TaxTMI 
TaxTMI 
2019 (8) TMI 140
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....olvency) 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. Jayasree Saha, Advocates. For The Responde....
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.... 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 mortgaged to it, as under: Sl.N0. Name of the Bank Date of ....
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.... 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 unchanged since 2015. 29 December 2016 Term loans aggregating to 21081.50 crore (comprising of ICICI facilities aggregating to Rs. 5600 crores) and redeemable non-convertible debentur....
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....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 mortgage for the 12 billion facility under the Corporate Rupee Loan Facility 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 A....
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....nd 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 charge on Immovable Property admeasuring 90 acres at Village Chauga Tehsil Elmadpur, ict Agra, Uttar Pradesh @223-253 of Vol. II Company Appeal (AT) (Insolvency) No. 301 of 2018 (Axis Bank Ltd.) 14. The case of the Appellant- 'Axis Bank Ltd.' is that the security, being ....
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....ng 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 property comprising 166.9615 acres land at Tappal, District Aligarh, Uttar Pradesh ("Aligarh 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 Company Appeal (AT) (Insolvency) No. 349 of 2018 (Standard Chartered Bank) 18. According to the Appellant- 'Standard Chartered Bank', on 27th September, 2012, the Appellant e....
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....cordingly, 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 Facility 4 inter-se on pari passu charge basis. On 4th November, 2015, Security Trustee prepared a memorandum of entry recording the deposit of title documents in relation to the Subject Property. 24. On 24th May, 2016, the Appellant received a request from 'Jaiprakash Associates Limited' by way of its email dated 12th December, 2015 stating that the title deeds deposited with the Security Trustee for creating equitable mortgage contains certain....
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....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 Debtor' created first pari passu charge on its property admeasuring 167.229 acres land at Agra, Uttar/Pradesh in favour of 'Axis Trustee Services Limited' (security trustee), acting for and on behalf of a consortium of lenders of 'Jaiprakash Associates Limited', including the Appellant. RTL-1, RTL-2, RTL-3 and RTL-4 of the Appellant were secured by creation of charge on the said property. 32. The Corporate Debtor created first pari passu charge on its property....
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....ing 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 Appellant Bank. a. First pari passu charge over immovable property comprising 167.229 acres land at Agra, Uttar Pradesh ("Property 1") created by registered mortgage dated 15th September 2015 executed by the 'Corporate Debtor' in favour of 'Axis Trustee Services Limited' ("ATSL"), acting as security trustee for the benefit of the Appellant and other lenders of 'Jaiprakash Associates Ltd.'; and b. First pari passu charge over immovable property comprising 166.9615 acres land at Tappal, district Aligarh, Uttar Pra....
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....ting 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 India' has also provided details of asset mortgaged and other relevant details, as under: Sl. No. Name of the bank Asset mortgaged Date of mortgage by Corporate Debtor 1. Central Bank of India Immovable property comprising 167.229 acres land at Agra, Uttar Pradesh ("Agra Property") Originally created vide indenture of mortgage dated 15th September 2015 Momentarily lifted and recreated on 29th December, 2016 2. Central Bank of India Immovable property comprising 166.9615 acres land at Tappal, District Aligarh, Uttar Pradesh ("Aligarh Pro....
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....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 'Jaiprakash Associates Limited', for the first time in favour of 'Axis Bank Limited' and 'State Bank of India' (both lenders of 'Jaiprakash Associates Limited') on 24th February 2015. Later, upon accession of other lenders and enhancement of secured limits further mortgage was effectuated on 15th September, 2015 and again on 29th December 2016. The mortgages in favour of the Appellant were created vide registered mortgage deeds dated 15th September, 2015 and 29th December, 2016. Company Appeal (AT) (Insolvency) No. 511 of 2018 (Jammu & Kashmir Bank) 45. According to the Appellant- 'Jammu & Kashmir Bank', it alongwith other lenders of Consortium Bank 1ed by 'ICICI ....
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.... 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 acres at Village Tappal, Kansera & Jeenagarh, Aligarh, Uttar Pradesh ("Property 2") in favour of a consortium of lenders to 'Jaiprakash Associates Limited' which includes the Appellant ("JAL Consortium") of 'Jaiprakash Associates Limited' Lenders to secure term loans aggregating to Rs. 20509 Crore sanctioned to 'Jaiprakash Associates Limited' by members of 'Jaiprakash Associates Limited' Consortium and redeemable non-convertible debentures issued for amounts not exceeding Rs. 3600 Crore to debenture holders. RTL-1, RTL-2, RTL-3 and RTL-4 sanctioned by the Appellant were inter-alia secured by the aforesaid mortgages. Thereafter, on 29th December, 2016, IOM 1 and IOM 2 w....
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.... 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 'Jaiprakash Associates Ltd.' which is the related party. 56. According to the 'Resolution Professional', the mortgaged 858 acres of land valued at Rs. 5,900 Crores approximately, which the directors of the 'Corporate Debtor', mortgaged to secure the debt of 'Jaiprakash Associates Ltd.', when the 'Corporate Debtor' itself was in dire need of funds and could have sold/ mortgaged unencumbered land to raise funds to complete the construction of flats in timely manner to fulfil its own obligation to its creditors and prevent value deterioration or erosion or insolvency. 57. Further, the case of the 'Resolution Professional' is that 'Jaiprakash Associates Ltd.' being the holding company owing 995,000,000 numbers of sha....
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.... 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 section 53. (3) For the purposes of sub-section (2), a preference shall not include the following transfers- (a) transfer made in the ordinary course of the business or financial affairs of the corporate debtor or the transferee; (b) any transfer creating a security interest in property acquired by the corporate debtor to the extent that - (i) such security interest secures new value and was given at the time of or after the signing of a security agreement that contains a description of such property as security interest, and was used by corporate debtor to acquire such property; and (ii) such transfer was registered with an information utility on or before thirty days after the corporate debtor receives possession of such prop....
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....he 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 used in Section 43. Therefore, the mortgage(s) created in their favour cannot be annulled on the ground of preferential transaction in terms of Section 43 (2) (a) of the 'I&B Code'. 65. Clause (b) of sub-section (2) of Section 43 relates to transfer under clause (a) of sub-section (2) of Section 43, which in effect puts 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 Section 53. As clause (a) of sub-section (2) of Section 43 is not attracted, the question of applicability of clause (b) of sub-section (2) of Section 43 does not arise. 66. Apart from the aforesaid position of law in respect to mortgage, in question, as per sub-section (3) of Section 43, for the purposes of sub-section (2), "a preferenc....
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....arged 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; (b) require a person, who received a benefit from the preferential transaction in good faith and for value to pay a sum to the liquidator or the resolution professional. Explanation I.─ For the purpose of this section, it is clarified that where a person, who has acquired an interest in property from another person other than the corporate debtor, or who has received a benefit from the preference or such another person to whom the corporate debtor gave the preference, ─ (i) had sufficient information of the initiation or commencement of insolvency resolution process of the corporate debtor; (ii) is a related party, it shall be presumed that the interest was acquired, or the benefit was received otherwise than in good faith unless the contrary is shown. Explanation II.─ A person shall be deemed to have sufficient information or opportunity to avail ....
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.... 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 is not payable by the 'Corporate Debtor'. Therefore, clause (a) of sub-section (2) of Section 45 is not attracted. For the same very reason, clause (b) of sub-section (2) of Section 43 or Section 45 cannot be made applicable with regard to transaction in question which are not related to any payment due from the 'Corporate Debtor'. 73. As Section 44 is not attracted, it is not necessary to notice Section 46 which is not attracted and, therefore, the Adjudicating Authority has no power to pass any order under Section 48 of the 'I&B Code'. 74. Section 66 relates to 'fraudulent trading' or 'wrongful trading', if found during the 'Resolution Process' or 'Liquidation Process' in regard to the business of the 'Corporate Debtor', which reads as under: "66. Fraudulent trading or wrongful trading.─(1) If during the corporate insolvency resolution process or a liquidation process, it is found that any business of the corporate debtor has been ....
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....ellants- '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 question, were made to defraud the creditors in terms of Section 49 so allegation has been made that such transactions amount to 'extortionate credit' as defined under Section 50. Therefore, the Adjudicating Authority in absence of any such finding is not empowered to pass order under Section 51. Further, as we have held that the transactions were made in the ordinary course of business in absence of any contrary evidence to show that they were made to defraud the creditors of the 'Corporate Debtor' or for any fraudulent purpose, on mere allegation made by the 'Resolution Professional', it was not open to the Adjudicating Authority to hold that mortgage deeds, in question, were made by way of transactions which come within the meaning of 'fraudulent trading' or 'wrongful trading' under Section 66. 77. It is not in dispute that all the Appellants had granted loan to 'Jaiprakash Associates Limited'. Majority of Banks (Appellants) functioned as joint venture. For the said reason, the 'Co....