ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE INFRATECH LIMITED versus AXIS BANK LIMITED ETC. ETC.

ANUJ JAIN INTERIM RESOLUTION PROFESSIONAL FOR JAYPEE INFRATECH LIMITED versus AXIS BANK LIMITED ETC. ETC.

The Supreme Court held that the mortgage transactions by Jaypee Infratech Ltd. (JIL) to secure loans of its holding company Jaiprakash Associates Ltd. (JAL) satisfied the descriptive requirements of Section 43(2) IBC and were executed within the two-year look-back period for related parties (s.43(4)(a)); the transfers were not in the ordinary course of JIL’s business and thus were avoidable under Section 44. The Court further held that lenders who merely held third-party mortgages from JIL to secure JAL’s debts were secured creditors but were not 'financial creditors' of JIL under Sections 5(7) and 5(8) because JIL did not owe them a financial debt (no disbursal to JIL against time value...

Parties
Appellant (interim Resolution Professional): Anuj Jain (Interim Resolution Professional for Jaypee Infratech Limited); Corporate Debtor: Jaypee Infratech Limited; Holding Company of Jaypee Infratech Limited / Related Party: Jaiprakash Associates Limited; Respondent / Lender of JAL: Axis Bank Limited; Respondent / Lender of JAL: ICICI Bank Limited; Respondent / Lender of JAL: Standard Chartered Bank Limited; Respondent / Lender of JAL: State Bank of India; Appellant (challenging Recognition of Certain Lenders as Financial Creditors): India Infrastructure Finance Company Limited; Appellants / Stakeholders (home Buyers): Home buyers associations (Jaypee Greens Krescent Home Buyers Welfare Association et al.)
Jurisdiction
India
Judgment Date
26 February 2020
Procedural Posture
Civil Appeal / Appeal to the Supreme Court (judgment on Appeals From NCLAT / NCLT Orders)
Outcome
Supreme Court allowed the appeals to the extent of reversing NCLAT and restoring NCLT findings: holding the specified mortgage transactions preferential and avoidable and holding that the lenders of JAL are not financial creditors of JIL
Legal Topics
Preferential Transactions (s.43 Ibc), Financial Creditor / Financial Debt (ss.5(7), 5(8) Ibc), Look Back Period, Ordinary Course of Business Exception (s.43(3)), Avoidance Orders (s.44), Mortgage / Third Party Security, Interpretation of Definition Clauses
Insolvency and Bankruptcy Company Law Banking Law Contract Law Property Law Preferential Transactions (s.43 Ibc) Financial Creditor / Financial Debt (ss.5(7),5(8) Ibc) Look Back Period +4 more

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Parties

Anuj Jain (Interim Resolution Professional for Jaypee Infratech Limited)

Appellant (interim Resolution Professional)

Jaypee Infratech Limited

Corporate Debtor

Jaiprakash Associates Limited

Holding Company of Jaypee Infratech Limited / Related Party

Axis Bank Limited

Respondent / Lender of JAL

ICICI Bank Limited

Respondent / Lender of JAL

Standard Chartered Bank Limited

Respondent / Lender of JAL

State Bank of India

Respondent / Lender of JAL

India Infrastructure Finance Company Limited

Appellant (challenging Recognition of Certain Lenders as Financial Creditors)

Home buyers associations (Jaypee Greens Krescent Home Buyers Welfare Association et al.)

Appellants / Stakeholders (home Buyers)

Procedural Posture

Civil Appeal / Appeal to the Supreme Court (judgment on Appeals From NCLAT / NCLT Orders)

Legal Issues

  1. 1 Whether the mortgage transactions by the corporate debtor to secure loans of its holding company (JAL) were preferential transfers within the meaning of Section 43 of the Insolvency and Bankruptcy Code, 2016 (and thus avoidable)
  2. 2 Whether those transactions fell within the exclusion in Section 43(3) as being in the ordinary course of business or financial affairs
  3. 3 Whether the lenders of the holding company (JAL), who held mortgages from the corporate debtor (JIL), could be categorised as financial creditors of the corporate debtor under Sections 5(7) and 5(8) IBC

Ratio Decidendi

The Supreme Court held that the mortgage transactions by Jaypee Infratech Ltd. (JIL) to secure loans of its holding company Jaiprakash Associates Ltd. (JAL) satisfied the descriptive requirements of Section 43(2) IBC and were executed within the two-year look-back period for related parties (s.43(4)(a)); the transfers were not in the ordinary course of JIL’s business and thus were avoidable under Section 44. The Court further held that lenders who merely held third-party mortgages from JIL to secure JAL’s debts were secured creditors but were not 'financial creditors' of JIL under Sections 5(7) and 5(8) because JIL did not owe them a financial debt (no disbursal to JIL against time value...

Court Disposition

Supreme Court allowed the appeals to the extent of reversing NCLAT and restoring NCLT findings: holding the specified mortgage transactions preferential and avoidable and holding that the lenders of JAL are not financial creditors of JIL

Orders

  • Impugned NCLAT order dated 01.08.2019 reversed and set aside
  • NCLT order dated 16.05.2018 (declaring the six specified mortgage transactions preferential and directing avoidance in terms of s.44 IBC) upheld in so far as transactions concerning Property Nos.1-6