The National Company Law Tribunal (NCLT) yesterday came down heavy on the Jaypee Group, accusing Jaiprakash Associates Ltd. (JAL) and its beleaguered subsidiary Jaypee Infratech (JIL) of "fraudulent" transactions. According to media reports, in a 77-page verdict, the Ahmedabad bench of the Tribunal said that JAL had transferred ownership of 858 acres of unencumbered land belonging to JIL to its own lenders in order to avail further loans. Significantly, these transactions took place around the time JIL's accounts were declared a non-performing asset (NPA) and continued even after the formation of the joint lenders' forum without seeking any prior approval from it.
"The impugned transactions are declared fraudulent, preferential and undervalued," said the bench. According to The Economic Times, it also ordered the immediate release of the collateral that JAL had used to secure loans of more than Rs 21,000 crore from a clutch of lenders.
The daily added that the transactions that now stand to be reversed as per the NCLT order include mortgage deeds of 335 acres in favour of Axis Trustee Services, 310 acres to ICICI Bank, 25 acres to Standard Chartered Bank and 90 acres in favour of State Bank of India.
"Instead of capitalising on this unencumbered land which could have been used to raise money and complete construction of projects, JAL decided to use this to secure its own loans. This is virtually asset stripping," a source involved in the matter told the daily, adding that this NCLT order has huge implications since so far banks have never concerned themselves about where the collateral is coming, whether it is owned by the parent or its subsidiaries, and the financial situation of the latter.
To remind you, the matter came to light when Jaypee Infratech's insolvency resolution professional Anuj Jain filed a petition before the NCLT. Pegging the value of the transferred land at Rs 5,000-6,000 crore, Jain had argued that the land could have been sold or mortgaged to raise funds and complete JIL's pending construction of flats and prevent value erosion. JIL was supposed to around 30,000 flats in Jaypee's much-hyped Noida township Wish Town launched in 2007 but it has only delivered 9,500 apartments so far.
The NCLT order is a double whammy for JAL since on Wednesday the Supreme Court directed it to deposit Rs 1,000 crore with its registry by June 15. This amount will be used to bankroll compensation to distressed homebuyers who had invested in Jaypee properties. The bench headed by Chief Justice Dipak Misra had added that if the amount is not submitted by the deadline, the liquidation proceedings against JIL will proceed as scheduled. The apex court's next hearing on the matter is reportedly scheduled on July 4.
With PTI inputs