Six years of IBC - impact on Real Estate sector

Six years of IBC 2016 www.infralive.com 40 InfraLIVE January 15, 2023 These two aspects eventually came up for adjudication of the Apex Court in another batch of appeals led by Civil Appeal Nos. 8512-8527 of 2019: Anuj Jain, Interim Resolution Professional for Jaypee Infratech Ltd v. Axis Bank Limited etc. etc, which were decided on February 26, 2020. The Supreme Court held that six out of seven transactions in question were preferential within the meaning of Section 43 of the Code and the directions by NCLT for avoidance of such transactions were upheld. On the second issue, the Apex Court held that the applicant banks were not the financial creditors of the corporate debtor JIL and the respective orders passed in that regard by NCLTwere restored. IBC prohibits the preferential transactions under Section 43, undervalued transactions under section 45, transactions defrauding creditors under section 49 and fraudulent/ wrongful trading transactions under section 66 of the Corporate Debtors so as to save the interests of the creditors and ensure distribution of assets in order of priority amongst creditors prescribed by the Code. The look- back period/ twilight period for restriction of such transactions was with any person within the period of one year preceding the insol- vency commencement date or with a related party within the period of two years preceding the insolvency commencement date. Supreme Court upheld the order of NCLT on preferential transactions In i t s hi s tor i c judgement , Supreme court while upholding the order of NCLT regarding preferen- tial transaction under section 43, has directed that the Resolution Professional will have to undertake a methodical way of sifting through the entire transactions of the CD for last two years and identifying the persons, whether related party or not, behind every transaction so as to determine the preferential transactions under section 43. Similar in-depth analysis is also required for undervalued transac- tions under section 45, transac- tions defrauding creditors under section 49 and fraudulent/ wrong- ful trading transactions under sec t i on 66 of the Corporat e Debtors. It is a very onerous responsibility for the Resolution Professional under IBC. Though RP had identi- fied 7 transactions, of which 6 transactions were held to be preferential transactions, InfraLive has reported in its June 2022 edition that there were other related preferential transactions of expensive commercial plots in Sector 129, Noida whichweremade by JIL in favour of lender of JAL ie Axis Bank in March 2017, barely four and half months before the commencement of CIRP on August 9, 2017. Axis Bank have thereafter sold those plots to Max group in February 2020/ August 2022. It is hoped RP and CoC will take necessary action in this aspect, particularly when resolution plan has not yet been approved. The resolution applicant NBCC preferred an appeal against the aforesaid order of NCLT dated March 03, 2020 before the NCLAT wherein the Appellate Authority, while issuing notice to the unrepre- sented parties, made an interim order dated April 22, 2020 that the approved resolution plan may be imp l ement ed sub j ec t t o the outcome of appeal but at the same time, also provided that IRP may constitute an 'Interim Monitoring Committee' comprising of the successful resolution applicant (NBCC) and three major institu- tional financial creditors, who were themembers of CoC. As against the aforesaid order dated April 22, 2020, six associa- tions of homebuyers in the projects of the CD and a few individual homebuyers approached the Apex Court seeking permission to maintain their appeals under section 62 of the Code. The Supreme Court was informed that several appeals against the said order dated March 03, 2020 were another order so as to ensure that an attempt was made for revival of the CD by submission of revised resolution plans and asked the IRP to complete the CIRP process in 90 days. ResolutionPlan Back then, there were two companies in the fray to take over JIL – NBCC and Suraksha. There- after, resolution plans submitted by two applicants were put to vote of the CoC and the resolution plan submitted byNBCC (India) Ltdwas approved by the CoC on December 17, 2019, by a vast majority of over 97 per cent of voting share of the financial creditors. Thereafter, on December 19, 2019, the IRPmoved an application before the NCLT, Allahabad Bench, for approval of the resolution plan. Later on, the proceedings pending before the Allahabad Bench of the NCLT were transferred to its Principal Bench at New Delhi wherein, several objections/ suggestions/ propositions were submitted by different stake- holders, going for or against the resolution plan or even off on a tangent. By its order dated March 03, 2020, the NCLT proceeded to approve the resolution plan with some modifications and certain directions while accepting some of the objections like those of the dissenting financial creditor bank and the land providing agency but wh i l e r e j ec t i ng some o the r , including those of the holding company of JIL and while leaving a fewpropositions open for adjudica- tion in the appropriate forum. Running parallel to the proceed- ings referred above, there had been another set of proceedings involv- ing two issues: one relating to an application filed by IRP before the NCLT seeking orders for avoidance o f the ce r t a i n t ransac t i ons , whereby several parcels of land were put under mortgage with the lenders of JAL, the holding com- pany of JIL; and second, involving the claim of two of the lenders of JALs to be included in the category of financial creditors of JIL.