NEW DELHI: The National Company Law Appellate Tribunal (NCLAT) has delivered a decisive blow to an appeal against the insolvency initiation of Jaypee Cement Corporation Ltd (JCCL), thereby upholding an earlier order from the National Company Law Tribunal (NCLT). A two-member NCLAT bench rejected the petition filed by Alok Gaur, reinforcing the finding that JCCL is indeed in default of its financial obligations.
The case traces back to JCCL’s failure to make timely payments on loans extended by a consortium of lenders, prominently featuring the State Bank of India (SBI), which had provided credit facilities to the cement firm between 2012 and 2015. Consequently, SBI lodged a petition with the NCLT’s Allahabad bench, which subsequently greenlit the insolvency proceedings on July 22.
Alok Gaur, the appellant, had presented an argument centered on a Master Restructuring Agreement (MRA) dated October 31, 2017. This agreement, signed between JCCL’s parent entity, Jaiprakash Associates Ltd (JAL), and its lenders, included JAL’s commitment to settle JCCL’s outstanding debts. The MRA outlined a multi-faceted Debt Realignment Plan for both JAL and JCCL, organized into three distinct categories.
Under Bucket 1, a substantial segment of JAL’s cement operations, along with Rs 11,689 crore of debt, was divested to UltraTech Cements. The remaining debt burden of JAL and JCCL was then segregated. Bucket 2A encompassed a sustainable debt of Rs 5,072 crore, which was intended to be serviced through cash flows from JAL’s continuing business. This arrangement also stipulated the transfer of JCCL’s Rs 778.10 crore exposure related to its Shahabad Cement Plant to JAL. However, Bucket 2B represented an unsustainable debt of Rs 13,590 crore, proposed for a transfer to a dedicated Real Estate Special Purpose Vehicle (SPV) over a 20-year period, secured by 1,039 acres of land valued at Rs 14,156 crore. Critically, the debt classified under Bucket 2B remained unsettled.
Despite these restructuring efforts, the NCLAT categorically dismissed Gaur’s arguments. The tribunal underscored that JCCL’s inherent debt to its lenders “shall not be extinguished” merely because JAL had pledged to clear these liabilities. The NCLAT clarified that such an undertaking does not preclude lenders from initiating insolvency proceedings against JCCL under Section 7 of the Insolvency and Bankruptcy Code (IBC) if the restructuring proposal fails to materialize.
In its comprehensive 26-page verdict, the NCLAT further highlighted that JCCL itself was not a direct signatory to the MRA, and crucially, the agreement was not fully executed. The tribunal concluded that the NCLT, serving as the Adjudicating Authority, was justified in its finding of debt and default on JCCL’s part, thereby validating the admission of the Section 7 application.
The NCLAT bench, presided over by Chairperson Justice Ashok Bhushan and Member Barun Mitra, also clarified that ongoing CIRP (Corporate Insolvency Resolution Process) against JAL does not preclude similar actions against JCCL. They noted that JCCL had independently provided securities for various credit facilities from SBI between 2012 and 2015, and financial creditors maintain the right to enforce these securities to recover their dues.
Furthermore, the NCLAT pointed out that financial creditors never reflected JCCL’s debt as being transferred to JAL in their financial statements. The tribunal emphasized that any internal accounting treatment by JAL and JCCL regarding the discharge of this debt is not binding on the financial creditors.
“We, thus, do not find any error in the order of the Adjudicating Authority admitting Section 7 Application,” the NCLAT affirmed, effectively dismissing Gaur’s appeal and solidifying the insolvency proceedings against Jaypee Cement Corporation Ltd.
