9911796707
TMI Blog2018 (5) TMI 1937X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Hon ble Supreme Court, the applicant has a duty to file an application for avoidance of any such transaction before the Adjudicating Authority in accordance with chapter III of the code and therefore, contention of the applicant that the RP has no locus standi to file the present application, is without any basis. The contentions raised by the respondent number 15 that the applicant does not have jurisdiction to Act as Resolution Professional deserves to be rejected - the issue decided in negative in favour of the applicant Resolution Professional. Whether impugned transactions have been carried out with intent to defraud creditors of the corporate debtor or for any fraudulent purpose and is covered under section 66 of the Code? - Whether impugned transactions are preferential transactions covered u/s 43(2)(a) of the code or undervalued transaction covered under section 45 of the Insolvency in Bankruptcy Code 2016? - Whether look-hack period available for the impugned transactions as per provision of section 46(1)(i) is one year or two years? - HELD THAT:- The statutory requirement under sub-section (1) of section 43 of IBC requires that RP has to form an opinion and this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility or value of the any of (he ingredients of liquidation estate, must be covered by the section. Whether creation of security interest or collateral may come within the purview of preferential transaction is to be observed ? - HELD THAT:- It is an undisputed fact, that a secured creditor is better placed than an unsecured creditor in insolvency/liquidation proceedings. Therefore, when a security is being offered to a creditor, he is being placed in a better position than other creditors. However, that does not necessarily result in preference. Grant of security interest, per se. is not preference, but may be proved to be a preference on fulfilment of conditions. In this case, it is undisputed that after the release of earlier mortgage deeds, fresh deed has been executed in favour of the creditors of JAL, which happens lo be holding company of the corporate debtor. Holding company and subsidiary company are separate legal entities. After the release of earlier mortgage and creation of fresh mortgage cannot be treated as a continuation of the earlier mortgage - it is clear that the said act appears to have been committed to defraud the creditors of the Corporate Debtor which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons U/s 43(2)(a) (b). The transactions were executed within the look back period of two years before the commencement of Insolvency proceeding and is therefore covered U/s 43(4)(a). Further, transaction cannot be treated is in ordinary course of business or financial affairs of Corporate Debtor and is not excluded U/s 43(3) - the company application filed by the Resolution Applicant deserves to be allowed. Application allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... f any, which falls under sections 43, 45, 50 and 66 of the Code. The sub-regulation (2) of the Regulation 39 is given below; 39- Approval of resolution plan- (2) The resolution professional shall submit to the committee, all resolution plans which comply with the requirements of the Code and regulations made thereunder along with the details of following transactions, if any, observed, found or determined by him: (a) preferential transactions under Section 43; (b) under valued transactions under Section 45; (c) extortionate credit transactions under Section 50; and (d) fraudulent transactions under Section 66, and the orders, if any, of the adjudicating authority in respect of such transactions.] 7. The sub-section (1) of Section 25 casts a duty upon the Resolution Professional to preserve and protect the assets of the corporate debtor, including the continued business operations of the corporate debtor. For this purpose, clause (J) of sub-section (2) of section 25 casts duty upon the resolution professional to apply for the avoidance of any such transaction before the Adjudicating Authority by Chapter 111 of the Code. Sections 43, 45 and 50 of chapter III deal with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... %. Further out of total 250 lowers, structure work is going on 66 towers, and finishing work is ongoing in 148 towers, whereas 36 towers had been delivered. As per the revised schedule submitted by the Corporate Debtor with the RERA authorities, the projects in Noida Wish Town was scheduled to be handed over to the flat buyers over the next 3 to 4 years, i.e. until 2021. Corresponding to the amount collected from the customers in the Noida projects, an amount of approximately ₹ 8600 crores has been incurred on the projects, and balance cost of ₹ 8756 crores is yet to be incurred for completion. 11. Since the incorporation of the Corporate Debtor, an amount of approximately ₹ 15,900 crores have been paid to Jaiprakash Associates Ltd. (the holding company and the principal contractor of the Corporate Debtor) towards the various construction activities, expenses etc. undertaken by Jaiprakash Associates Ltd. (i.e, construction of the real estate projects and Yamuna Expressway Toll). 12. The petitioner contends that the Corporate Debtor has the outstanding liability of approximately ₹ 132 crores payable to 7451 Retail Fixed Deposit Holders as on 9th August 2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtgage of land is in nature of asset stripping and entered into with intent to defraud the creditors of the Corporate Debtor. It is pertinent to state that as per sub-section (10) of Section 3 of the Code, "creditor" consist of 3 classes of creditors-financial Creditors. Operational Creditors and creditors other than financial and Operational Creditors. The CIRP Regulations require the creditors other than the financial and Operational Creditors to file proof of claim in form-f. The homebuyers and the fixed Deposit Holders are also Creditors of the Corporate Debtor. 15. The applicant contends that JAL is a holding company, owing 995,000,000 number of shares of Corporate Debtor as on 31st March 2017, JAL is a related party within the meaning of Section 2(24) of the Companies Act, 2013 and promoter of the Corporate Debtor within the meaning of Section 2(69) of Companies Act, 2013. The applicant further contends that 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 complete disregard to the interest of the creditors and stakeholders of such company, results in asset stripping, and is done with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Lenders of Corporate Debtor would have provided no objection to creation of mortgage to secure debt of related party as that would have compromised recovery of not only their dues but also the interest of thousands of home buyers waiting for their Flats in which their hard earned monies have been invested. The same for fixed deposit holders. 17. The Applicant contends that the said transactions of the creation of mortgage of 858 acres of land to secure the debt of related party is a fraudulent and wrongful transaction under section 66 of the Code as it has been carried on with the intent to defraud the creditors of the Corporate Debtor. 18. The applicant contends that as per sub-section (10) of Section 3 of the Code, "Creditor" means any person to whom a debt is owed and includes a Financial Creditor and Operational Creditor, Seemed Creditor, an Unsecured Creditor and a Decree Holder. Therefore, it broadly creates three classes of Creditors-Financial Creditors, Operational Creditors and Creditors other than Financial and Operational Creditors, while the banks, financial institutions and fixed deposit holders of the Corporate Debtor are Financial Creditors. 19. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to carry on the business in such manner shall be liable to make such contribution to the assets of the Corporate Debtor as it may deem fit. sub-section (2) of Section 66 states that if before the insolvency commencement date, a Director or partner knew or ought to have known that there was no reasonable prospect of avoiding the commencement of Corporate Insolvency Resolution Process (CIRP) in respect of the Corporate Debtor; and such Director or partner did not exercise due diligence in minimising the potential loss to the creditors of the Corporate Debtor, such director shall be liable to make such contribution to the assets of the Corporate Debtor. 21. Admittedly Directors of the Corporate Debtor and its related party, i.e. JAL were well aware of the fact that the Corporate Debtor was in default of the financial Creditors, Operational Creditors, Creditors (including homebuyers) and other stakeholders. The Directors were aware that they had been declared as NPA by fit and other creditors. They were defaulting in timely construction, completion and delivery of flats to homebuyers. There were further defaulting payment to the fixed deposit holders. Therefore, the Directors of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Resolution Professional is of the opinion that the corporate debtor has at a relevant time given preference in such transaction and such manner as laid down in sub-section (2) to any person is referred to in sub-section (4), he shall apply to the Adjudicating Authority for avoidance of preferential transactions and for, one or more of the orders referred to in Section 44. 26. Applicant has contended that section 43(1) of the Code provides that a corporate debtor shall be deemed to have given preference if there is any interest created over properly of the corporate debtor for the benefit of a creditor and has the effect of putting such creditor in the beneficial position than it would have been in the event of a distribution of assets being made in accordance with section 53 of the Code. In the instant case, the Directors of the Corporate Debtor have created an interest over the immovable properties as security in favour of the lenders of JAL its holding company, for the benefit of JAL and its creditors and have put the Creditors of the Corporate Debtor in disadvantageous position than they would have been in the event of distribution of assets of Corporate Debtor being made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution Professional under the Code. Given the above facts, the above application is without the authority of law and wholly without jurisdiction which deserves to be rejected outright. 31. It is contended in the objection of JAL that it cannot be disputed that so far the lenders of the Jaiprakash Associates Ltd. have not enforced the impugned mortgages and no liability has fallen on the Corporate Debtor. No Resolution plan has been finalised, and no quantum of shortfall attributable to the impugned mortgages has been determined. Hence, the application is only academic, as no loss has been caused to the Corporate Debtor or to any class of creditors nor any financial measure which Corporate Debtor intended to take at any stage was hampered or obstructed by the impugned mortgages. The allegation in the above application is all hypothetical. Further, the contention of the applicant that the said land could have been sold or mortgaged for loans which could have been raised by JIL to meet its obligations towards Creditors. Homebuyers and FD holders is wrong and baseless. 32. The decision was taken by the Directors in good faith, in the facts and circumstances then prevailing or which c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted long back. These are not the transactions which have taken place for the 1st time on the dates mentioned in the above application. The applicant has deliberately misrepresented the fact and avoided to give complete details with mala fide intention to bring the impugned transactions within the limitation period. The impugned transactions were approved by concern Committees/Board of Directors and were disclosed by the Corporate Debtor on various dates. The securities provided/mortgage created were disclosed in the financial statement of the Corporate Debtor in respective financial years 2009-10, 2010-11, 2011-12, 2012-13, 2013-14, 2014-15, 2015-16 and 2016-17. The fact of a mortgage created by the Corporate Debtor in favour of the lenders of JAL was also disclosed in the Red Herring Prospectus issued in 2009-10 at the time of Initial Public Offer made by the Corporate Debtor. 36. The answering respondent has contended that the Corporate Debtor was incorporated on 5th April 2007 as a public limited company in the State of the U.P. The main object of the Corporate Debtor is to develop infrastructure facility, the 165 km Six Lane Assess Controlled Expressway between Noida and Agra. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2014-15. The company had been meeting all its liabilities towards the lenders and the depositors and other creditors, and there was no default in repayment of the dues of above parties. Only during financial year 2015-16 onwards, the performance of the corporate debtor took a setback due to various reasons, beyond the control of management, such as general economic slowdown, subdued market and low sales volume in real estate market, National Green Tribunal statemate, delay in completion of semi finished inventory leading to declining construction linked real estate collection, though the assets base remain considerably higher than the liabilities. In spite of the decline in performance, the corporate debtor has been making a sincere effort to pay the interest dues of lenders to the extent possible. The corporate debtor had moved an application under section 74(2) of the Companies Act 2013 before this Tribunal for extension of time of repayment of deposits. 39. It is further contended that against the outstanding liability of ₹ 12,902.49 crores the Corporate Debtor has a very large asset base. The result is that in spite of the liquidity problems the asset base continues to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial. 42. The answering respondents further contend that the revival plan of the corporate debtor was under active consideration of the lenders, when the IDBI Bank received direction dated 15th June, 2017 from the Reserve Bank of India for initiation of insolvency regulation process under the provisions of Insolvency and Bankruptcy code, 2016. 43. The financial position of the corporate debtor has been very sound. The fair value of its assets has been substantially higher than the outstanding liabilities. Its debt to equity ratio was very comfortable. The corporate debtor has large land bank and hence the lenders, most of the lenders being common, never objected to including mortgages of land in favour of JAL keeping in view the totality of circumstances and the special relationship between the corporate debtor and JAL. The Jaiprakash Associates Ltd. has been helping Jaypee Infratech Ltd. in various ways, and hence the creation of impugned mortgages was not unusual but merely reciprocal. Such reciprocal accommodation cannot be termed without consideration. It is general banking practice to ask for additional security from the third party for the financial assistance provided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, once the above jurisdictional condition itself is not satisfied, the subsequent provisions of this section will not be attracted. 47. The mortgages were in effect measure to give comfort to the lenders in line with the normal banking/business practice in the circumstances then prevailing or which could be reasonably anticipated, and there was no risk of lenders getting any opportunity to enforce the mortgage. 48. The Corporate Debtor is a public limited company, and its shares are listed on NSE and BSE. The affairs of the Company are subject to the scrutiny of SEBI and other Regulatory Authorities. The Corporate Debtor has a professional team of Directors including nominee Directors and independent Directors. These Directors have been attending the meeting of the board, the minutes of the board meeting is confirmed at the next board meeting. None of these directors ever recorded any note of dissent to the impugned transactions in any meeting is otherwise as they were fully aware that the transactions were in normal course of business and there was nothing wrong in it. If the allegations of the applicant are believed to be true, it will imply that all the Directors including t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed parties. Hence the limitation period of only one year laid down in section 43(4) will apply and not two years. In the present case the impugned mortgages were created more than one year before insolvency commencement date. 53. It is further contended by the answering respondent that the provisions of section 45(2)(b) of IBC are not at all applicable in the present case. It is noteworthy that section 42(2)(b) is relevant only when the transaction is covered by section 43(2). The impugned transactions are not a preferential transaction and not covered by section 43(2). Hence section 45 does not apply to the impugned transactions. 54. It is further submitted by answering respondent that the impugned transactions cannot be regarded undervalued transactions given the fact that Jaiprakash Associates Ltd. has been helping Jaypee Infratech Ltd. in various ways, hence the creation of impugned mortgages were not unusual but merely reciprocal. Such reciprocal accommodation cannot he termed "without consideration". The companies Act, 2013 does not prohibit the creation of security interest by a company for securing the debt extended to other companies including a holding company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g respondent is a bank duly authorised by the RBI amongst other things, to carry out the business of commercial lending on a secured basis. It is customary for the answering respondents and other banks to seek credit enhancement on account of outstanding debts by way of creation of security interests by borrowers and their group companies. 59. The answering respondent is a lender to JAL and, after careful financial and commercial diligence of the creditworthiness of JAL, the answering respondent had sought the creation of further security interest from JAL. The JAL subsequently requested the corporate debtor to create mortgages over the mortgaged properties as security for the JAL. Facilities. It is submitted that since the transfer envisaged under the Consortium Mortgages and the Exclusive Mortgages are for the benefit of the answering respondent in the ordinary course of the answering respondent's business or financial affairs. Thus the creation of mortgage over the mortgaged properties cannot be and ought not to be considered as preferential transactions, as falsely and wrongly alleged by the Resolution Professional in the application. 60. It is further submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... party mortgages are accepted commercial practice among the lending company in India and globally. It is thus clear that at the time impugned transactions were entered into, the consideration received by the Corporate Debtor for creating the Consortium Mortgages as well as the Exclusive mortgages, was commensurate with the value of the consideration provided by it. 62. The respondent further contends that impugned transactions do not amount to fraudulent transactions under section 66 of the Code. Section 66(1) of the Code would be applicable only when this Tribunal finds a specific intent on the part of the Corporate Debtor to defraud its creditors. The Resolution Professional has miserably failed to bring any fact, correspondence, documents or other evidence on record which leads to the conclusion that business of the corporate debtor has been carried on with intent to defraud creditors of the corporate debtor or for any fraudulent purpose or that the corporate debtor entered into the impugned transactions with such specific fraudulent intent. On the contrary, third-party credit enhancement by group companies is a globally recognized principle which is also well established practi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to defraud creditors of the corporate debtor or for any fraudulent purpose and is covered under section 66 of the Code? 3. Whether impugned transactions are preferential transactions covered u/s 43(2)(a) of the code or undervalued transaction covered under section 45 of the Insolvency in Bankruptcy Code 2016? 4. Whether look-hack period available for the impugned transactions as per provision of section 46(1)(i) is one year or two years? ISSUE NO.1 66. The respondent no.15 i.e. Jaiprakash Associates Ltd. has objected that the applicant has no locus standi to file this company application No.26 of 2018. The contention of the respondent number 15 is misconceived and contrary to the provisions of insolvency in bankruptcy code 2016. 67. In this regard, it is to be clarified that Hon'ble Supreme Court in writ petition No. 744 of 2017, vide order dated 4th September 2017 stayed the operations of the order dated 9th August 2017 passed by this Tribunal. This order was further modified by Hon'ble Supreme Court vide order dated 11th September 2017 whereby it was directed to the IRP to formulate and submit an interim' resolution plan to the Supreme Court. 68. Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, investors, and any other persons to put forward resolution plans; i. present all resolution plans at the meetings of the committee of creditors; j. file application for avoidance of transactions in accordance with Chapter III, if any; and k. such other actions as may be specified by the Board. This sub-section (1) of sec. 25, casts a duty upon the Resolution Professional to preserve and protect the assets of the Corporate Debtor, including the continued business operations of the Corporate Debtor. For this purpose, clause (J) of sub-section (2) of sec. 25 casts a duty upon the resolution professional to apply for the avoidance of any such transaction before the Adjudicating Authority by chapter III of the code. Thus, in view of the provisions of the Code and the orders passed by the Hon'ble Supreme Court, the applicant has a duty to file an application for avoidance of any such transaction before the Adjudicating Authority in accordance with chapter III of the code and therefore, contention of the applicant that the RP has no locus standi to file the present application, is without any basis. 71. Therefore, contentions raised by the respondent number 15 that the appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid land. The mortgage of land was created without any counter guarantee from a related party. The mortgage of land is in nature of asset stripping and entered into with the Intent to defraud the Creditors of the Corporate Debtor. 75. The Jaiprakash Associates Ltd. has failed to explain as to the circumstances under which the promoters and Directors have decided to mortgage the lands of the corporate debtor to the lenders of JAL and why no consideration thereof has been paid to the Corporate Debtor and that too without any counter guarantee from JAL This clearly shows that the said transaction has been entered to defraud the Lenders of the Corporate Debtor. It is important to point out that Resolution Professional has pointed out that he could not find any approval obtained from the lenders of the corporate debtor for the impugned mortgages. It is pertinent to note that at the lime when the mortgage was created, Corporate Debtor was already in default to its lenders and it is unlikely that the lenders of The Corporate Debtor would have provided no objection to creation of mortgage to secure debt of related party as that would have compromised recovery of not only their dues but al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said Transactions of Creation of Mortgage of 858 acres of land to secure the debt of related party is clearly a fraudulent and wrongful transaction under section 66 of the Code as it has been carried on with the intent to defraud the creditors of the Corporate Debtor. 78. The Corporate Debtor has approximately 30,000 flats under construction and once the promoters and directors of the Corporate Debtor were aware of the financial stress since 30th September, 2015, and to undertake such transaction to create an interest in its immovable property for financial assistance to it's related party has been entered to defraud the Creditors of the Corporate Debtor and the homebuyers at large. It had also defaulted in payment of loans and other financial assistance borrowed from financial creditors, including fixed Deposit Holders. The mortgage was created in complete disregard to the interests of the Creditors and Stakeholders of the Corporate Debtor and the homebuyers at large. It has defaulted in payment of loans, and oilier financial assistance borrowed from financial creditors, including fixed deposit holders, Its account was declared as a non-performing account (from now on &quo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al condition, and if this condition is not satisfied, the application would be liable to be rejected outright without going into the merits of the case. It is contended that in the present case, the above jurisdictional condition is not satisfied in as much no "opinion" in the eyes of the law can be said to have been formed by Resolution Professional before applying in view of the following: (i) "Opinion" has a special meaning in law. 'Opinion' must be formed after considering the relevant facts and legal provisions. 'OPINION" is not a synonym of impression, hearsay, or gossip. An opinion formed without considering the relevant material and without application of mind is not opinion and proceedings founded on such illegal formation of opinion are void, being without jurisdiction. The Ld. counsel has relied on case law 2006 (281) ITR 147(All)-at pages 154-155 Raghuram Graph P. Ltd. v ITO wherein it is held that opinion means something more than mere "retailing" of" gossip" or hearsay, it means judgment or belief, that is, a belief or a conviction resulting from what one thinks on a particular question. It has placed reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or avoidance of preferential transactions referred to in section 44 of the code. Thus statutory requirement to take the decision is on the Adjudicating Authority not on the Resolution Professional. The opinion formed by the Resolution Professional can be based on the records available with him. By the averment of the answering respondent, it is clear that the resolution professional has sought an explanation from the concerned persons and after that, he has formed the opinion. 83. The learned counsel for the answering respondents contends that for initiating section under Section 43, the following ingredients have to be satisfied- i. it is to be shown that Corporate Debtor has at a relevant time given preference in such transactions and such manner as laid down in Section 43 of sub-section (2) to any persons as referred to in sub-section (4). ii. as provided in sub-section (2), a Corporate Debtor can be said to have given preference only in cases where there is a transfer of property or an interest thereof of the Corporate Debtor -, for the benefit of a creditor or a surety or a guarantor; for or on account of an antecedent Financial debt or operational debt or other liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pertain to period beyond one year. Hence relief claimed is time-barred. Section 43 of the Insolvency and Bankruptcy Code, 2016 is reproduced hereunder for ready reference; 43. Preferential transactions and relevant time- (1) Where the liquidator or the resolution professional, as the case may be, is of the opinion that the corporate debtor has at a relevant time given a preference in such transactions and in such manner as laid down in sub-section (2) to any persons as referred to in sub-section (4), he shall apply to the Adjudicating Authority for avoidance of preferential transactions and for, one or more of the orders referred to in Section 44. (2) A corporate debtor shall be deemed to have given a preference, if- (a) there is a transfer of property or an interest thereof of the corporate debtor for the benefit of a creditor or a surety or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the corporate debtor; and (b) the transfer under clause (a) has the effect of putting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orate debtor has mortgaged its unencumbered 858 acres of land in favour of lenders of Jaiprakash Associates Ltd. (JAL) to secure the debt granted to JAL and Resolution Professional has applied for the avoidance of said transactions. That Senior Counsel appearing on behalf of the Resolution Professional has emphasized on the averments made by the respondent No. 15, i.e. JAL in its reply at page no.2659. The applicant has filed the chart relating to the operational creditor's claim, which contains the name of Jaiprakash Associates Ltd. at a serial no. 3, and a claim of ₹ 261.77 crore as operational creditor's claim in the name of JAL. In the remark column, it is stated that "INR 212 crore is a claim against the invocation of corporate guarantee which is considered as equity contribution and remaining INR 49 crore is to be adjusted against advance to JAL." Moreover, JAL is the principle contractor of Corporate Debtor. Relying on the admission of Jaiprakash Associates Ltd, the holding company of Javnee Infratech Ltd. (JIL) there remains no doubt that the Jaiprakash Associates Ltd. is one of the creditors of the corporate debtor Jaypee Infratech Ltd. By averme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly of being an employee), during the period of two years preceding the insolvency commencement date; or Before discussing the issue of the relevant time, definition of related party needs to be brought out." Sec. 5(24) of I & B Code provides that: "related party", in relation to a corporate debtor, means- (i) a body corporate which is a holding, subsidiary or an associate company of the corporate debtor, or a subsidiary of a holding company to which the corporate debtor is a subsidiary; 88. On a bare reading of the above provision, it is clear that subsidiary and its holding company is defined as the related party given the provision of section 5(24) of Insolvency and Bankruptcy Code. Admittedly corporate debtor Jaypee Infratech Ltd. JAL is a subsidiary of Jaiprakash Associates Ltd. (JAL.). 89. It is clear that for transactions of a related party look back period is two years preceding the insolvency commencement date. Admittedly, in this case, the insolvency commencement dale is 9th August, 2017. Therefore the two years look back period as provided in the code commences from 10th August, 2015. 90. The learned counsel for the answering respondents emphasize ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section (3) of section 43 of IBC: "For the purposes of sub-section (2), a preference shall not include the following transfers- (a) a transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee." 94. The learned counsel representing the ICICI Bank and Standard Chartered Bank has emphasized that the bank which has acquired the mortgagee rights upon the mortgage properties in a legal and bona fide manner in the ordinary course of business or financial affairs of the corporate debtor. It is further submitted that under the Consortium mortgages and Exclusive Mortgage, the answering respondent is the beneficiary of the interests. The answering respondent i.e. beneficiary of the interest, is a bank, duly authorized by the RBI amongst other things, to carry out the business of commercial lending on a secured basis. It is customary for the answering respondents and other banks to seek credit enhancement on account of outstanding debts by way of creation of security interests by borrowers and their group companies. 95. The argument advanced by the learned counsel is based on the premises of Exclusion Clause of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Corporate Debtor to mortgage its immovable properties as detailed above in favour of lenders of a related party, i.e. JAL. While nominees for lender attended the Board Meeting of the Corporate Debtor in which the decision to mortgage the land was taken, that cannot be treated as approval/no objection of lenders as lenders invariably have covenants in loan agreement that require their approval to be obtained for creating interest in favour of any one of the unencumbered assets of the borrower. Further, on examination of the records, the applicant has also reason to believe that no shareholders' approval was obtained to mortgage the land of the corporate debtor in favour of the lenders of JAL. It is pertinent to note that when the Mortgage was created, the corporate debtor was already in default to is lenders and it is unlikely that the Lenders of Corporate Debtor would have provided no objection to creation of mortgage to secure debt of related party as that would have compromised recovery of not only their dues but also the interest of thousands of homebuyers waiting for their flats in which their hard earned monies have been invested. The same for fixed deposit holder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arry on the business in such manner shall be liable to make such contribution to the assets of the Corporate Debtor as it may deem fit. Sub-section (2) of section 66 states that if before the insolvency commencement date, a director or partner knew or ought to have known that there was no reasonable prospect of avoiding the commencement of Corporate Insolvency Regulation Process (CIRP) in respect of the corporate debtor; and such director or partner did not exercise due diligence in minimising the potential loss to the creditors of the corporate debtor, such director shall be liable to make such contribution to the assets of the corporate debtor. 102. Admittedly Directors of the corporate debtor and its related party, i.e. JAL were well aware of the fact that the corporate debtor was in default of the financial creditors, operational creditors, creditors (including home buyers) and other stakeholders. The directors were aware that the account of Corporate Debtor had been declared as NPA by LIC and other creditors. They were defaulting in timely construction, completion and delivery of flats to homebuyers. They were further defaulting payment, to the fixed deposit holders. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted at village: Chagan, Chalesar, Agra Mortgage deed dated 29 December 2016 executed by JIL in favour of Axis Trustee Services Ltd. to provide as additional security for a term loan of ₹ 23,490.75 crores sanctioned by various financial institutions as a consortium, including ICICI Bank limited to JAL. 6. 166.9615 acres of land Kansera, Aligarh situated at Tappal Mortgage deed dated 29 December 2016 executed by JIL in favour of Axis Trustee Services Ltd. to provide as additional security for a term loan of ₹ 23,490.75 crores sanctioned by various financial institutions as a consortium, including ICICI Bank limited to JAL. 104. It is also mentioned in the notice to ICICI bank that "as you are aware, the corporate debtor started defaulting on payments of its dues to its financial creditors and was declared as NPA by the Life Insurance Corporation of India in September 2015 and some other lenders in March 2016. The creation of interest by the promoters and Directors of JIL in its immovable property, in favour of financial creditors of a related party, without economic gain, amount to a wrongful transaction by the promoter of JIL. To undertake such transaction when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age deed to secure facilities which have been repaid in full, i.e. Term Loan of ₹ 1500 Crores under facility agreement dated 12 December 2013 and an overdraft facility of INR 1.75 crores granted to JAL by ICICI. 108. It is further stated by ICICI bank that the impugned transactions are not preferential transactions under section 43(2) of the IBC . 109. The learned counsel representing JAL has in their written submission regarding the impugned transactions stated that: DETAILS OF IMPUGNED MORTGAGES (i) Given in our reply (JAL) para V/Page 13 onwards show that mortgages were not created for the first time after Corporate Debtor started facing the financial problem. The practice was continuing since 2009. From the details as given in Para V, a statement showing Year wise status of Mortgaged Land was placed before this Tribunal, which reveals the total land area mortgaged on different dates as under - 31.03.2015 - 1043.55 Acres 08.08.2015 - 1043.55 31.03.2016 - 893.55 08.08.2016 - 858.37 31.03.2017 - 858.37 08.08.2017 - 858.37 The above figures are quite revealing and in themselves sufficient to demolish the case of fraudulent mortgaging of "land when Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Meeting dated 17.06.2017 -Minutes at page 2740 at pages 2740, 2741 Core Committee Meeting Minutes dated 05.05.2017 Minutes at page 2731- at all pages (vi) LIMITATION : For computing the relevant period u/ss. 43(4), 45 and 46, the above BOD meeting dates are relevant. The execution of mortgage deeds is an only administrative function which is not relevant. The BOD has approved the mortgages before the commencement of IBC, i.e. 1.12.2016. Hence the same is not open to scrutiny under IBC as the law is not retrospective. In any case, the mortgages were approved by BOD more than one year before the date of commencement of insolvency process on 09.08.2017. Hence the relief sought in the Application is patently time barred. (vii) DISCLOSURE AND APPROVAL OF TRANSACTIONS - Our Reply Para VI Page 23 - The transactions of mortgages were not made clandestinely, but detailed disclosure was made in each year's published Accounts (copies in Vol. 5 of our Reply) as per details are given in Para VI of our Reply and the same are summarized below: FY Relevant Page of Reply 2009-10- 2092 2010-11 - 3131 2011-12 - 2170 2012-13 - 2213 2013-14 - 2250/2268 2014-15 - 2334/2356 2015- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e enforced, is protected under section 69 of the Contract Act. A counter guarantee would have been merely a paper exercise for self-satisfaction which was not necessary for view of very close and special relationship between Corporate Debtor and JAL. (ix) SALE OF 858 ACRES OF LAND TO RAISE FUNDS WAS NOT NECESSARY- The contention of RP that instead of mortgaging 858 acres of land. Corporate Debtor should have sold it to raise funds to complete the construction of flats, is devoid of any merit. It is submitted that a businessman does not jump to sell its property to meet temporary liquidity problems. Disposal of property is a measure of last resort. In the present case, the need to sell the property was neither contemplated by lenders who were considering the restructuring plan nor was it felt necessary by Corporate Debtor since alternatives were available. It was a commercial decision for which JLF and BOD of Corporate Debtor were capable and competent to take. It does not seem appropriate on the part of RP to tell how they should have worked. If the sale of land was at all required, then Corporate Debtor had 741 acres of unencumbered land which would have been sold. The RP has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , minutes of board meeting dated 5 December 2017 Annexure A-11 which clearly shows that the board of JIL passed resolution to mortgage unencumbered land of JIL in favour of lenders of JAL in spite of the fact that the corporate debtor account was declared as the NPA and in none of the board meetings liquidity crunch of JIL. was even discussed. 113. The JAL in its reply has stated that with a view to overcoming the liquidity problem of the Corporate Debtor a Joint Lenders Forum (JLF) was constituted in the year 2015, which held a number of meetings and the senior is critical of the Corporate Debtor and the lenders have been making hectic efforts since 2015 to work out viable Restructuring Plan for the Corporate Debtor. The JLF was constituted as per RBI circular dated 26 February 2014 read with circular dated 5th May. 2017. The copies of minutes of various meetings of JLF and Core Committee held on different dates during 2016 and 2017, i.e. on 1st March, 2016, 28th March, 2016, 18th April, 2016, 4th June. 2016, 4th February, 2017, 8th March, 2017, 5th May, 2017 and 17th June, 2017 is annexed with the reply as Annexure-R-47. It is also staled that the status of the land and the impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Residential A-Mortgaged 250 B- unencumbered 50 A- 196 B- 81 A- 446 B- 131 577 2 Commercial - A-31 A-31 B -Nil 31 Total Mortgaged -250 Unencumbered-50 Mortgaged-227 Unencumbered -81 Mortgaged-477 Unencumbered -131 608 Total 608 acres of land are proposed to be swapped @ ₹ 6.50 crore per acre, and the proceeds of ₹ 3900 crores would be appropriated as under: Towards reduction of debt : ₹ 3500 crores Towards interests Overdues : ₹ 400 crores The said land shall be transferred to a trust to be set up by the company, and the lenders shall be the beneficiaries. The land would be sold within a maximum period of 60 months, and the proceeds will be distributed among the lenders. Any upside over and above the minimum assured return shall be shared in the ratio of 60%-40% between the lenders and the company. The company has assumed minimum land value rate of Rs. nine crores per acre. There was an apprehension among the bankers whether the said rate could be obtained. Shri Gaur mentioned that the land parcels proposed for the swap are strategically located near Yamuna Expressway and Formula F1 track and would appreciate in value over a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stered on : serial number 10074 dated 24 September 2015 3 29 December 2016 Release deed for 166.96 acres of land. Registered serial number 11,637 dated 29 December 2016 Released with simultaneous mortgage under a change in facility amount from an aggregate of ₹ 24,109 crores to an aggregate ₹ 23,490.75 Crores 4 29 December 2016 Indenture of mortgage for 166.96 acres of land Registered serial number 11,638 dated 29 December 2016 118. The learned counsel for the respondent contended that the details of a mortgage given at serial numbers 1 and 2 of this table shows that no new mortgage has been created by the impugned transactions. In fact, the land was encumbered before took back period, i.e. two years from the date of commerce of insolvency proceeding and by the said transactions earlier mortgage was released, and on the-same day, fresh mortgage deed has been executed. It is pertinent to mention that at serial numbers 1 and 2 transactions of land measuring 167.23 acres at the LP-5 is given which shows that 167,23 acres of land were earlier mortgaged, but it was released on 15th September, 2015 vide Registration No. 13-992 dated 24th September, 2015, The same l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as preferential or otherwise. However, courts have, time and again, looked for the spirit of these rules. Preference is "favour", preference is "bias". So where a creditor is unduly favoured by the debtor which adversely affects the collective interest of all creditors in a liquidation scenario, it is called a preference. The UNCITRAL Legislative Guide on Law of Insolvency defines "preference" as a transaction which results in a creditor obtaining an advantage or irregular payment. Section 43 of the Code entitles the liquidator or the Resolution Professional to apply to the adjudicating authority for avoidance of 'preferential transactions' entered into by the corporate debtor wherein the corporate debtor has given 'preference' at the 'relevant time' to 'any persons' referred to under the section. As may be inferred from section 43 (2), in order to establish that the transaction is a 'preferential transaction', it is important to bring the following to the fore- (i) There is "a property or an interest in the property" (collectively called "property" hereafter) "of the corporate debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty interest or collateral may come within the purview of 'preferential transaction is to be observed'. It is an undisputed fact, that a secured creditor is better placed than an unsecured creditor in insolvency/liquidation proceedings. Therefore, when a security is being offered to a creditor, he is being placed in a better position than other creditors. However, that does not necessarily result in preference. Grant of security interest, per se. is not preference, but may be proved to be a preference on fulfilment of conditions as above. The rationale has been aptly explained in UNCITRAL Legislative Guide on Law of Insolvency (Part II: Treatment of assets on commencement of insolvency proceedings), as follows - "... they (security interests) may nevertheless be avoidable in insolvency proceedings on the same grounds that any other transaction might he challenged and avoided. The purpose of such an approach is to prevent a debtor that is not able to pay its debts from encumbering assets, unless the security interest provided is in consideration of new funds being advanced. Otherwise, the encumbered assets will not be available to creditors generally and will place re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arves out an exception as to the corporate debtor acquiring "new value" as a result of the security interest, in which case, the transfer (i.e. the means by which security interest was created) shall not be categorized into 'preferential transaction'. 120. In this case, it is undisputed that after the release of earlier mortgage deeds, fresh deed has been executed in favour of the creditors of JAL, which happens lo be holding company of the corporate debtor. Holding company and subsidiary company are separate legal entities. After the release of earlier mortgage and creation of fresh mortgage cannot be treated as a continuation of the earlier mortgage. It is found that in two transactions after the creation of a fresh mortgage, additional facility worth ₹ 41.718 crores has been granted in favour of JAL in spite of the fact that corporate debtor was itself facing liquidity crunch and its account was declared as NPA and Joint Lenders Forum was formed to meet the situation. But without any prior approval of JLF, the Corporate Debtor has mortgaged its unencumbered land in favour of lenders of JAL and that too without any consideration. Thus it is clear that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in this para, the Corporate Debtor is subsidiary of JAL, and in that capacity, JAT. has been extending support to Corporate Debtor from time to time which in term of value amounted to thousands of crores. Impugned mortgages created by JIL as collateral security were not unusual but merely reciprocal and cannot be 'termed 'without consideration". * Under sub-section (11) of section 186 of the Companies Act, 2013, the creation of security interests by an infrastructure company for securing the debt extended to other companies including a holding company, are exempted from the provisions of the section. Corporate Debtor is an infrastructure company as defined in Schedule VI to the Companies Act, 2013. Hence, the transactions are not prohibited under law. 125. In this case, we have found that impugned transactions are covered under preferential transactions as defined in section 43(2)(a) of the Code. Therefore, it cannot be said that section 45 does not apply for these transactions. 126. The impugned mortgage of unencumbered land parcels of the Corporate Debtor in favour of lenders of the JAL to create a security interest are transactions between the Corporate Debt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urity interest created by the Corporate Debtor in favour of lenders of the Jaiprakash Associates Ltd. under the provision of Section 44(c) of the Insolvency and Bankruptcy Code 2016. We also pass an order under Section 48(a) of the Code that the properties mortgaged by way of preferential and undervalued transactions shall from now on be deemed to be vested in the Corporate Debtor. Schedule of property (preferential, undervalued and fraudulent) :- S.N. Consortium of Banks & Financial Institutions as per the list attached i. Mortgage deed dated 29.12.2016 for 167.229 acres of land situated at Village Chhalesar and Chaugan, Tehsil Etmadpur, District Agra, U.P, executed by the Corporate Debtor in favour of Axis Trustee Services Ltd to provide an additional security for term loans of ₹ 21081.5 crores sanctioned as a consortium to JAL. ii. Mortgage deed dated 29,12.2016 for 167.9615 acres of land situated at Village Tappal, Kansera & Jahangarh, Tehsil Khair, District Aligarh, UP executed by the Corporate Debtor in favour of Axis Trustee Services Ltd to provide as an additional security for term loans of ₹ 21081.5 crores sanctioned by the consortium to JAL. A copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
