NCLAT Rejects Jaiprakash Associates' Petition, Upholds Insolvency Proceedings
The National Company Law Appellate Tribunal (NCLAT) recently rejected the petition filed by Jaiprakash Associates Limited (JAL) challenging the insolvency proceedings initiated against the company. The tribunal's decision has significant implications for the future of the debt-ridden company, whose flagship entity is part of the Jaypee Group, one of India’s most prominent infrastructure and real estate conglomerates.
Background of the Case
Jaiprakash Associates has faced severe financial difficulties over the past few years, largely due to its exposure to the troubled real estate sector and massive debts accumulated from multiple infrastructure projects. The company’s financial troubles came to a head when it defaulted on loans worth thousands of crores, making it one of the 26 major loan defaulters identified by the Reserve Bank of India (RBI) for initiating bankruptcy proceedings. The company has faced pressure from its creditors, especially large financial institutions such as ICICI Bank and the State Bank of India (SBI), to address its outstanding dues.
In 2018, ICICI Bank filed an insolvency petition against JAL, claiming that the company had defaulted on loans worth more than Rs 16,000 crore. Since then, the company has been embroiled in legal battles to delay insolvency proceedings and explore options for restructuring its massive debt load. Jaiprakash Associates had attempted to negotiate a one-time settlement (OTS) with creditors to avoid insolvency. However, its efforts to come to an agreement were unsuccessful, and in June 2024, the NCLT had admitted the insolvency petition, appointing Bhuvan Madan as the interim resolution professional.
NCLAT's Ruling
The NCLAT, in its ruling, upheld the decision of the National Company Law Tribunal (NCLT) to initiate the Corporate Insolvency Resolution Process (CIRP) against Jaiprakash Associates. A three-member bench led by Chairperson Justice Ashok Bhushan observed that the company’s petition did not provide sufficient grounds to interfere with the NCLT’s order. The tribunal emphasized that the mere existence of a pending loan restructuring arrangement with lenders before the NCLT did not prevent creditors from filing for insolvency under Section 7 of the Insolvency and Bankruptcy Code (IBC) 2016.
The NCLAT agreed with the NCLT’s decision, which found clear evidence of Jaiprakash Associates’ default and debt. It stated that the company’s One-Time Settlement (OTS) proposal, which admitted the debt and default, did not exempt it from insolvency proceedings.
Furthermore, the tribunal stated that the ongoing proceedings for restructuring before the NCLT could not interfere with the creditors' rights to pursue the insolvency application. According to NCLAT, the pendency of the restructuring scheme did not “arrest” the default or prevent creditors from proceeding under Section 7 of the IBC.
Debt Crisis and OTS Proposals
Jaiprakash Associates' financial issues have been escalating over the years, primarily due to the company’s involvement in high-cost infrastructure and real estate projects. The company’s default amounts to several thousand crores, with ICICI Bank claiming a default of over Rs 16,000 crore and SBI reporting a default of Rs 6,893.15 crore.
In an attempt to resolve the debt crisis, Jaiprakash Associates had submitted a series of OTS proposals. The initial proposal made by the company involved an upfront payment of Rs 200 crore, with the balance of approximately Rs 16,000 crore to be paid over 18 weeks. However, the proposal was dismissed by the NCLT as insufficient to address the scale of the debt.
In a subsequent attempt, Jaiprakash Associates modified its OTS proposal. The revised proposal increased the upfront payment to Rs 500 crore and included an additional Rs 300 crore deposit, bringing the total upfront payment to Rs 800 crore. Despite this revision, the proposal was also rejected by the consortium of lenders, led by ICICI Bank, in July 2024.
Despite the failed settlement attempts, the company continued to seek alternative arrangements and urged the creditors to consider its new proposals. However, the NCLAT’s recent ruling makes it clear that the insolvency process will proceed, with no immediate relief for the company.
The NCLAT’s decision strengthens the Insolvency and Bankruptcy Code (IBC), allowing creditors to start insolvency proceedings when a company fails to pay its debts. It also highlights the Reserve Bank of India’s (RBI) role in directing ICICI Bank to begin the process in 2018. The ruling clarifies that ongoing restructuring plans in the NCLT do not stop creditors from pursuing insolvency. Creditor rights take priority over settlement or restructuring talks.
