NAVJEEVAN LAW COLLEGE, NASHIK

BEFORE THE HONOURABLE SUPREME COURT

OF INDIA, NEW DELHI

-----------------------------------------------------------------
CIVIL APPELLATE JURISDICTION UNDER
ARTICLE 132 OF THE CONSTITUTION OF INDIA

---------------------------------------------------------
IN THE MATTER OF
ANUJ JAIN INTERIM RESOLUTION
PROFESSIONAL FOR JAYPEE INFRATECH
LIMITED ……. Appellant(s)
Versus
AXIS BANK LIMITED ETC. ……. Respondent(s)

---------------------------------------------------------
MEMORIAL ON BEHALF OF THE APPELLANT
ANUJ JAIN IRP FOR JAYPEE INFRATECH
LIMITED

Memorial on Behalf of Appellant/ 1

 NAVJEEVAN LAW COLLEGE, NASHIK

TABLE OF CONTENT

Sr. Page
Table of Contents
No. No
1 Index of Authorities  3
2 Statement of Jurisdiction  4
3 Statement of Facts 5-6
4 Statement of Issues 7
5 Summary of Arguments  8
6 Arguments Advanced  9-13
7 Prayer Clause  14

1. INDEX OF AUTHORITIES
Memorial on Behalf of Appellant/ 2
 NAVJEEVAN LAW COLLEGE, NASHIK

A. STATUTES –

 The Indian Contract Act, 1872

 The Companies Act, 1956 & 2013
 The Transfer of Property Act, 1882
 Insolvency & Bankruptcy Code, 2016.
 The Insurance (Amendment) Act, 2002

B. OTHER STATUTES-

 NCLT Rules (2016)

C.BOOKS-

 Insolvency and Bankruptcy code, 2016

Concept and Procedure by Jyoti Singh
 The Companies Act, 1956- Bharat
Publication
 Law of Insurance- Dr. S. R. Myneni
 The Indian Contract Act, 1872- R Yashod
Vardhan

D. WEBSITES:

i) www.india-laws.com
ii) www.indiankanoon.com
iii) www.supremecourtofindia-
caselaw.com
iv) www.ibclaw.in
v) www.indianlegal.com
vi) www.ibbi.gov.in
vii) www.mca.gov.in

2. STATEMENT OF JURISDICTION
Memorial on Behalf of Appellant/ 3
 NAVJEEVAN LAW COLLEGE, NASHIK

 Original Jurisdiction with NCLT.

 Section 61: Appeals and Appellate

Authority.

 61. (1) Notwithstanding anything to the

contrary contained under the Companies
Act 2013, any person aggrieved by the
order of the Adjudicating Authority
under this part may prefer an appeal to
the NATIONAL COMPANY LAW
APPELLATE TRIBUNAL.

 (2) Every appeal under sub-section (1)

shall be filed within THIRTY DAYS
before the National Company Law
Appellate Tribunal.

 Section 62(1) Any person aggrieved by an

order of the NATIONAL COMPANY LAW
APPELLATE TRIBUNAL may file an
appeal to the Supreme Court on a
question of law arising out of such order
under this Code within FORTY-FIVE
DAYS from the date of receipt of such
order.

Memorial on Behalf of Appellant/ 4

 NAVJEEVAN LAW COLLEGE, NASHIK

3. STATEMENT OF FACTS

1. Jaiprakash Associates Limited ("JAL") is a

Public Listed Company and Jaypee Infratech
Limited ("JIL") is its subsidiary.
2. JAL obtained finance from a consortium of
banks and financial institutions, ICICI Bank
Limited, Standard Chartered Bank Limited and
State Bank of India ("JAL Lenders"), the
security of which inter alia comprised of
mortgage created by JIL of certain lands held
by it.
3. IDBI Bank Limited, a creditor of JIL, instituted
a petition under Section 7 of the Insolvency
and Bankruptcy Code, 2016 ("Code") before the
National Company Law Tribunal, Allahabad
Bench ("NCLT") for seeking initiation of CIRP
against JIL while alleging that JIL had
committed a default in repayment of its dues to
the tune of 526.11 crores.
4. NCLT initiated CIRP against JIL on 9th August
2017.
5. The NCLT on 9th May 2018 and 15th May 2018
approved the decision of the IRP of JIL
rejecting the claims of the JAL Lenders to be
recognized as financial creditors of the
Corporate Debtor JIL on the strength of the
mortgages created by Corporate Debtor JIL as
collateral security of the debt of its holding
company JAL.
6. Further, the NCLT on 16th May 2018 held
certain transactions by which the Corporate
Debtor JIL had mortgaged its properties as
collateral securities for loans and advances
made by the JAL Lenders, as being

Memorial on Behalf of Appellant/ 5

 NAVJEEVAN LAW COLLEGE, NASHIK

preferential, undervalued and fraudulent

under Section 43, 45 and 66 of the Code.
7. The National Company Law Appellate
Tribunal, New Delhi ("NCLAT") on 1st August
2019 by a common order set aside the NCLT
order dated 16th May 2018 and also allowed the
appeals by the Lenders of JAL to be financial
creditors of Corporate Debtor JIL. However,
the entire NCLAT judgement had only been in
relation to the order dated 16th May 2018
passed by NCLT on the application for
avoidance filed by the IRP and no reasons were
given for reversing the NCLT judgments of 9th
May 2018 and 15th May 2018.
8. Being aggrieved by the said Non-speaking
order passed by the NCALT, Indi
Infrastructure Finance Company Limited, one
of the lenders of JIL, challenged this aspect
before the Hon’ble Supreme Court. All the
appeals filed against the order of NCLAT were
clubbed and heard together by Hon’ble
Supreme Court.

Memorial on Behalf of Appellant/ 6

 NAVJEEVAN LAW COLLEGE, NASHIK

4. STATEMENT OF
ISSUES
(a) whether the mortgage created by
JIL for the benefit of the lenders of
JAL constituted a preferential
undervalued and fraudulent
transaction under Sections 43, 45 and
66 of the IBC, and

(b) whether a mortgagee of a property

belonging to a corporate debtor but
securing third party debt would be a
financial creditor of the corporate
debtor under the IBC.

Memorial on Behalf of Appellant/ 7

 NAVJEEVAN LAW COLLEGE, NASHIK

5. SUMMARY OF ARGUMENTS

(a) that transactions in question have the

effect of putting JAL (which is an
equity shareholder and operational
creditor of JIL) in a beneficial
position than it would have in the
event of distribution of assets vis-à-
vis the other creditors

(b) the assets in question were released

from the earlier mortgages and fresh
mortgages were created with
increased facilities at a time when JIL
was itself in financial stress and the
same was not done in the 'ordinary
course of business' of JIL.

Memorial on Behalf of Appellant/ 8

 NAVJEEVAN LAW COLLEGE, NASHIK

6. ADVANCED ARGUMENTS

1. IIFCL that as per sub-section (7) of

Section 5 of the Code, only such creditor
could be the ‘financial creditor’ of the
corporate debtor to whom a ‘financial
debt’ is owed by the corporate debtor;
and, as per sub-section (8) of Section 5 of
the Code, the key requirement of a
financial debt is ‘disbursal against the
consideration for the time value of
money’, which includes the events or
modes of disbursement as enumerated in
sub-clauses (a) to (i) of Section 5(8). It is
submitted that in the present case, the
lenders of JAL having not disbursed any
debt against the consideration for the
time value of money to the corporate
debtor JIL, the corporate debtor does not
owe any ‘financial debt’ to such lenders;
and the transactions in question do not
fall within the brackets of ‘financial debt’
only for the reason that the corporate
debtor JIL created mortgages as collateral
security in favor of lender banks for the
money borrowed by JAL. Concisely put,
the submission is that in the said
mortgage transactions, disbursal against
the consideration for the time value of
money qua the corporate debtor JIL being
not involved, the lenders of JAL are not
Memorial on Behalf of Appellant/ 9
 NAVJEEVAN LAW COLLEGE, NASHIK

the ‘financial creditors’ of JIL and cannot

be included in the Committee of
Creditors 46, as to be constituted per
Section 21 of the Code.

2. Also submits that, the said lenders of JAL

have no right to demand the mortgage
money from the corporate debtor nor is
the corporate debtor JIL under any
liability to pay the same; and mere
holding of security interest, which too
had not been extended for direct
disbursement of any credit to JIL, cannot
make the JAL lenders as financial
creditors of JIL within the meaning of
IBC. Please refer to the judgment and
order dated 22.12.2017 by the NCLAT in
Dr. B.V.S. Lakshmi v. Geometrix Laser
Solutions (P) Ltd.: Company Appeal (AT)
(Insolvency) No. 38 of 2017, to
substantiate this submission.

3. the definition of ‘financial debt’ extends

to include various types of transactions,
yet it does not include a mortgage, as
could be gathered from a plain and
simple reading of the said provision. The
counsel for the appellant has further
relied on the judgment of this Court in
Swiss Ribbons (supra), wherein the
concept of ‘financial creditor’ has been
explicated to mean and include a person
who has direct engagement in the
functioning of corporate debtor right
from the beginning, while assessing the
viability of corporate debtor; and who
Memorial on Behalf of Appellant/ 10
 NAVJEEVAN LAW COLLEGE, NASHIK

would also engage in restructuring of

debts and reorganizing the corporate
business in case of financial stress. With
reference to the case at hand, it is
submitted that mere holding of security
interest, not meant for direct
disbursement of any credit to corporate
debtor JIL, cannot convert the lenders of
JAL into the financial creditors of JIL.

4. It is further contended that a secured

creditor under the Code can be a financial
creditor under two circumstances i.e.,
(i) when corporate debtor directly avails a
debt from the creditor and such a debt is a
secured debt; and
(ii) if corporate debtor furnishes a guarantee
to any person. Learned counsel for the
appellant submits that a mortgagee, who
has not disbursed any debt to the
corporate debtor, may be a secured
creditor because of the corporate debtor
creating a security to secure the payment
of a third party but cannot be a financial
creditor of the corporate debtor within the
meaning of Section 5(8) of the Code.

5. It is submitted that a general reference to

the transaction documents would not be
sufficient to fasten liability for JIL to pay
any outstanding debt of JAL because any
payment obligation has to be unequivocal
and ought to be of specific undertaking to
discharge such obligations; and that
general words of incorporation or general
covenant in some mortgage deeds cannot
Memorial on Behalf of Appellant/ 11
 NAVJEEVAN LAW COLLEGE, NASHIK

bind JIL to all the terms and conditions of

the documents, particularly any liability
to incur JAL’s indebtedness by fastening
payment obligations. It is further
submitted that when the intention of
parties is ascertained with reference to the
terms of documents and all the
surrounding factors, it cannot be inferred
that JIL undertook the liability to
discharge the indebtedness of JAL when
it was itself reeling under financial stress,
was declared NPA and had surmounting
liabilities towards home buyers and its
own lenders. With reference to the
financial statements of JIL, it is pointed
out that therein, it was specifically
disclosed that the mortgages had been
provided as a security for the financial
assistance availed by JAL but such
mortgages were not declared either as
contingent or as direct liability. It is also
submitted that the common loan
agreement between JIL and its lenders,
including the appellant, contained
negative covenants prohibiting JIL from
creating, assuming or incurring any
additional indebtedness or from
encumbering any property or creating any
security on the assets of JIL. The sum and
substance of such submissions had been
that the corporate debtor JIL could have
neither incurred a liability to discharge
the indebtedness of JAL nor it had done
so under the mortgages in question.

Memorial on Behalf of Appellant/ 12

 NAVJEEVAN LAW COLLEGE, NASHIK

6. We also submit that, existence of a

security interest is not relevant while
construing whether a creditor is financial
creditor or not because, in the
composition of CoC, even a non- secured
creditor could also be a financial creditor,
if the ingredients of Section 5(8) of the
Code are satisfied. It is also argued that
the financial facilities availed by JAL
from the respondents were not utilized
for any business operation of JIL and
hence, the respondents cannot be
construed as financial creditors of JIL.

Memorial on Behalf of Appellant/ 13

 NAVJEEVAN LAW COLLEGE, NASHIK

7.Prayer Clause

WHEREFORE, in the lights of facts

stated, issues raised, arguments advanced
and authorities cited, it is humbly and
respectfully prayed that this Hon’ble
court may be pleased to adjudge and
declare that –
1. The order passed by the NCLAT that the
transactions made by ‘CD’ are
‘preferential/‘undervalued and
‘fraudulent transactions’ be upheld and
set aside.

And/ Or

2. Pass any other order other than it deems

fit in the interest of justice, equity and
good conscience. And for this, the counsel
on behalf of appellant as in duty bound
shall humbly pray.

Counsel for the Appellant

Student Advocate
Aniket Gangwal

Memorial on Behalf of Appellant/ 14

NAVJEEVAN LAW COLLEGE, NASHIK

LL.B. III
Navjeevan Law College, Nashik.

Memorial on Behalf of Appellant/ 15