the land was valued at Rs 5,000-6,000 crore and was mortgaged to secure loans taken from SBI, ICICI Bank, IDBI Bank and Standard Chartered Bank. The move took place at a time when banks had started classifying Jaypee Infratech as a “non-performing asset” due to loan defaults.
In a petition before the NCLT, the IRP had said that the land could have been sold or mortgaged to raise funds and complete the construction of flats and prevent value erosion. Of the 33,000-odd apartments due to be delivered by Jaypee Infratech, nearly 25,000 are yet to be completed and are delayed until 2021. The mortgaged land parcels are in Gautam Buddha Nagar, Aligarh and Agra districts.