NCLAT upholds insolvency order against Jaypee Cement, dismisses appeal

Business Standard

2 days ago

The insolvency appellate tribunal has affirmed the insolvency process against Jaypee Cement Corporation Limited (JCCL), upholding an earlier ruling by the National Company Law Tribunal (NCLT).
A two-member panel of the National Company Law Appellate Tribunal (NCLAT) dismissed an appeal filed by Alok Gaur, stating that the debt and default issues had been established and that it found no fault in the NCLT's order to initiate insolvency proceedings.
Gaur argued that Jaiprakash Associates Limited (JAL), the parent company of Jaypee Cement, had entered into a Master Restructuring Agreement (MRA) with lenders and had committed to settling its debts.
However, the NCLAT noted that since all debt obligations had been transferred to JAL, which is now undergoing the Corporate Insolvency Resolution Process (CIRP) due to its failure to honour the MRA, the liabilities of both JAL and JCCL could be considered for resolution.
The NCLAT dismissed this argument, asserting that the debt originally owed by JCCL to its lenders remains valid. It added that the mere fact that JAL had assumed responsibility for JCCL's liabilities did not prevent lenders from initiating insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code (IBC) after the failure of the restructuring plan.
The appellate body clarified that the commencement of CIRP proceedings against JAL does not preclude initiating similar proceedings against JCCL.
'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,' remarked the NCLAT bench, led by Chairperson Justice Ashok Bhushan and Member Barun Mitra.
'JCCL has also given its securities for obtaining the various facilities from the State Bank of India between 2012 and 2015. The financial creditor can always invoke the securities given by JCCL to realise the debt,' it stated.
It was also emphasised that the financial creditor has never reflected the transfer of JCCL's debt to JAL in its financial records, and even if JAL and JCCL have, in their statements, recorded the debt as settled, such treatment does not bind the financial creditors.
Additionally, the NCLAT pointed out that JCCL was not a party to the MRA, which in any case was not implemented.
'We, thus, do not find any error in the order of the adjudicating authority admitting Section 7 application,' the appellate tribunal concluded, thereby rejecting Gaur's appeal.
Previously, on July 22, the Allahabad bench of the NCLT admitted a plea by State Bank of India (SBI), India's top public sector lender, which had provided credit facilities to Jaypee Cement Corporation Limited (JCCL) during 2012–2015.
Both JAL and JCCL defaulted on their loan repayments, prompting lenders, including SBI, to consider a comprehensive Debt Realignment Plan for the combined debts of both companies.
The MRA executed on October 31, 2017, divided the debt into three categories. In Bucket 1, the transfer of a major portion of JAL's cement business along with a debt of Rs 11,689 crore to UltraTech Cement was sanctioned. The remaining debts of JAL and JCCL were categorised into two further segments.
Bucket 2A involved a sustainable debt of Rs 5,072 crore, intended to be retained within JAL's residual business and serviced through its operational cash flows. This category also included the shifting of JCCL's Shahabad Cement Plant exposure of Rs 778.10 crore to JAL.
Bucket 2B comprised an unsustainable debt of Rs 13,590 crore, which was proposed to be transferred to a separate real estate special purpose vehicle for a period of 20 years, backed by land assets totalling 1,039 acres (already mortgaged to lenders) with an estimated value of Rs 14,156 crore.
Jaiprakash Associates' CoC clears cash outflow for June quarter
In May, the lenders of JAL gave the green light to a cash outflow plan of Rs 936.27 crore for the June quarter to ensure the company's operations remain stable.
In a regulatory filing, JAL mentioned that its Committee of Creditors (CoC) had sanctioned 'the budgeted cash outflows of the corporate debtor for the period from 1 April 2025 to 30 June 2025, of up to Rs 936.27 crore.'
This sanctioned amount comprised Rs 856.73 crore designated for regular operational costs and Rs 79.54 crore allocated for one-time expenses.