NCLAT upholds insolvency proceedings against Jaypee Cement Corp

Time of India

4 days ago

NEW DELHI: The insolvency appellate tribunal has approved the insolvency proceedings against the debt-ridden
Jaypee Cement
, upholding an earlier order passed by the
National Company Law Tribunal
(NCLT).
A two-member bench of the NCLAT rejected the appeal filed by Alok Gaur against the NCLT order, saying the debt and default matter is proved, and it did not find any error in the order directing the initiation of insolvency proceedings.
The National Company Law Appellate Tribunal (NCLAT) rejected Gaur's submission that its parent firm Jaiprakash Associates Ltd (JAL) has signed an MRA (Master Restructuring Agreement) with lenders, undertaken to discharge its liabilities.
As all debt stood transferred to JAL, now facing CIRP (
Corporate Insolvency Resolution Process
) for failure to implement MRA, and the debt of both JAL and JCCL can be considered, an appropriate resolution can be done.
However, rejecting it, the NCLAT said the debt, which was owned by JCCL, to the lenders "shall not be evaporated" merely by the fact that JAL has taken the liability to discharge its debts of JCCL and it does not prohibit the lenders to file insolvency proceedings against it under Section 7 of the IBC, due to the failure of the restructuring proposal.
"The submission of the appellant that JAL having undertaken the liability to clear the debts and defaults of JCCL, hence, JCCL has no liability and no application was maintainable against JCCL, also does not commend us," said the NCLAT bench, comprising Chairperson Justice Ashok Bhushan and Member Barun Mitra.
The appellate tribunal further said initiation of CIRP proceedings against JAL cannot be a ground to contend that no proceedings can be initiated against JCCL.
"JCCL has also given its securities for obtaining the various facilities from the SBI between 2012 and 2015. The Financial Creditor can always invoke the securities given by JCCL to realise the debt," it said.
The Financial Creditor has never shown the debt of JCCL to be transferred to the JAL in its Financial Statements, and the fact that JAL and JCCL in their financial statements have treated the debt to be discharged is not binding on the Financial Creditors.
Moreover, the NCLAT in its 26-page-long order pointed out that JCCL was not even the party of MRA, which was not even fulfilled.
"The Adjudicating Authority (NCLT), after considering all the relevant facts and circumstances, has come to the conclusion that debt and default on the part of the CD - JCCL is proved. When the debt and default are proved, the admission of the Section 7 Application against JCCL cannot be faulted.
"We, thus, do not find any error in the order of the Adjudicating Authority admitting Section 7 Application," the NCLAT said, dismissing Gaur's petition.
On July 22, the Allahabad bench of NCLT admitted a petition filed by India's leading public sector lender
State Bank of India
(SBI), which had provided credit facilities to Jaypee Cement Corporation Ltd (JCCL) between 2012-15.
Both JAL and JCCL had defaulted in payment of loans and lenders, including SBI. Later, a composite Scheme of Debt Realignment Plan for the debt of JAL and JCCL was proposed.
As per the MRA executed on October 31, 2017, it was divided into three different buckets.
Under Bucket 1, the divestment of a substantial part of its cement business along with debt of Rs 11,689 crore to UltraTech Cements was approved. The residual debt of JAL and JCCL was bifurcated into two different buckets.
Bucket 2A has a sustainable debt of Rs 5,072 crore, which was to be retained under the residual business of JAL to be serviced from the cash flow from the operations of the residual business of JAL. It also envisaged the shifting of JCCL's Shahabad Cement Plant exposure of Rs 778.10 crore to JAL.
While Bucket 2B has an unsustainable debt of Rs 13,590 crore, and it was proposed to be transferred to a separate Real Estate SPV for 20 years, backed by land of 1039 acres (already mortgaged to lenders) of the company, having the value of Rs 14,156 crore.
The debt of Bucket 2B has not been resolved and remains outstanding.