No wrong-doing in Jaypee land deal, can show proof, say bankers

Jaypee Infratech
Banks, which have courted controversy for taking mortgage of a land parcel supposedly of Jaypee Infratech and pledged by parent Jaiprakash Associates against loans taken by it, have claimed innocence, saying they have documentary evidence to prove it. 

In a regulatory filing, Jaiprakash Associates has said the transaction was done at the behest of the banks in normal course of business. "...providing collateral security on unencumbered asset at fair market price was acceptable practice, therefore as an obedient borrower company has co-operated with the banks," the company said, adding that it is filing an appeal against the NCLT order.

The Allahabad Bench of the National Company Law Tribunal (NCLT) has ruled that the transfer of the land, originally of subsidiary Jaypee Infratech, by Jaiprakash Associates was “fraudulent, preferential and undervalued”.

Jaypee Infratech is struggling to complete real estate projects in Noida and homebuyers had approached the Supreme Court to expedite the handover of flats. 

A resolution professional was appointed to liquidate the group’s companies and raise resources for completion of the projects. The resolution professional moved the NCLT alleging that 858 acres belonging to Jaypee Infratech, which could fetch up to Rs 50-60 billion, was pledged by the parent company to three banks — ICICI Bank, State Bank of India (SBI) and IDBI Bank.

This was an attempt by the parent company to not get a tag of a non-performing asset (NPA). But other lenders in the consortium, including Life Insurance Corporation of India (LIC), had later tagged the borrowers as NPA in their books.

The combined debt of the two firms is about Rs 400 billion. In September, the Supreme Court ordered Jaiprakash Associates to deposit Rs 20 billion to protect the interests of the homebuyers of Jaypee Infratech projects. The company has managed to deposit up to Rs 7.5 billion. Recently, the Supreme Court asked it to deposit another Rs 10 billion by June.

The apex court also stopped insolvency proceedings against Jaypee Infratech, even as the mandatory period of 270 days was over. Insolvency professional Anuj Jain continues to be in the management, and can now invite fresh bids for Jaypee Infratech’s assets from Lakshadweep Investments & Finance, Adani Group and Cube Highways, the three shortlisted bidders earlier.

Lenders are now seeking clarity on the original Supreme Court order. The order states that statutory proceedings will continue till further orders. According to lawyers, this essentially means that the resolution professional is still in charge of the company. However, new bids will be invited only after getting clarity.

According to lenders, the recent NCLT order was based on transaction audit done by the resolution professional and further guidance from the NCLT is required.

Jaypee Infratech and Jaiprakash Associates are two distinct entities. So, loans are different and decisions in each case are taken separately,” said a lender with a public sector bank.

The three banks did not offer any official comment. Mails sent to ICICI Bank and LIC remained unanswered at the time of going to press. However, some officials of the banks spoke on condition of anonymity and on personal capacity, explaining that there was no wrong-doing in the deal.

 
The land parcels were mainly mortgaged in early 2016, when the parent company mortgaged its headquarters. Bankers argued that even if the land parcel was valued at Rs 50-60 billion by the resolution professional, it was not possible to sell the whole parcel in a short notice.

“If you have to sell such a huge tract of land, you have to take a haircut of 60 per cent on the value. There is nobody who can buy the land in one go and develop it. If you plan to realise a fair value, it will take years to sell the land on a piece-meal basis. Banks only count on what they can recover and, therefore, there is a difference between our valuation and that of others,” said an official of one of the three banks mentioned above. “We will produce the evidence in court when required. We would not like to comment to media on a sub-judice matter,” the official said.

The official alleged that discontent of other lenders probably stems from the fact that they also wanted a piece of the parcel mortgaged to the three-four banks but could not get it. ICICI Bank is the main lender to parent company, while IDBI Bank is leading the lenders consortium of Jaypee Infratech. SBI has an exposure of around Rs 70 billion, while ICICI Bank has an exposure of about Rs 60 billion. IDBI’s exposure in the group is also close to Rs 70 billion. 

In case the land is reversed, it will add to the valuation of Jaypee Infratech, bankers and lawyers said. Lawyers said bankers to Jaiprakash Associates would be affected instead of Jaypee Infratech, as that land would now be included in determining the valuation of Jaypee Infratech.

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