NCLT Allahabad Bench Initiates Insolvency Proceedings Against Jaiprakash Associates Limited, Accepts ICICI Bank's Petition

The Allahabad bench of the National Company Law Tribunal (NCLT) has directed the initiation of insolvency proceedings against Jaiprakash Associates Limited (JAL), a prominent firm within the Jaypee Group. This decision follows insolvency petitions filed by ICICI Bank in 2018 and State Bank of India (SBI) in 2022, aiming to recover debts amounting to several thousand crores.

Brief Background

Jaiprakash Associates Limited is primarily engaged in construction, cement, and hospitality businesses. Despite efforts to mitigate its debt by selling numerous cement plants in recent years, the company still faces significant financial challenges. The ICICI Bank's claim stands at over Rs 3,000 crore, including interest. Similarly, SBI has filed a claim of Rs 6,893.15 crore in total default.

In 2017, JAL was listed among the 26 major loan defaulters by the Reserve Bank of India, making it a prime candidate for bankruptcy proceedings. Other entities within the Jaypee Group, such as Jaypee Cement Corporation and Jaypee Infratech, are also undergoing insolvency proceedings.

NCLT's Decision

The NCLT bench of Praveen Gupta and Ashish Verma has appointed an Interim Resolution Professional (IRP) to oversee the insolvency process. As of April 30, 2024, JAL reported a default on repayments amounting to Rs 1,751 crore in principal and Rs 2,865 crore in interest, contributing to a total borrowing of Rs 29,805 crore, due by 2037. Of this amount, Rs 4,616 crore is overdue.

The insolvency petitions highlighted the extensive borrowing by JAL under various loan facilities. ICICI Bank sanctioned loans under six different facilities, ranging from Rs 150 crore to Rs 1,300 crore, between 2009 and 2015. These loans were provided for various purposes, including working capital and term loans, under a series of agreements. Additionally, a loan granted to Jaypee Sports International Limited (JSIL), later amalgamated into JAL, also forms part of the debt.

The NCLT held that the restructuring proposals and the financial health of JAL were insufficient reasons to delay insolvency proceedings. The NCLT referred to the decision of the Supreme Court in Vidarbha Industries Power Limited v. Axis Bank Limited where it was held that the presence of receivables does not negate the need for insolvency proceedings if a default has occurred.

The NCLT referred to another Supreme Court decision in Swiss Ribbons Pvt. Ltd. vs. Union of India where SC held that the IBC aims to reorganize and resolve the insolvency of corporate debtors efficiently to maximize the value of their assets. The Code is designed to revive and sustain corporate debtors, rather than merely serving as a recovery tool for creditors.

Therefore, the NCLT held that the insolvency resolution process (CIRP) would be in the best interest of JAL which would enable the company to repay its debts and revive its business operations. It dismissed the arguments regarding feasibility, viability, and financial health, emphasizing that these considerations do not justify refusing the admission of the insolvency application once a default is confirmed.

With the initiation of CIRP, the NCLT has imposed a moratorium as per Section 14 of the IBC. This moratorium includes prohibitions on:

1. The institution or continuation of suits or proceedings against JAL.
2. The transfer, encumbrance, or disposal of any assets by JAL.
3. Any action to enforce security interests created by JAL.
4. Recovery of any property occupied by JAL.
5. Termination or suspension of essential goods or services to JAL.

The NCLT directed ICICI Bank to deposit Rs 3 lakh with the IRP to cover initial expenses, subject to adjustment by the Committee of Creditors

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