NCLT rejects JAL's claim of liquidity crunch due to delay in govt approvals, litigations
The insolvency tribunal also rejected the submissions of JAL pleading not to initiate insolvency on grounds such as the feasibility of initiating CIRP, overall financial health and viability of the company and receivables which may go to meet the outstanding debts
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New Delhi: The NCLT, which on Monday ordered initiation of insolvency proceedings against Jaiprakash Associates Ltd (JAL), rejected the company's contention that it faced a liquidity crunch and defaulted on debt repayments mainly due to delays in government approvals and prolonged litigation concerning land acquisition for Yamuna Expressway and change in government policies. It has been held by the Supreme Court that if there is a debt and default in repayment of debt and application filed by a financial creditor under section 7 of Insolvency & Bankruptcy Code, then the insolvency plea is to be admitted, the NCLT's Allahabad bench said.
The insolvency tribunal also rejected the submissions of JAL pleading not to initiate insolvency on grounds such as the feasibility of initiating CIRP, overall financial health and viability of the company and receivables which may go to meet the outstanding debts. "The reason cited by the counsel of JAL is liquidity crunch due to delays in government sanctions /approvals, prolonged litigation with respect to land acquisition for Yamuna Expressway, economic slowdown, change in government policies, etc. which is always present when a business is carried out and that cannot have any bearing on initiation of proceeding under Section 7 of IBC, when there is a debt and default in repayment of such debt as provided under Section 7 of IBC," said NCLT in its 120-page order.
JAL has submitted that it is an "asset rich company", even after sale of cement plants to resolve the loans under Bucket 1 and Bucket 2A, assets like Real Estate Business – Noida and Greater Noida (about 11,000 flats) will remain with the company Besides, it had other assets such as two 5 Five Star Hotels/Resort in Delhi, and one in Agra, two Golf Courses in Noida and Greater Noida, a Formula One Sports Complex and Cricket Stadium with Real Estate. JAL had also argued that sale of its cement business will not only improve liquidity but will also improve the financial performance of the company.
The company has a total receivables of Rs 7,242 crore, which include Rs 5,586 crore from sale of the cement business to Dalmias. Rejecting its contention, the Allahabad bench of NCLT said, "If the Corporate Debtor (JAL) feels about its viability, feasibility and financial health , it would be more beneficial for it after its resolution under IBC is done expeditiously before its assets get depleted." "Therefore, we are of the opinion that its fast resolution would be in its best of interest to put it back on feet to enable it to pay its debt fast and revive its business. Therefore , we are not inclined to accept the contention of Feasibility , Viability and Financial Health being good reasons to apply our discretion for not admitting the application under section 7(5) after we have determined that default has occurred," it said.
The NCLT order also recorded ICICI Bank submission, which said that sale proceeds shown on account of sale of the cement plant by JAL to pair its debts Bucket 2A and such sale proceed will not help in settling the debt of Bucket 2B. Under Bucket 2A, JAL had an overall debt of Rs 6,367 crore, which included Rs 5,072 crore owed to the lenders. The Master Restructuring Agreement (MRA) for JAL's sustainable debt was signed by all 32 relevant lenders before December 13, 2017. Under Bucket 2B, transfer of assets and liabilities pertaining to a debt of Rs 11,833.55 crore was to be completed through a Scheme of Arrangement. This involved transferring the remaining debt and land of JAL to a 100 per cent real estate Special Purpose Vehicle (SPV), namely Jaypee Infrastructure Development Ltd.
However, ICICI Bank had submitted that receivable shown on account of arbitration is still not finally determined and it is not certain as to when it will be received. Moreover, 75 per cent of the amounts which are claimed to be received as per the scheme of Niti Aayog, is also subject to giving bank guarantee. "Applicant Bank (ICICI) has stated that as per the decision taken by it taking into account the commercial consideration , giving of bank guarantee for an amount which is under dispute and might be required to be refunded later, has not been considered to be prudent and also the amount of Rs 750 crore which the Corporate Debtor may get, will not be sufficient to pay for its entire amount of debt that is about Rs 11,000 crore lying in Bucket 2B," the NCLT order recorded.
ICICI had moved insolvency plea before NCLT in September 2018, claiming a default of Rs 1,269 crore between April 2016 and May 2016. The NCLT has appointed Bhuvan Madan as Interim Resolution Professional of JAL after suspending the board of the company. Moreover, the tribunal has also dismissed the merger of JAL with Jaypee Infrastructure Development Ltd. "This matter has come up for consideration and after examining the factual matrix, we are of the opinion that since the asset in question is under dispute, the viability of the scheme has also been prejudiced. Therefore, we are not inclined to approve this scheme," it said. Last month, the JAL had informed that the company had on April 30, defaulted on repayments of a principal amount of Rs 1,751 crore and interest of Rs 2,865 crore. "Total borrowing (including interest) of the company is Rs 29,805 crore, repayable by 2037, against which only Rs 4,616 crore is overdue as of April 30, 2024," JAL had said.
