JP Associates and JP Infra had some common bankers. JP Infra first defaulted in September 2015, and yet after this date bankers to JP Infra stood as mute spectators to JP associates. Image source: Reuters
By Anisha Nayar Dhawan
JP Associates has had tough times. What are the first few words you would associate with the company? Indebted? Perhaps incompetent. And now you can add “fraudulent” to the adjectives as well. (That’s a word that homebuyers of JP’s Wish Town project have been chanting for years now).
The insolvency court NCLT has ruled that JP associates fraudulently mortgaged land owned by its subsidiary JP Infra to raise loans at a time when the latter had already started to default on its own loan payments. NCLT has ordered JP Associates to return control of 759 acres of land to Jaypee Infra immediately.
JP associates countered charges of “asset stripping” raised by the resolution professional overseeing the CIRP-corporate insolvency process of JP Infra, saying such transactions were known to the public and were even mentioned in the red herring prospectus of JP Infra at time of its listing. Why no questions were raised earlier? Because now that JP Infra has entered CIRP, this land is not available to pay off its lenders nor can it be part of the un-encumbered land bank, which would help raise valuations in the prospect of bidding by resolution applications. Incidentally the highest bid by Lakshadeep Investments of Rs 7350 cr was deemed too low by the bankers.
ROLE OF BANKS
ICICI Bank opposed the plea saying the RP’s application implied that it is also party to fraudulent transactions. It contended that third party mortgages are common practise. Now that NCLT has upheld RP’s fraud charges, aren’t banks by default also complicit with this fraud? Looking at the string of CBI cases for bank fraud, even this doesn’t sound too surprising to many.
JP Associates and JP Infra had some common bankers. JP Infra first defaulted in September 2015, and yet after this date bankers to JP Infra stood as mute spectators to JP associates creating a lien on its subsidiary’s land which could have been sold to repay debts. Why? Because even when subsidiary was defaulting, parent was standard account which was either getting them more business or was being evergreened!
The court order says that JP Infra’s JLF-Joint Lenders Forum only objected to JP Associates mortgaging JP Infra’s land in March 2017. So there was deemed approval of bankers for undertaking these transactions even after JP Infra started defaulting.
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Was the RBI also blind to all the window dressing that was going on? Banks staring at NPAs from one company and merrily lending to a group company? For the record RBI wanted banks to take JP associates to NCLT in its second list of NPAs, but that hasn’t happened as yet. Under Its own JLF mechanism banks approved JP Associates move to transfer of some assets and liabilities, including a debt of over Rs 11,834 crore to JP Infra’s books in October 2017, after the subsidiary had started defaulting. While most banks have limits for company and group exposure, is this really working?
INTO A SOUP
Now that the land has to be returned to JP Infra, what about the collateral on the basis of which banks extended additional facilities of Rs 41,718cr to JP Associates? JP Associates has been selling off assets to repay banks, but even then, it has an outstanding debt of nearly Rs 40,000cr. Will these fraudulent transactions undermine JP Associates supposed offer to pay lenders Rs 10,000cr in a bid for JP Infra under the CIRP? Homebuyers are certainly wary, and so should banks. Not only be wary, but also more transparent in their lending decisions.
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