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TMI Blog2019 (8) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... e(s) were made in favour of the Banks and Financial Institutions by the Corporate Debtor ( Jaypee Infratech Limited ) in the ordinary course of business of the Corporate Debtor . The Appellants- Banks and Financial Institutions have given loans to the holding Company namely- Jaiprakash Associates Limited . The Corporate Debtor being one of the group company, like a guarantor, executed mortgage deed(s) in favour of the Appellants- Banks and Financial Institutions . We have seen that none of the transactions were preferential transaction or undervalued transaction - Further, as we have held that the transactions were made in the ordinary course of business in absence of any contrary evidence to show that they were made to defraud the creditors of the Corporate Debtor or for any fraudulent purpose, on mere allegation made by the Resolution Professional , it was not open to the Adjudicating Authority to hold that mortgage deeds, in question, were made by way of transactions which come within the meaning of fraudulent trading or wrongful trading under Section 66. It is not in dispute that all the Appellants had granted loan to Jaiprakash Associates Limited . Majo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Banerjee and Mr. Kunal Godhwani, Advocates, Mr. Krishnendu Datta, Ms. Anindita Roy Chowdhary, Mr. Abhishek Singh and Mr. Abhijnan Jha, Advocates, Mr. Divyanshu Goyal and Ms. Swati Jain, Advocates, Mr. Rajiv S. Roy, Mr. Avrojyoti Chaterjee, Mr. Abhijit S. Roy and Ms. Jayasree Saha, Advocates. For The Respondents : Mr. Sanjeev Sen, Senior Advocate with Ms. Jannahvi Bhasin, Advocates And Mr. Sanjay Bhatt and Ms. Niharika Sharma, Advocates (for R.P.) JUDGMENT SUDHANSU JYOTI MUKHOPADHAYA, J. The Resolution Professional of Jaypee Infratech Limited - ( Corporate Debtor ) filed application (CA No. 26 of 2018) under Section 43, 45, 60(5)(a) 66 read with Section 25(2)(J) of the Insolvency and Bankruptcy Code, 2016 ( I B Code for short) before the Adjudicating Authority ( National Company Law Tribunal), Allahabad Bench, Allahabad seeking direction that the transactions entered into by the promoters and Directors of the Corporate Debtor creating mortgage of 858 acres of immovable property owned by it and in possession of the Corporate Debtor , to secure debt of related party i.e. Jaiprakash Associates Limited by way of mortgage deeds dated 29th December ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e . 9. To decide the aforesaid issue, it is relevant to notice the individual case of the Appellants and transactions, as detailed below: Company Appeal (AT) (Insolvency) No. 243 of 2018 10. Learned counsel for the Appellant- Axis Bank Limited provided the table of assets mortgaged to it, as under: Sl.N0. Name of the Bank Date of the Mortgage Assets encumbered under the Mortgage 1. Axis Bank Limited-Appellant in Comp. App. (Ins.) AT No.(s) 243, 301 of 2018 February 24, 2015 (to cover the NCD exposure of the Corporate Debtor) (pp. 243, 314 of the Appeal Paperbook) This was modified on September 15, 2015 (wherein the Security would cover the Rupee Term Loan exposure, in addition to the NCD Exposure). This was further modified on December 29, 2016, as the number of lenders (in terms of the Rupee Term Loan Exposure) increased substantially. (pp. 365, 455 of the Appeal Paperbook) However, the nature and identity of the Security remained the same. (pp. 247, 318 of the Appeal Paperbook read wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... UM MORTGAGES 167.229 acres land at Agra, Uttar Pradesh 26 Lenders of Jaiprakash Associates Limited ( JAL ) including ICICI Bank 15 September 2015 Term loans aggregating to ₹ 20,509 Crores (comprising of ICICI facilities aggregating to ₹ 5600 crores ) and non-convertible debentures for maximum of ₹ 3600 Crore sanctioned by a consortium of the lenders of JAL ( Original Lenders ) On 29 December 2016, a release deed was executed in relation to momentary release of mortgage created vide deed dated 15 September 2015, Simultaneousl y , a Mortgage Deed dated December 29, 2016 creating mortgage over the same properties was executed in favour of JAL Lenders (Including ICICI Bank). Rationale : the aforesaid momentary release and recreation of mortgage have been done only to record entry of certain additional members into theconsortium (as mentioned in 'Facilities Secured by Second Mortgage' column). It may be noted that ICICI exposure has remained unchanged since 2015 . 29 December 2016 Term loans aggregating to 21081.50 crore (comprising of IC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional documents, such as Annual Reports for the Financial Year 2015-16 at Note 29 at Page 1691 of Volume VII and the year 2016-17 at Note 34 at page 2085 of Volume IX of the Appeal. While in 2017, the 15 billion facility was repaid, the obligation on JIL to create security for the 12 billion facility (of 2015) still continued. Thus from the above, it is clear that, w.r.t. the 12 billion facility, the property was always agreed to be mortgaged as far back as 2015. Formally, the said mortgage was eventually done by JIL on 7 March 2017. 12 May 2014 Rupee Term Loan of ₹ 15 Billion under Corporate Rupee Loan Facility Agreement and General Conditions dated 7 May 2014 and overdraft facility of ₹ 1.75 billion. (REPAID IN 2017) On 7 March 2017, a release deed was executed for the release of property in relation to the 15 billion facility (of 2014) as the same got repaid in 2017. However, simultaneous execution of mortgage deed dated 7 March 2017 in relation to the same properties was done for creation of mortgage in favour of ICICI Bank for the 12 billion facility under the Corporate Rupee Loan Facility Agreement dated 25 May 2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Agreement dated 25 May 2015 which was pending since 2015. 7 March 2017 Note : Though the mortgage deed was executed in 2017, the earmarking of this mortgage for the 12 billion facility under the Corporate rupee Loan Facility Agreement dated 25 May 2015 has been done by JIL since 2015 as is evident from the fact that the same has been recorded in the JIL's Annual Reports for the Financial year 2015-16 at Note 29 at page 1691 of Volume VII and the year 2016-17 at Note 34 at page 2085 of Volume IX of the Appeal. Rupee Term Loan of ₹ 12 billion (under the CAP) under the Corporate Rupee Loan Facility Agreement dated 25 May 2015. Company Appeal ( AT) (Insolvency) No. 249 of 2018 (State Bank of India) 13. Learned counsel for the Appellant- State Bank of India provided a chart relating to mortgaged properties, as follows: Name of the Bank Date of Mortgage Details of assets forming part of the mortgage State Bank of India Initially on 24.02.2015 Reconfirmed on 15.09.2015 On 29.12.2016 with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 acres land situated at village Chagan and Chhalesar Agra; Uttar Pradesh. 2. Bank of Maharashtra as a part of consortium of Bank. * 15.09.2015- To Secure credit facilities advanced to JAL; * 29.12.2016-superseded the aforesaid Indenture of Mortgage dated 15.09.2015; with no change in substantial terms of the Agreement w.r.t the same purpose/transaction. 166.9615 acres land situated at Tappal, Kansera Jeenagarh district Aligarh, Uttar Pradesh. Company Appeal (AT) (Insolvency) No. 343 of 2018 (United Bank of India) 16. The case of the Appellant- United Bank of India is that two different mortgage deeds each dated 24th February 2015, were executed by the Corporate Debtor mortgaging its properties (as third party security) (i) measuring 167.229 acres situated at Village Chaugan and Chhalesar, Tehsil Etmadpur District Agra, Uttar Pradesh ( Property 1 ) and (ii) Chart showing Name of the Bank, Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , additional credit facilities aggregating ₹ 450 crores ( Facility 2 ) were sanctioned by the Appellant in favour of Jaiprakash Associates Limited on 29th December, 2012. Accordingly, for the purpose of availing the amount covered in Facility 2, a Term Loan Facility Agreement ( Facility Agreement 2 ) was executed by and between Jaiprakash Associates Limited and the Appellant. 20. Thereafter, on 23rd March, 2013, pursuant to the execution of the Facility Agreement 2, charge created on the Subject Property was extended to secure Facility 2. Accordingly, a first pari passu charge by way of a registered mortgage was created in favour of the Security Trustee acting for and on behalf of the Applicant by way of a mortgage deed ( Mortgage Deed 2 ). 21. The Appellant submits that Facility 3 of INR 538,16,00,000/- and Facility 4 of INR.81,84,00,000/- (total aggregating INR 620,00,00,000/-) were granted by the Appellant to Jaiprakash Associates Limited vide term loan facility agreements, both of the date (Facility Agreement 3 Facility Agreement 4) on 1st May, 2015. 22. The case of the Appellant is that on 23rd June, 2015, Facility 3 and Facility 4 were sanctioned to Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the Security Trustee, thereby creating first pari passu charge on the Subject Land to secure Facility 1 to Facility 5 (hereinafter referred to as Entire Facilities ) aggregating INR 1767 Crores sanctioned by the Appellant. 25. On 17th June, 2016, pursuant to the execution of the Last Deed of Mortgage, charge over the Subject Property was /registered by filing form CHG- 1 and certificate of registration of charge (bearing charge identification no. 10600969) was issued in this respect. Company Appeal (AT) (Insolvency) No. 353 of 2018 (ICICI Bank Ltd.) 26. The case of ICICI Bank Ltd. in this appeal is that on 28th December, 2009, the Appellant sanctioned Rupee Term Loan of ₹ 8.0 billion ( RTL-1 ) and Rupee Term Loan of ₹ 4.0 billion ( RTL-2 ) under two separate Common Facility Agreement to Jaiprakash Associates Limited , the holding company of Jaypee Infratech Limited , the Corporate Debtor herein. On 31st March, 2011, Facility Agreement executed between the Appellant and Jaiprakash Associates Limited whereby the Appellant sanctioned a Rupee Term Loan of ₹ 5.0 billion ( RTL-3 ) to Jaiprakash Associates Limited . 27. The Facility Agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur, Uttar Pradesh to secure RTL-7. 34. On 28th June, 2017, the demand notice issued by the Appellant to Jaiprakash Associates Limited requesting to repay the outstanding amounts under the Jaiprakash Associates Limited Facilities. Company Appeal (AT) (Insolvency) No. 370 of 2018 (UCO Bank) 35. According to the Appellant- UCO Bank , two different mortgage deeds each dated 24th February 2015, were executed by the Corporate Debtor mortgaging its properties (as third party security) (i) measuring 167.229 acres situated at Village Chaugan and Chhalesar, Agra, Uttar Pradesh ( Property 1 ) and (ii) measuring 166.9615 acres situated at Village Tappal, Kansera Jeenagarh, Aligarh, Uttar Pradesh ( Property 2 ) to secure the financial assistance of Jaiprakash Associates Limited , for the first time in favour of Axis Bank Limited and State Bank of India (both lenders of Jaiprakash Associates Limited ) on 24th February 2015. Later, upon accession of other lenders and enhancement of secured limits further mortgage was effectuated on 15th September, 2015 and again on 29th December 2016. The mortgages in favour of the Appellant was created vide registered mortgage deeds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional lenders into the consortium of Jaiprakash Associates Ltd. lenders, the charges over above mortgaged properties were extended to secure credit facilities of the existing lenders and additional lenders to the extent of term loans aggregating to 21081.50 crore and redeemable convertible debentures issued for an amount of ₹ 2409.25 crores (reduced from ₹ 3600 Crore) and for the aforesaid extension of charge, the charge was momentarily and temporarily released with the limited purpose of charge extension for the above referred additional lenders and hence immediately re-mortgaged vide Indenture of mortgages both dated 29th December, 2016. Company Appeal (AT) (Insolvency) No. 376 of 2018 (L T Infrastructure Finance Company Limited) 40. The Appellant- L T Infrastructure Finance Company Ltd. provided a chart showing details of transaction, as under: Name of the Financial Creditor Date of Mortgage Assets mortgaged Date of registration of Charge with ROC Amount outstanding under facilities provided to Jayprakash Associates Ltd. (JAL) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant- Canara Bank is that two different mortgage deeds each dated 24th February 2015, were executed by the Corporate Debtor mortgaging its properties (as third party security) (i) measuring 167.229 acres situated at Village Chaugan and Chhalesar, Agra, Uttar Pradesh ( Property 1 ) and (ii) measuring 166.9615 acres situated at Village Tappal, Kansera Jeenagarh, Aligarh, Uttar Pradesh ( Property 2 ) to secure the financial assistance of Jaiprakash Associates Limited , for the first time in favour of Axis Bank Limited and State Bank of India (both lenders of Jaiprakash Associates Limited ) on 24th February 2015. Later, upon accession of other lenders and enhancement of secured limits further mortgage was effectuated on 15th September, 2015 and again on 29th December 2016. The mortgages in favour of the Appellant was created vide registered mortgage deeds dated 15th September, 2015 and 29th December, 2016. Company Appeal (AT) (Insolvency) No. 458 of 2018 (IFCI Limited) 43. The Appellant- IFCI Limited has provided a chart showing the details of mortgage deeds etc., as under: S.No. Particulars Detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e deeds dated 15th September, 2015 and 29th December, 2016. Company Appeal (AT) (Insolvency) No. 511 of 2018 (Jammu Kashmir Bank) 45. According to the Appellant- Jammu Kashmir Bank , it alongwith other lenders of Consortium Bank 1ed by ICICI Bank had sanctioned/granted credit facility to Jaiprakash Associates Ltd. and as per the terms and conditions of the Loan to Jaiprakash Associates Ltd. , Jaypee Infratech Limited had mortgaged some of its properties as collateral security in favour of Axis Trustee Services Limited for the benefit of the Appellant and other members of the Consortium. The Appellant and other members of the consortium had sanctioned/granted financial assistance inter-alia in the form of term loans to Corporate Debtor , from time to time. One of the conditions of the Loan Agreement was that the obligations be secured by the security interest over the secured property to the satisfaction of the secured parties and hence, a security trustee agreement was executed in favour of the Axis Trustee Services Limited (acting as the Security Trustee for the benefit of the Appellant and other members of consortium of lenders of Jaiprakash Associate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Consortium and redeemable non-convertible debentures issued for amounts not exceeding ₹ 3600 Crore to debenture holders. RTL-1, RTL-2, RTL-3 and RTL-4 sanctioned by the Appellant were inter-alia secured by the aforesaid mortgages. Thereafter, on 29th December, 2016, IOM 1 and IOM 2 were momentarily released to facilitate entry of new lenders into the Jaiprakash Associates Limited Consortium which includes the Appellant thereby securing an aggregate amount of ₹ 21081.50 crore and redeemable convertible debentures issued for an amount of ₹ 2409.25 crores (as reduced from redeemable convertible debentures issued for an amount of ₹ 3600 Crore). 50. Learned counsel for the Appellants submitted that none of the provisions such as Section 42, 44, 45 or 66 of the I B Code are applicable to any of the transactions, in question, as referred to above. They relied on the provisions aforesaid in support of their contentions. Stand of the Resolution Professional 51. Learned counsel appearing on behalf of the Resolution Professional submitted that the transaction, in question, come within the meaning of preferential transaction , undervalued tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land valued at ₹ 5,900 Crores approximately, which the directors of the Corporate Debtor , mortgaged to secure the debt of Jaiprakash Associates Ltd. , when the Corporate Debtor itself was in dire need of funds and could have sold/ mortgaged unencumbered land to raise funds to complete the construction of flats in timely manner to fulfil its own obligation to its creditors and prevent value deterioration or erosion or insolvency. 57. Further, the case of the Resolution Professional is that Jaiprakash Associates Ltd. being the holding company owing 995,000,000 numbers of shares of Jaypee Infratech Limited as on 31st March 2017, Jaiprakash Associates Ltd. is a related party within the meaning of Section 2(74) of the Companies Act, 2013 and the promoter of Jaypee Infratech Limited within the meaning of Section 2(69) of the Companies Act, 2013. 58. It was further contended that in the 49th meeting dated 28th May 2015 and 50th meeting dated 6th August 2015 of the Board of Directors of Jaypee Infratech Limited ( Corporate Debtor ) taken up the agenda to create security over the assets of the Jaypee Infratech Limited in favour of Standard Chartered Bank fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee; (b) any transfer creating a security interest in property acquired by the corporate debtor to the extent that (i) such security interest secures new value and was given at the time of or after the signing of a security agreement that contains a description of such property as security interest, and was used by corporate debtor to acquire such property; and (ii) such transfer was registered with an information utility on or before thirty days after the corporate debtor receives possession of such property: Provided that any transfer made in pursuance of the order of a court shall not, preclude such transfer to be deemed as giving of preference by the corporate debtor. Explanation.─ For the purpose of sub-section (3) of this section, new value means money or its worth in goods, services, or new credit, or release by the transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the liquidator or the resolution professional under this Code, including proceeds of such property, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the I B Code . 65. Clause (b) of sub-section (2) of Section 43 relates to transfer under clause (a) of sub-section (2) of Section 43, which in effect puts such creditor or a surety or a guarantor in a beneficial position than it would have been in the event of a distribution of assets being made in accordance with Section 53. As clause (a) of sub-section (2) of Section 43 is not attracted, the question of applicability of clause (b) of sub-section (2) of Section 43 does not arise. 66. Apart from the aforesaid position of law in respect to mortgage, in question, as per sub-section (3) of Section 43, for the purposes of sub-section (2), a preference shall not include the transfer made in the ordinary course of the business or financial affairs of the Corporate Debtor or the transferee . The mortgages in question which were made in favour of the Appellants- Banks and Financial Institutions have been made in ordinary course of the business and financial affairs of the transferee, as apparent from the relevant facts. 67. Therefore, we hold that Section 43 is not attracted to any of the transaction/ mortgage(s) made in favour of the Appellants. 68. Section 44 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.─ For the purpose of this section, it is clarified that where a person, who has acquired an interest in property from another person other than the corporate debtor, or who has received a benefit from the preference or such another person to whom the corporate debtor gave the preference, ─ (i) had sufficient information of the initiation or commencement of insolvency resolution process of the corporate debtor; (ii) is a related party, it shall be presumed that the interest was acquired, or the benefit was received otherwise than in good faith unless the contrary is shown. Explanation II.─ A person shall be deemed to have sufficient information or opportunity to avail such information if a public announcement regarding the corporate insolvency resolution process has been made under section 13. 69. From bare reading of Section 44, it is clear that it is on the basis of application made by the Resolution Professional or the Liquidator under sub-section (1) of Section 43, that the Adjudicating Authority has the power to pass order in terms of Section 44. In these appeals as we have held that Section 43 is not attracted to any of the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable with regard to transaction in question which are not related to any payment due from the Corporate Debtor . 73. As Section 44 is not attracted, it is not necessary to notice Section 46 which is not attracted and, therefore, the Adjudicating Authority has no power to pass any order under Section 48 of the I B Code . 74. Section 66 relates to fraudulent trading or wrongful trading , if found during the Resolution Process or Liquidation Process in regard to the business of the Corporate Debtor , which reads as under: 66. Fraudulent trading or wrongful trading.─(1) If during the corporate insolvency resolution process or a liquidation process, it is found that any business of the corporate debtor has been carried on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose, the Adjudicating Authority may on the application of the resolution professional pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be liable to make such contributions to the assets of the corporate debtor as it may deem fit. (2) On an application made by a resolution professional durin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such finding is not empowered to pass order under Section 51. Further, as we have held that the transactions were made in the ordinary course of business in absence of any contrary evidence to show that they were made to defraud the creditors of the Corporate Debtor or for any fraudulent purpose, on mere allegation made by the Resolution Professional , it was not open to the Adjudicating Authority to hold that mortgage deeds, in question, were made by way of transactions which come within the meaning of fraudulent trading or wrongful trading under Section 66. 77. It is not in dispute that all the Appellants had granted loan to Jaiprakash Associates Limited . Majority of Banks (Appellants) functioned as joint venture. For the said reason, the Corporate Debtor executed mortgaged deeds in favour of the Appellants. Such transactions having made in ordinary course of business, the allegation against the Banks and Financial Institutions (Appellants) are not justified. 78. In fact, the Resolution Professional has submitted that while the mortgage of land by the company to its related party may not be forbidden under law, it becomes questionable if it has been done in co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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