NCLAT Upholds Insolvency Against Jaypee Cement, Dismisses Appeal by Suspended Director [Read Order]

The National Company Law Appellate Tribunal (NCLAT) has upheld the commencement of insolvency proceedings against Jaypee Cement Corporation Ltd. (JCCL), dismissing the appeal filed by its suspended director, Alok Gaur.

The appeal had challenged the 22 July 2024 order of the National Company Law Tribunal (NCLT), Allahabad Bench, which had admitted a Section 7 application filed by the State Bank of India (SBI) against JCCL over a default of more than ₹363 crore. The NCLAT’s ruling now clears the way for the continuation of the Corporate Insolvency Resolution Process (CIRP) against the company.

JCCL, a subsidiary of Jaiprakash Associates Ltd. (JAL), was part of a broader restructuring effort spanning both companies. Between 2012 and 2015, JCCL availed various credit facilities from SBI. When the group began experiencing financial stress, a Joint Lenders Forum (JLF) was constituted under RBI guidelines, leading to a complex Debt Realignment Plan (DRP).

Counsel appearing for the appellant, argued that the 2016 default was waived under the Master Restructuring Agreement (MRA) executed in October 2017. He contended that the entire debt was transferred from JCCL to its parent, JAL, under the DRP framework. This, he said, constituted a contract under Section 62 of the Indian Contract Act, 1872.

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The appellant claimed that once the restructuring was approved and formalized via sanction letters and the MRA, JCCL ceased to be a borrower. He further argued that the restructuring, though later stalled, had already extinguished the earlier lending relationship between JCCL and SBI. Therefore, a fresh default by JCCL could not be alleged.

SBI strongly opposed the appeal, arguing that the restructuring was never fully implemented. They pointed out that JCCL was not a signatory to the MRA. It was also noted that key conditions like creation of security interest under Clause 5.8 were never fulfilled. SBI asserted that the plan to shift debt to JAL remained on paper, with no actual debt transfer reflected in SBI’s financials.

SBI’s counsel highlighted repeated acknowledgments of debt by JCCL as late as 2022 and cited the National E-Governance Services Ltd. (NESL) record reflecting default from 2016. The failure of the composite restructuring, they argued, revived the original cause of action, and JCCL remained liable.

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The NCLAT found no merit in the arguments advanced by the suspended director. It held that mere framing of a restructuring plan or signing an MRA does not, in itself, result in novation unless all conditions are met and parties perform their obligations.

The tribunal also noted that the MRA required JCCL to create security for its obligations, a step that was never completed. Moreover, the transfer of debt from JCCL to JAL was conditional and never formalized across all lenders.

Quoting Clause 5.8 of the MRA and referring to minutes of JLF meetings, the NCLAT asserted that security creation remained incomplete even years later. The court also took note of the RBI’s stand that the restructuring had failed and the Supreme Court’s past directions in related matters.

The tribunal consisting Justice Ashok Bhushan (Chairperson) and Alok Srivastava, (Technical Member) rejected the claim that JCCL’s debt was automatically extinguished due to the restructuring efforts. Instead, it concluded that since the restructuring collapsed, JCCL’s original liability stood revived. As a result the appeal was dismissed.

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