On December 6, The National Company Law Appellate Tribunal held that the events leading to the filing and admission of the Section 7 application against Jaiprakash Associates Limited were relevant factors that weighed with the National Company Law Tribunal for not approving the Scheme of Arrangement between Jaiprakash Associates Limited, Jaypee Infrastructure Development Limited, and Lenders.
The Appellate Tribunal relied on the fact that the scheme which was devised based on the financial position of the JAL in 2017 is no longer viable.
They relied on a High Court ruling that even if after the filing of the application for sanctioning of the scheme, any material changes adverse to the interests of the members and the creditors had occurred, the court should not shut its eyes and just go by the latest financial position as on the date of filing of the application.
The Appellate Tribunal observed that NCLT was fully entitled to look into and consider whether given subsequent events, the scheme deserves to be sanctioned or not which were as follows: Financial distress of the JAL, RBI’s directions in the exercise of statutory jurisdiction under Section 35AA of the Banking Regulations Act, 1949, and the ultimate initiation of Section 7 proceeding and its admission under Section 7 are all factors which have taken place after the filing of scheme petition and at the time of sanction of consideration of second motion.
Bikash Jhawar, Senior Partner at Saraf and Partners on the impact of this interpretation said, “The judgment shouldn’t impact schemes adversely going forward as it essentially reiterates existing law, though applicants should review the purposes of the scheme closely & provide clear long term rationale rather than generic efficiency & stakeholder interest.”
He added, “NCLAT has continued in the tradition of not second-guessing commercial decisions, but only acted on their duty to review whether the stated purpose of a scheme can be served. Here, clearly the viability was in doubt & creditors also opposed the scheme.”
The NCLAT, New Delhi Bench pronounced its Order filed before it against the Order of NCLT, Allahabad not approving the Scheme of Arrangement between Jaiprakash Associates Limited, Jaypee Infrastructure Development Limited, and Lenders.
The matter was heard before the bench of Justice Ashok Bhushan (Chairperson), and Barun Mitra and Arun Baroka (Technical Member).
