TaxTMI 
TaxTMI 
2019 (8) TMI 140
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....nbsp; WITH Company Appeal (AT) (Insolvency) No. 353 of 2018 WITH Company Appeal (AT) (Insolvency) No. 370 of 2018 WITH Company Appeal (AT) (Insolvency) No. 374 of 2018 WITH Company Appeal (AT) (Insolvency) No. 376 of 2018 WITH Company Appeal (AT) (Insolvency) No. 411 of 2018 WITH Company Appeal (AT) (Insolvency) No. 424 of 2018 WITH Company Appeal (AT) (Insolvency) No. 436 of 2018 WITH Company Appeal (AT) (Insolvency) No. 458 of 2018 WITH Company Appeal (AT) (Insolvency) No. 492 of 2018 WITH Company Appeal (AT) (Insolvency) No. 511 of 2018 And WITH Company Appeal (AT) (Insolvency) No. 524 of 2018 For The Appellant : Mr. Amit Sibal, Senior Advocate with Mr. Parag Maini and Mr. Abhimanyu Chopra, Advocates, Mr. Ramji Srinivasan, Senior Advocate assisted by Ms. Misha, Mr. Shantanu Chaturvedi and Ms. Charu, Advocates Mr. Sanjay Kapur, Mr. Bharath Gangadhar and Ms. Megha Karnwal, Advocates, Mr. Alok Dhir, Ms. Varsha Banerjee and Mr. Kunal Godhwani, Advocates, Mr. Krishnendu Datta, Ms. Anindita Roy Chowdhary, Mr. Abhishek Singh and Mr. Abhijnan Jha, Advocates, Mr. Divyanshu Goyal and Ms. Swati Jain, Advocates, Mr. Rajiv S. Roy, Mr. Avrojyoti Chaterjee, Mr. Abhijit S. Roy and Ms. Jayasr....
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.... within the meaning of Section 5(8) of the 'I&B Code' and the Adjudicating Authority misconstrued the definition of 'financial debt'. The Adjudicating Authority failed to notice that the 'Corporate Debtor' stood in the position of a 'guarantor' with respect to the security provided by it and also failed to notice the meaning of 'financial debt' particularly clauses (a) to (i) of Section 5(8) of the 'I&B Code', which provides extended meaning to 'financial debt'. 7. Therefore, according to them, the transactions in question cannot be termed to be 'preferential transactions' within the meaning of Section 43 of the 'I&B Code'. 8. Further, according to them, the transactions, in question, nor come within the meaning of 'undervalued transactions' for taking action under Section 45, nor can be termed to be a 'fraudulent trading or wrongful trading' within the meaning of Section 66 of the 'I&B Code'. 9. To decide the aforesaid issue, it is relevant to notice the individual case of the Appellants and transactions, as detailed below: Company Appeal (AT) (Insolvency) No. 243 of 2018 10. Learned counsel for the Appellant- 'Axis Bank Limited' provided the table of assets mortgag....
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....NK'S NAME DATE OF FIRST MORTGAG E DEED FACILITIES SECURED BY FIRST MORTGAGE DATE OF RECONVEYAN CE/RELEASE AND RATIONALE DATE OF SECOND MORTGAGE DEED FACILITIES SECURED BY SECOND MORTGAGE CONSORTIUM MORTGAGES 167.229 acres land at Agra, Uttar Pradesh 26 Lenders of Jaiprakash Associates Limited ("JAL") including ICICI Bank 15 September 2015 Term loans aggregating to Rs. 20,509 Crores (comprising of ICICI facilities aggregating to Rs. 5600 crores) and non-convertible debentures for maximum of Rs. 3600 Crore sanctioned by a consortium of the lenders of JAL ("Original Lenders") On 29 December 2016, a release deed was executed in relation to momentary release of mortgage created vide deed dated 15 September 2015, Simultaneousl y, a Mortgage Deed dated December 29, 2016 creating mortgage over the same properties was executed in favour of JAL Lenders (Including ICICI Bank). Rationale: the aforesaid momentary release and recreation of mortgage have been done only to record entry of certain additional members into theconsortium (as mentioned in 'Facilities Secured by Second Mortgage' column). It may be noted that ICICI exposure has remained unchan....
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.... at Page 1691 of Volume VII and the year 2016-17 at Note 34 at page 2085 of Volume IX of the Appeal. While in 2017, the 15 billion facility was repaid, the obligation on JIL to create security for the 12 billion facility (of 2015) still continued. Thus from the above, it is clear that, w.r.t. the 12 billion facility, the property was always agreed to be mortgaged as far back as 2015. Formally, the said mortgage was eventually done by JIL on 7 March 2017. 12 May 2014 Rupee Term Loan of Rs. 15 Billion under Corporate Rupee Loan Facility Agreement and General Conditions dated 7 May 2014 and overdraft facility of Rs. 1.75 billion. (REPAID IN 2017) On 7 March 2017, a release deed was executed for the release of property in relation to the 15 billion facility (of 2014) as the same got repaid in 2017. However, simultaneous execution of mortgage deed dated 7 March 2017 in relation to the same properties was done for creation of mortgage in favour of ICICI Bank for the 12 billion facility under the Corporate Rupee Loan Facility Agreement dated 25 May 2015 which was pending since 2015. 7 March 2017 Note: Though the mortgage deed was executed in 2017, the earmarking of this mortga....
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.... Agreement dated 25 May 2015 has been done by JIL since 2015 as is evident from the fact that the same has been recorded in the JIL's Annual Reports for the Financial year 2015-16 at Note 29 at page 1691 of Volume VII and the year 2016-17 at Note 34 at page 2085 of Volume IX of the Appeal. Rupee Term Loan of Rs. 12 billion (under the CAP) under the Corporate Rupee Loan Facility Agreement dated 25 May 2015. Company Appeal (AT) (Insolvency) No. 249 of 2018 (State Bank of India) 13. Learned counsel for the Appellant- 'State Bank of India' provided a chart relating to mortgaged properties, as follows: Name of the Bank Date of Mortgage Details of assets forming part of the mortgage State Bank of India Initially on 24.02.2015 Reconfirmed on 15.09.2015 On 29.12.2016 with the entry of additional lenders into consortium of JAL lenders, charge over these 2 properties was remortgaged to cover other lenders as well. Immovable property comprising 167.229 acres land at Agra, Uttar Pradesh @140-180 Immovable property comprising 166.9615 acres land at Tappal, District Aligarh, Uttar Pradesh @181-222 04.03.2016 First ....
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....tgaging its properties (as third party security) (i) measuring 167.229 acres situated at Village Chaugan and Chhalesar, Tehsil Etmadpur District Agra, Uttar Pradesh ("Property 1") and (ii) Chart showing Name of the Bank, Date of Mortgage, Asset Mortgaged, Date of admission of Application under Insolvency and Bankruptcy Code, 2016, Date of filing of Application Under Section 43 of Insolvency and Bankruptcy Code, 2016. Company Appeal (AT) (Insolvency) No. 348 of 2018 (Central Bank of India) 17. Learned counsel for the Appellant- 'Central Bank of India' provided a chart relating to 'mortgage of properties in question', as under: Sl. No. Name of the Bank Asset mortgaged Date of mortgage by Corporate Debtor Date of initiation of CIRP Date of filing of claim/ form C Central Bank of India Immovable property comprising 167.229 acres land at Agra, Uttar Pradesh ("Agra Property") Originally created vide indenture of mortgage dated 15 September 2015 Momentarily lifted and recreated on 29 December 2016 09.08.2017 18.08.2017 Central Bank of India Immovable ....
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....ociates Limited' pursuant to the corrective action plan of the joint lenders' forum of 'Jaiprakash Associates Limited' constituted under the guidelines framed by 'Reserve Bank of India' ("RBI") which mandated all lenders of 'Jaiprakash Associates Limited' to sanction new term loans as per their respective share for the purpose of meeting the liquidity gap required to meet immediate cash flow requirements of 'Jaiprakash Associates Limited'. Accordingly, one of the conditions for the sanction of Facility 3 & 4 was that the mortgage created over the Subject Property for Facility 1 and Facility 2 shall also extend to secure Facility 3 & 4. Therefore, in order to achieve the said purpose, the 'Corporate Debtor' executed 'Security Trustee Agreement' in favour of the Security Trustee (acting for and on behalf of the Appellant). 23. On 4th November, 2015, equitable mortgage was created vide the Declaration ("Declaration") executed by the authorised representative of the 'Corporate Debtor' evidencing deposit of title deeds inter alia pertaining to Subject Property in favour of Security Trustee (acting for and on behalf of the Appellant) to secure Facility 1, Facility 2, Facility 3 and Fa....
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....and 'Jaiprakash Associates Limited' whereby the Appellant sanctioned a Rupee Term Loan of Rs. 12.0 billion ("RTL-4") to 'Jaiprakash Associates Limited' on 30th September, 2011. 28. On 13th December, 2013, the Corporate Rupee Loan Facility Agreement and General Conditions executed between the Appellant and 'Jaiprakash Associates Limited' whereby the Appellant granted Rupee Term Loan of Rs. 15.0 billion ("RTL-5") to 'Jaiprakash Associates Limited'. 29. On 10th March, 2014, the 'Corporate Debtor' executed a deed of mortgage for mortgaging its property admeasuring 100 acres at Tappal, District Aligarh, Uttar Pradesh for securing RTL-5. 30. Pursuant to the Corporate Rupee Loan Facility Agreement and General Conditions, the Appellant, on 7th May, 2014, sanctioned a Rupee Term Loan of Rs. 15 Billion ("RTL-6") and overdraft facility of Rs. 1.75 Billion to 'Jaiprakash Associates Limited'. The Corporate Rupee Loan Facility Agreement executed between the Appellant and 'Jaiprakash Associates Limited' whereby the Appellant further advanced a Rupee term loan of Rs. 12.0 billion ("RTL-7") to 'Jaiprakash Associates Limited' on 25th May, 2015. 31. On 29th December, 2016, the 'Corporate ....
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....pany Appeal (AT) (Insolvency) No. 374 of 2018 (The Karur Vysya Bank (P) Ltd.) 36. The case of the Appellant is that 'Karur Vysya Bank Ltd.' [Scheduled Bank is a member of consortium of lenders to the 'Jaiprakash Associates Ltd.' as the Appellant Bank granted the following credit facilities to 'Jaiprakash Associates Ltd.': (i) (GOOTERM120490001) Rupee Term loan of Rs. 75.00 Crores (ii) (GOOTERM150890002) Rupee Term loan of Rs. 50.00 Crores On the execution of following loan documents; a) Master Security Trustee Agreement ("MSTA") dated 24th September, 2011; b) Master Inter Creditor Agreement ("MICA") dated 24th September, 2011; c) Deed of Accession dated 24th February, 2012 to "MSTA" in relation to 'Jaiprakash Associates Ltd.' Facilities; d) Deed of Adherence issued on 24th February 2012 to "MICA" in relation to 'Jaiprakash Associates Ltd.' Facilities; as also the other Consortium bankers have granted various credit facilities to. 37. The Corporate Debtor, 'M/s Jaypee Infratech Limited' has mortgaged its following immovable properties, to secure the Term loan facilities granted to 'Jaiprakash Associates Ltd.' by the Appella....
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....ders which constitute a Consortium of Lenders (hereinafter "Consortium") comprising of the Appellant the Corporate Debtor, i.e. JIL, as a third party security provider to secure the facilities provided to JAL created mortgage of immoveable property as stated herein below: a. First pari passu charge over immovable property comprising 167.229 acres land at Agra, Uttar Pradesh ("Property 1") created by registered mortgage vide an Indenture of Mortgage dated 15.09.2015 executed at Noida, Uttar Pradesh in favour of Axis Trustee Services Limited ("ATSL"), acting as security trustee for the benefit of the Appellant and other pari passu lenders of JAL; and b. First pari passu charge over immovable property comprising 166.9615 6.10.2015 A copy of the Certificate of Registration of Charge is Annexed herewith and marked as ANNEXURE-A/1. As on 09.08.2017, Rs. 189,91,42,048/- (which comprises of the matured/unmatured principal of the term loans facilities, interest and default interest thereon at the contractual rates) is outstanding under the facilities provided to JAL which are secured by the immoveable properties of Jaypee Infratech Ltd. (JIL) 41. The Appellant- 'Central Bank of Ind....
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....d Axis Trustee Services Limited (ATSL) with respect to Leasehold Land of 166.9615 Acres situated at Villages Tappal, Kansera and Jahangarh, ALIGARH. 3. ASSET(S) MORTGAGED i. Area: 167.229 Acres (Villages Chhalesar and Chaugan, AGRA) Area: 166.9615 Acres (Villages Tappal, Kansera and Jahangarh, ALIGARH) 4. DATE OF ADMISSION OF APPLICATION UNDER I&B CODE. 09.08.2017 (Admission of the Company petition No. IB/77/ALD/2017 along with C.A. No. 26/2018) initiated by the IRP. 5. DATE OF FILING APPLICATION UNDER SECTION-43 AND OTHER PROVISIONS OF LAW 06.02.2018 (C.A. No. 26/2018 in Company Petition No. IB/77/ALD/2017. Company Appeal (AT) (Insolvency) No. 492 of 2018 (Allahabad Bank) 44. The case of the Appellant- 'Allahabad Bank' is that two different mortgage deeds each dated 24th February 2015, were executed by the 'Corporate Debtor' mortgaging its properties (as third party security) (i) measuring 167.229 acres situated at Village Chaugan and Chhalesar, Agra, Uttar Pradesh ("Property 1") and (ii) measuring 166.9615 acres situated at Village Tappal, Kansera & Jeenagarh, Aligarh, Uttar Pradesh ("Property 2") to secure the financial assistance of 'Jaipraka....
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....d the same have been merely extended (momentarily released and immediately re-mortgaged) from time to time to secure additional loans, including the loans of the Appellant (i.e. an amount of Rs. 150 Crores lent/advanced by the appellant to 'Jaiprakash Associates Ltd.'). Company Appeal (AT) (Insolvency) No. 524 of 2018 (The South Indian Bank Ltd.) 47. The case of the Appellant- 'South Indian Bank Ltd.' is that on 18th May, 2013, 'Deed of Accession' and 'Deed of Adherence' was executed by the Appellant for an amount of Rs. 100 Crores (Rupee One Hundred Crores Only) in favour of the parties to the Master Security Trustee Agreement dated 24th September 2011 by and among 'Jaiprakash Associates Limited', and other parties as mentioned therein. 48. 'Credit Facility Agreement' executed between 'Jaiprakash Associates Limited' and the Appellant for an amount of Rs. 120 Crores (One Hundred and Twenty Crores Only) on 24th March, 2015. 49. The 'Corporate Debtor' on 15th September, 2015, vide two different mortgage deeds of the same date ("IOM 1 and IOM 2"), mortgaged its properties bearing 167.229 acres at Village Chagan and Chhalesar, Agra, Uttar Pradesh ("Property 1") and 166.9615....
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....PA J& K Bank 31.08.2015 LIC 30.09.2015 Corporation Bank 29.02.2016 Syndicate Bank 31.03.2016 Bank of Maharashtra 31.03.2016 Union Bank 31.03.2016 54. It was also submitted that the 'Corporate Debtor' was in dire needs of funds during period and was facing severe liquidity crunch to complete the construction of projects and deliver the flats to home-buyers, as well honour the payment obligations to 'Financial Creditors' as also the 'fixed deposit' holders. 'Jaypee Infratech Limited' ('Corporate Debtor') owns various pieces of unencumbered land which was available to be liquidated or offered as security to raise finance to complete the constructions of flats and deliver possession of flats to the homebuyers/ allottees. 55. It is also submitted that in the middle of its immense financial crunch, the 'Corporate Debtor' while continuing to commit default to allottees and other 'Financial Creditors', even after being declared as NPA, the directors of 'Jaypee Infratech Limited' in utter disregard to their fiduciary duties mortgaged 585 acres of unencumbered land owned by 'Jaypee Infratech Limited' ('Corporate Debtor') to secure the debt of 'Jaipra....
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.... and facts: 60. Section 43 of the 'I&B Code' relates to 'preferential transactions and relevant time', as under: "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 made in accordance with....
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....y or a guarantor for or on account of an antecedent financial debt or operational debt or other liabilities owed by the 'Corporate Debtor'. 62. In the present case, the 'Corporate Debtor' has created interest on the property of the 'Corporate Debtor', but such interest has not been created in favour of any 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'. 63. The aforesaid interest on the property of the 'Corporate Debtor' has been created in all these cases with regard to financial debt given by the Appellants to 'Jaiprakash Associates Ltd.', which is not the 'Corporate Debtor'. 64. Thus, it is clear that the interest on the property of the 'Corporate Debtor' has not been created in favour of the Appellants- 'Financial Creditors' of an antecedent financial debt of the Appellants owed by the 'Jaypee Infratech Ltd.' ('Corporate Debtor'). Therefore, we hold that clause (a) of sub-section (2) of Section 43 is not attracted in any of the case of the Appellants Bank, thereby none of the Appellants Bank come within the meaning of 'deemed to have given a preference', as us....
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....n were released or discharged (in whole or in part) by the giving of the preference, to be under such new or revived financial debts or operational debts to that person as the Adjudicating Authority deems appropriate; (f) direct for providing security or charge on any property for the discharge of any financial debt or operational debt under the order, and such security or charge to have the same priority as a security or charge released or discharged wholly or in part by the giving of the preference; and (g) direct for providing the extent to which any person whose property is so vested in the corporate debtor, or on whom financial debts or operational debts are imposed by the order, are to be proved in the liquidation or the corporate insolvency resolution process for financial debts or operational debts which arose from, or were released or discharged wholly or in part by the giving of the preference: Provided that an order under this section shall not - (a) affect any interest in property which was acquired from a person other than the corporate debtor or any interest derived from such interest and was acquired in good faith and for value; ....
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....ebtor for a consideration the value of which is significantly less than the value of the consideration provided by the corporate debtor, and such transaction has not taken place in the ordinary course of business of the corporate debtor." 71. For holding a transaction undervalued, the 'Resolution Professional'/ 'Liquidator' is required to examine the transactions which were made during 'the relevant period' as prescribed under Section 46, if any of it is undervalued. As per sub-section (2) of Section 45, the transaction shall be considered 'undervalued' 'where the 'Corporate Debtor' makes a gift to a person or enters into a transaction with a person which involves the transfer of one or more assets by the 'Corporate Debtor' for a consideration the value of which is significantly less than the value of the consideration provided by the 'Corporate Debtor' and such transaction has not taken place in the ordinary course of business of the 'Corporate Debtor'.' 72. In these appeals, we find that the transactions as has been made i.e. mortgage(s) in favour of the Appellants as and when made against the amount payable by 'Jaiprakash Associates Limited' (borrower), the amount....
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....such director or partner, as the case may be, in relation to the corporate debtor." 75. From bare perusal of Section 66, it is clear that if during the 'Corporate Insolvency Resolution Process' or 'Liquidation Process', it is found that any business of the 'Corporate Debtor' has been carried on with intent to defraud creditors of the 'Corporate Debtor' or for any fraudulent purpose, the Adjudicating Authority is empowered to pass appropriate order under Section 67. 76. In the present case, we have noticed that the transactions in question i.e. mortgage(s) were made in favour of the 'Banks and Financial Institutions' by the 'Corporate Debtor' ('Jaypee Infratech Limited') in the ordinary course of business of the 'Corporate Debtor'. The Appellants- Banks and Financial Institutions have given loans to the holding Company namely- 'Jaiprakash Associates Limited'. The 'Corporate Debtor' being one of the group company, like a guarantor, executed mortgage deed(s) in favour of the Appellants- 'Banks and Financial Institutions'. We have seen that none of the transactions were 'preferential transaction' or 'undervalued transaction'. It has not been alleged that the transactions, in ques....